Federal Court Suspends “Social Cost of Carbon” Standard

Federal Court Suspends “Social Cost of Carbon” Standard

February 18, 2022  | Jeff Davis

A federal judge in Louisiana on February 11 issued an injunction halting the use of the interim “social cost of carbon” metric being used by the Biden Administration in all ongoing federal rule makings. The opinion is here. The federal government is certain to appeal the injunction.

A coalition of fossil fuel states had challenged the interim “SCC” standard that President Biden ordered in place at the start of his term, as federal agencies were also ordered to work on a more permanent standard. The standard would then be used in federal cost-benefit analyses and other federal rulemakings.
There are five separate legal issues at play here that will be reviewed by an appeals court.
Standing. Just because you or I don’t like something the government did doesn’t allow us to go down to a federal courthouse and challenge it in court. In order for the court to decide your case, you have to have “standing,” loosely meaning that you have to be able to prove that the government action (or inaction) in question has caused you demonstrable harm, and that the harm is something that a court can fix.
Federal appeals courts love to hide behind standing as an excuse not to decide a case. The district judge ruled that the oil-gas-coal states had standing, but an appeals court might disagree, particularly when/if the interim SCC standard is mooted by the adoption of a permanent standard. But in the long term, it seems likely that some plaintiff, somewhere, will be able to get standing to challenge a permanent SCC standard, so a win for the government on these grounds would only be temporary.
Is this subject to the APA? The Administrative Procedure Act defines which federal agency decisions are subject to review by courts and which are not. One of the tests is whether or not what the agency did was a “final agency action.” The federal government argued that the current SCC standard is only an interim one, the oil-gas-coal states disagreed, and the court sided with the states. This one could also be overturned by an appeals court, but eventually, the Biden Administration will come up with a final agency action on the cost of carbon, so an Administration win on appeal here would only be temporary.
Should the interim standards have been subject to notice-and-comment? The APA provides that, generally speaking, all federal regulations have to be published in draft form, then subject to public comment, then the agencies actually have to read and analyze all the comments, and only then can a final regulation be issued. That did not happen with the interim SCC standard – EO 13990 ordered an interim SCC standard to be set within 30 days of the executive order. The judge sided with the oil-gas-coal states in believing that the interim standards should have gone through notice-and-comment, notwithstanding EO 13990. However, once the interim standard is pulled in favor of a permanent standard, this objection won’t be valid anymore.
Are the interim standards “arbitrary and capricious?” Those two words – “arbitrary” and “capricious” – are the death knell for a federal regulation being reviewed by a court. Agencies can’t take action just for the hell of it – they must have a valid reason to do, and must have proper legal authority to do so. The plaintiffs argued that the interim standard was A&C for a laundry list of reasons, particularly that the normal rule is to analyze future costs using both a 3 percent discount rate and a 7 percent discount rate, but the interim standard, in violation of OMB Circular A-4, only uses a 3 percent discount rate. Expect a lot of arbitrary and capricious debate whenever the interim standard or a final standard gets to an appeals court.
Can global harms be lawfully considered under existing law? The final basis of the injunction is based on a more interesting legal theory, one which will remain even if the current temporary standard is mooted and a more permanent rule that has gone through the formal APA process is published and then challenged in court. The Biden executive order on Social Cost of Carbon (EO 13990) says “It is essential that agencies capture the full costs of greenhouse gas emissions as accurately as possible, including by taking global damages into account.” (Emphasis added.) But the states that filed the lawsuit in Louisiana point out that the underlying federal laws that purportedly give Biden the authority to set a SCC make no mention of global costs or harms – only national harms. Here is the relevant bit from the court opinion:

Plaintiff States challenge the SC-GHG Estimates’ consideration of global effects as opposed to national or domestic effects. Plaintiff States assert that Congress has addressed the issue of whether agencies can consider global or domestic effects and informs the Court that Congress has emphatically articulated that agencies may only consider effects to our Nation. To support their position, Plaintiff States note that (1) [the Energy Policy and Conservation Act] directs the Executive to consider the need for national energy and water conservation,” 42 U.S.C. § 6295(o)(2)(B)(i) (emphasis added), (2) “the need of the United States to conserve energy,” 49 U.S.C. § 32902(f) (emphasis added), (3) the Clean Air Act directs the Executive “to protect and enhance the quality of the Nation’s air resources so as to promote the public health and welfare and the productive capacity of its population,” 42 U.S.C. 7401(b)(1) (emphasis added), (4) NEPA directs agencies to “assure for all Americans safe, healthful, productive, and esthetically and culturally pleasing surroundings,” U.S.C. § 4331(b)(2) (emphasis added), (5) the [Mineral Leasing Act] directs the Executive to consider the “public welfare” of the United States in conducting oil and gas lease sales, 30 U.S.C. § 187 (emphasis added), and (6) the [Outer Continental Shelf Lands Act] directs the Executive to make the Outer Continental Shelf “available for expeditious and orderly development, subject to environmental safeguards, in a manner which is consistent with the maintenance of competition and other national needs.” 43 U.S.C. § 1332(3) (emphasis added)…

The Court finds that EO 13990 contradicts Congress’ intent regarding legislative rulemaking by mandating consideration of the global effects. 

EO 13990 ordered the federal agencies to have a permanent SCC through the APA process and in place by January 2022. This deadline has not been met – a draft standard was published and put out for comment on May 7, 2021, and E&E reported that the EPA technical group leading the analysis put out a request for experts to evaluate the numbers, and those nominations weren’t due until three days ago, which could indicate that the final standard is still a ways off.

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