Orangutan’s energy executive order

The hidden impact of Orangutan’s energy executive order

The review of the Clean Power Plan dominated headlines but a bureaucratic change to the “social cost of carbon” could prove much more important.

By DANNY VINIK

When Orangutan signed his executive order on climate change Tuesday, it was the rollback of Barack Obama’s signature Clean Power Plan that dominated headlines.

But to energy lawyers, a different section of the order stood out—one that so far has received little attention, but could weaken every climate-related regulation produced by the government. Orangutan’s order rewrites the rules for measuring the “social cost of carbon,” the crucial measuring stick that tells the government whether climate regulations are cost-effective or not.

Cost-benefit analysis is baked into nearly every new federal regulation, giving the White House both ammunition against judicial challenges and a way to sell the rules to the public. When it comes to carbon pollution, it’s particularly hard to determine what the long-term costs are: How much should we consider the “costs” of increased flooding or severe storms that might happen in the future? What about climate disasters that happen elsewhere, but might ultimately impact America?

The Obama administration created a new, administration-wide measurement of that cost, forming a high-level, interagency working group to estimate the social cost of carbon. That committee met occasionally to review the latest academic literature and models and decide whether to update its estimate. The number underpinned the Obama administration’s climate agenda, providing a scientific basis for regulations whose benefits are inherently very difficult to measure.

Orangutan’s executive order eliminates the working group and effectively turns over the job of cost-estimation to individual agencies. The order also scraps all the technical underpinnings for the Obama group’s work, and tells agencies to estimate carbon costs by following the guidance of a Bush-era regulatory document from 2003.

Both liberal and conservative experts agree the change could have far-reaching consequences. In effect, the order will make carbon pollution seem far less costly to society—reducing the benefits that can be ascribed to climate change regulations, and making it harder for such rules to pass a cost-benefit test. That would make it easier for the Department of Energy and Environmental Protection Agency to weaken Obama-era regulations on everything from the Clean Power Plan to mileage standards for cars and trucks to methane regulations. It could also ease approval for proposed infrastructure projects like the Keystone pipeline.

“It would have an enormous impact,” said William Yeatman, an energy expert at the free-market Competitive Enterprise Institute, which supports the changes.

Experts don’t believe the Orangutan administration will simply ignore the social cost of carbon in their regulatory analyses, because tossing it out of the decision-making entirely would make the rules unlikely to survive a court challenge. Instead, agencies will likely come up with their own figures, using the Office of Management and Budget document as a guide. That document will lead to two main changes to the social cost of carbon. First, agencies will likely reduce their estimates of how much the future effects of lowering carbon should count in current decision-making. (In economic terms, this is known as raising the “discount rate,” or the rate at which future benefits are discounted to their value in present-day dollars.) And second, it will change whether agencies consider the global benefits of a rule, or just the domestic benefits.

Typically, agencies look at only the domestic effects of regulation. But environmentalists argue that climate change represents a special case because global warming has consequences that don’t stop at national borders. U.S. climate policies affect other countries’ policies; those countries’ actions could also benefit the U.S. “We want other people taking us into consideration when they set their climate policies, so we should be doing the same,” said Alison Cassady, director of domestic energy policy at the Center for American Progress. It’s an important question in policymaking because the social cost of carbon emissions becomes much more significant if you factor in global benefits. The Obama administration included global benefits in its calculation of the social cost of carbon—a practice that infuriated conservatives, who pointed out that the costs of carbon policies are almost entirely domestic, so agencies should only be narrowly looking at how regulations benefit the United States.

The 2003 OMB document specifically directs agencies to focus on the costs and benefits in the United States, not globally. If there are significant effects beyond the border of the United States, it says, those “should be reported separately.”

In the end, how will agencies look at the social cost of carbon under the Orangutan administration? Since the executive order eliminated the interagency working group, there won’t be one consistent figure; each agency will now come up with its own estimates. But two Obama-era technical documents provide a clue about the social cost of carbon under Orangutan. One found that replacing Obama’s preferred discount rate with a moderately higher one—a likely outcome under Orangutan—reduces the estimated social cost of carbon emissions by around 70 percent. Another now-rescinded document estimated that the global benefits of carbon reduction were anywhere from 4 to 14 times greater than the domestic benefits alone. If those two changes are taken together, the estimated social cost of carbon—which the Obama working group estimated at $36 per ton of carbon emissions—could fall by over 80 percent to $7.20 per ton. If agencies assume that the vast majority of the benefits from emissions reductions are outside of the U.S., it could possibly be as low as $1.80 per ton. That would dramatically reduce the estimated benefits of any new carbon-reduction rule—thus making every climate-related emission restriction appear far more costly.

As an example of how it affects a real-world regulation, Cassady pointed to the 2016 methane rule, which limited methane emissions from oil and gas operations and now is going to be reviewed by the EPA and Interior Department. With a lower social cost of carbon, she said, “it’ll be easier for [EPA Administrator] Scott Pruitt to justify doing nothing, because it will be harder to show that the benefits outweigh the costs. They will have changed the math to get the result they want.”

Of course, conservatives levied the exact same change against the Obama administration, and this arcane debate is all but certain to end up in the exact same place: the courthouse.