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US judge blocks federal use of social cost of carbon estimates

15 February 2022 George Lobsenz

A US judge blocked the Biden administration from using interim estimates of the social cost of carbon (SCC) in regulatory cost-benefit analyses.

The decision endorses assertions by fossil fuel-heavy states that they will suffer injuries ranging from tougher air pollution requirements to reduced revenues from oil and natural gas leasing to reduced tourist visits due to higher fuel prices.

Judge James Cain of US District Court for the Western District of Louisiana, Lake Charles Division, issued a preliminary injunction 11 February against use of the SCC estimates that President Joe Biden in a January 2021 executive order directed federal agencies to apply in their environmental analyses of major actions.

Biden's order also restored the SCC estimate to the level set by the Obama administration—which puts monetary damages from climate change at $51 a metric ton (mt)—and eliminated analytical changes made by the Trump administration that reduced the SCC estimate to $7/mt.

The Trump administration said the Obama administration wrongly included global costs from climate change in the SCC estimates—improperly inflating the estimates—and that the estimates should only include national costs.

However, Biden said past federal cost-benefit analyses included use of global costs, and that it is necessary to do so because climate change is global in nature and causes higher temperatures and environmental damages worldwide that affect US citizens and their health.

States take initial win

The case turned on arguments by the states that use of the interim SCC estimates would skew federal cost-benefit analyses such that benefits from regulations to cut GHGs would be higher, increasing the odds that federal agencies would have justification for tougher GHG controls, which would hurt the states' economies.

Biden's executive order was challenged by the Republican attorneys general of Louisiana, Alabama, Florida, Georgia, Kentucky, Mississippi, South Dakota, Texas, West Virginia, and Wyoming, most of which are heavily dependent on fossil fuel production.

The ruling by Cain, who was appointed to the bench by former President Donald Trump, was unusual because he made no mention of some other federal court decisions that directly address the use of the interim SCC estimates—some of which clashed with Cain's decision.

The US Court of Appeals for the District of Columbia Circuit in August 2021 ordered the Federal Energy Regulatory Commission (FERC) to explain why it did not use the interim SCC estimates in its cost-benefit analyses of new LNG export terminals.

The DC court found FERC's environmental analyses of the LNG terminals under the National Environmental Policy Act (NEPA) lacking on two major points, including the agency's decision not to use the SCC tool for analyzing environmental impacts. On remand, the court ordered FERC to explain whether the NEPA regulation calls for it to apply the SCC tool or some other analytical framework within the meaning of the regulation, and if not, why not.

Biden administration loses every argument

Cain's ruling also was unusual in that he agreed with the complaining states on every contested point of the litigation, even finding that the interim SCC estimates—despite being clearly interim in nature—qualified as final regulatory actions that could be challenged in court.

The judge acknowledged that the Biden administration planned to replace the interim SCC estimates with updated figures this year, but said the fact that Biden ordered agencies to use the interim estimates pending the updated figures showed the interim estimates were, in effect, final actions.

The judge also agreed with the complaining states that they had suffered concrete injury from the interim SCC estimates—as legally required for a preliminary injunction—even though the states could point to no final regulatory decision by the Biden administration in which use of the SCC estimates caused any real-world effect on their costs or revenues.

Among a range of arguments that alleged a plethora of likely injuries, the states at one point charged that use of the interim SCC estimates would result in the Environmental Protection Agency imposing tougher National Ambient Air Quality Standards (NAAQS) on states.

Cain brushed aside the Biden administration's argument that there were no NAAQS for GHG emissions, and the only six NAAQS that do exist impose controls on pollutants that cause smog and other health and environmental damage—and are not GHGs. As a result, there would be no reason to apply the SCC estimates in any cost-benefit analyses that might tighten a NAAQS.

"Plaintiff states offer no explanation of how the SC-GHG estimates would be used in setting or revising NAAQS for non-greenhouse-gas pollutants," the judge wrote.

Nonetheless, the judge endorsed the states' contention that the SCC estimates posed an "actual and imminent" threat of injury to them in the form of tougher NAAQS.

"[T]he plaintiff states have shown that the alleged injury is both actual and imminent," Cain said. "The injury is 'actual' as to the executive agencies that have already employed the SC-GHG estimates, such as the EPA in disapproving state implementation plans under the NAAQS good neighbor provisions and imposing federal implementation plans on several plaintiff states including Louisiana, Kentucky, and Texas."

Cain said that, in addition, "future injury is imminent and certainly impending" because other agencies are required to employ the estimates, and states have a choice, to either employ the estimates, or a federal plan is imposed on them based on the estimates.

The judge also ruled in favor of the states' contention that the interim SCC estimates were subject to public notice-and-comment provisions of the Administrative Procedure Act (APA), even though the SCC estimates by themselves have no effect and are not regulations setting any requirements for states. In addition, courts typically refuse to consider alleged APA violations by agencies until they have taken final administrative action on a regulation.

Actual injury

Cain also dismissed arguments by the Biden administration that the states had not shown any actual injuries, just speculation that use of the SCC estimates would cause them injury by raising energy costs.

"Defendants contend that plaintiff states' alleged harm is speculative at best because no specific agency action has caused them injury," the judge wrote. "In other words, plaintiff states' injury-in-fact assumes that they will be harmed by future hypothetical agency actions.

But the judge agreed with sweeping statements by the states that they inevitably would be harmed because use of the SCC estimates would raise energy prices or, alternatively, reduce state revenues from federal oil and gas leasing.

"The plaintiff states submit that they are substantial producers of energy and rely upon tax revenues from energy production to perform their sovereign duties," the judge said. "[T]he SC-GHG estimates will harm plaintiff states' ability to purchase affordable energy to carry out their sovereign functions as the directive to use the SC-GHG estimates will significantly drive up costs while simultaneously significantly decreasing states' revenues resulting in the inability of the plaintiff states to carry out their sovereign duties to their citizens."

Cain's ruling astonished environmental groups. "This opinion is bizarre, profoundly flawed and runs roughshod over American law," Vickie Patton, general counsel for Environmental Defense Fund, said in a statement. "It attempts to block federal agencies from using the best available information in safeguarding the American people from climate pollution. That would put people's lives and health at risk. This decision is reckless with basic facts and radically disregards well-established Constitutional guardrails on judicial power."

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