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CRS Reports & Analysis
Legal Sidebar
Courts Evaluate How Federal Agencies Put a Price on
Carbon
11/01/2016
In August 2016, a federal court for the first time in Zero Zone. Inc.(DOE) upheld the use of
the social cost of carbon (SCC) in a cost-benefit analysis by a federal agency. The SQC is a monetary estimate of
economic damages associated with an incremental increase in carbon dioxide (C02) emissions. The net present value of
these damages is calculated by multiplying future costs by an appropriate discount factor and summing across all
affected years. The SCC reviewed in this case was developed by an interagency working group (IWG). The estimate is
intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from
increased flood risk, and the value of ecosystem services due to climate change. Federal agencies have used the SCC in
over 6final nImakin between 2008 and 2016. The SCC was recently renamed as the Social Cost f Grenh
.ae (SC-GHG) by the Administration to account damage estimates for other types of GHG including the socialts
of methane and nitro~usoxide.
The application of the SCC has been raised in the ongoing litigation over the U.S. Environmental Protection Agency's
(EPA's) lan(CPP). If it survives legal.challenge, the CPP would regulate GHG emissions from fossil
fuel-fired power plants under the Clean Air Act (CAA). One iss.e raised in the legal challenge to the CPP is whether
EPA's regulatory impact analysis of the CPP is flawed because it relies on the SCC and assesses domestic costs against
global benefits. The petitioners argue that the CAA expressly forecloses the use of global costs because the Act's
purpose is exclusively domestic. EPA, however, tate that the SCC's global scope is appropriate because, among
other reasons, GHG emissions contribute to damages around the world and the world's economies are now highly
interconnected and that the true cost of climate change to U.S. is much larger than impacts that simply occur in the
U.S. In a letter to the court, EPA argues that it conducted a cost-benefit analysis that accounted for global benefits
using the SCC in a manner similar to the DOE's analysis in Zero Zone, Inc., the subject of the recent court case.
In Zero Zone, Inc., petitioners claimed that the DOE abused its discretion by considering environmental factors in its
determining whether the new energy efficiency standards for commercial refrigeration eauipment were economically
justified and, in the alternative, that the use of the SCC was arbitrary and capricious. In rejecting the petitioners'
claims, the U.S. Court of Appeals for the Seventh Circuit held that the expected reduction of environmental costs
needs to be taken into account in DOE's cost-benefit analysis, and that it had no doubt that Congress intended that
DOE have the authority under the [Energy Policy and Conservation Act] to consider the reduction in SCC.
Previous judicial decisions have faulted agencies for failing to use the SCC or another type of economic tool in their
cost-benefits analysis. For example, the U.S Court of Appeals for the Ninth Circuit in Center for BiologicalDiversity v.
NHTSA held that it was arbitrary and capricious for an agency to fail to assess the impacts of GHG emissions in its cost-
benefit analysis, even when there is uncertainty about those impacts, stating that while the record shows there is a
range of values [for the SCC], the value of carbon emissions reduction is certainly not zero.
Other cases have addressed agency decisions to not use the SCC in environmental reviews of proposed agency actions
under the (NEPA), which requires federal agencies to consider, document, and
disclose the potential effects of their actions and decisions on the environment. A 2014 district court decision, High
Countrv Conservation Advocates v. U.S. Forest Service, vacated the Bureau of Land Management's (BLM's) approval](ViewImageLocal?handle=hein.crs/crsmthmaobt0001&div=1&collection=&method=preview&ext=.png&size=3)
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