Published: December 12, 2023 |

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The Environmental Protection Agency (EPA) updated its estimate of the “social cost” of carbon dioxide — a contrived way of increasing the cost of everything made from or using hydrocarbon resources to vilify those projects and keep them from becoming economic.

The new estimate nearly quadruples the estimated cost of carbon dioxide to the world that the Biden administration is currently using — a change that will result in stronger climate rules and more stringent regulations that will increase costs for consumers as the least expensive materials will now cost more when projects are being considered and their costs estimated. The change could affect everything from “tiny rules” such as those concerning vending machines to more significant regulations. It is the Biden administration’s way to justify its present position, which as President Biden said, is to “end fossil fuels.”

Through this action, the Biden administration is saying that the benefits of reducing greenhouse gases are about four times larger than was the case during the Obama administration, despite Americans putting climate change near the bottom of the issues that concern them today (17th out of 21 national issues). The social cost of carbon dioxide was first adopted under the Obama administration, which estimated in 2016 that by 2020, each metric ton of carbon dioxide released would cost society about $42.

The Trump administration estimated much lower values for the social cost of carbon of between $1 and $8. When Biden first came into office, he upped the cost figure to $51, returning to the Obama administration number increased for inflation, and reestablished an “interagency working group” that was supposed to set forth final numbers for the entire government by January 2022. The working group has not yet provided the numbers, resulting in Biden’s EPA upping and releasing new estimates during COP 28. President Biden’s EPA is now putting the social cost of a metric ton of carbon dioxide at $190 for the year 2020, $204 in 2023, $230 in 2030, and $308 in 2050. This tracks with Resources for the Future’s $185 number.

The higher social cost of carbon most likely will result in EPA’s justifying stricter power plant and car regulations as well as other regulations affecting major sources of greenhouse gases. The administration has already put forth stringent regulations that would phase out coal and natural gas generating plants because to meet the regulation they would need technology not commercially available — carbon capture and sequestration and green hydrogen. And, the EPA and the Department of Transportation have proposed rules that would force the sale of electric vehicles with two-thirds of new car sales in 2032 being electric. It can also be used to justify a decision rejecting a proposed pipeline, industrial facility or infrastructure projects.

ISSUES IN CALCULATING THE SOCIAL COST OF CARBON

In calculating the social cost of carbon, the EPA typically uses very low discount rates of around 2.5 percent, 2.0 percent and 1.5 percent. The rates reflect the weight given to future impacts of climate change. A higher rate means a lower dollar value is assigned to future impacts; a lower rate assigns more value to those impacts, which is clearly what EPA is doing with its choice of discount rates. In addition to carbon, EPA also calculates social cost values for methane and nitrous oxide. While employing creative mathematics, the use of metrics such as the social cost values runs counter to established precedent and is clearly being chosen in order to artificially increase the cost of hydrocarbon energy.

Another issue worrying analysts is the way the EPA thinks about human lives lost to climate change. The new social cost of carbon number accounts for climate-related deaths around the world, but does not factor in every death equally. EPA translates lost lives into dollars, but, a lost life in Haiti, for instance, represents a smaller cost than a lost life in Canada. A Canadian life is worth over 16 times as much as a Haitian life in EPA’s calculation because EPA weighs mortality costs of climate change in proportion to per capita income of the country where someone dies. Canada’s GDP per capita is more than 16 times that of Haiti.

LAWSUITS CONCERNING BIDEN’S INTERIM SOCIAL COST OF CARBON

Louisiana, Missouri, and eight other states sued the Biden administration when it went back to the Obama era number, arguing that Biden lacked the authority to raise the key climate metric under the Constitution. The effort originally found success when the U.S. District Court for the Western District of Louisiana blocked use of the metric by issuing an injunction, saying it imposed regulatory costs on the states. That was followed by a federal appeals court reversal. The 5th U.S. Circuit Court of Appeals overturned the ban, ruling that the red states had raised “merely hypothetical” arguments to show that they face immediate harm from the Biden administration’s use of the climate metric. Attempts to reverse the ruling at the Supreme Court failed to gain traction. The 8th U.S. Circuit Court of Appeals also found that the states failed to show “actual injury” from the administration’s use of the social cost of carbon. Of course, under such a legal regimen, people must suffer and be injured before a court might act to cease its application.

KEY TAKEAWAYS

• The Biden Administration announced a new “social cost” of carbon dioxide almost 4 times higher than President Biden’s interim number based on the Obama administration’s metric.

• The new number will make it easier for the Biden Administration to justify stopping projects, denying permits and raising the cost of hydrocarbons, helping President Biden to reach his campaign promise to “end fossil fuels.”

• The EPA contorted long-standing precedents such as the use of a reasonable discount rate to increase hydrocarbon project costs through the metric.

• States have tried unsuccessfully to argue that the metric will damage their economies, but the courts have held that they have not yet shown that they have been harmed.

CONCLUSION

One of the most important but little-known tools that the federal government has for confronting greenhouse gas emissions is the social cost of carbon. It represents the costs to society of emitting one ton of carbon dioxide. It covers everything from the cost of lost crops and flooded homes to the cost of lost wages when people cannot “safely” work outside and the cost of “climate-related deaths.” It is, at root, a contrived number, allowing its designers to “cherry-pick” numbers and features in order to restrict carbon dioxide. The higher its number, the less favorably the government looks upon production, transportation, and use of hydrocarbons.

The Biden administration updated its social cost of carbon metric as part of a years-long effort to review and alter existing calculations to be used in estimating the impact on society of projects and their effect on climate change. The new Biden social cost of carbon estimate is almost four times higher than the rate used during the Obama administration. There are a number of issues regarding its calculation including what discount rate to use as the choice of a rate determines how high or low the estimate is. Regardless what rate is used, Americans will be faced with higher costs as the best and most economic projects will be rejected in favor of those that the Biden administration favors, increasing prices for Americans.

By: Institute for Energy Research

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.