Obama Quietly Raises 'Carbon Price' as Costs to Climate Increase
Published: Jun 12, 2013
By Mark Drajem - Jun 11, 2013
Buried in a little-noticed rule on microwave ovens is a change in
the U.S. government’s accounting for carbon emissions that could
have wide-ranging implications for everything from power plants to
the Keystone XL pipeline.
The increase of the so-called social cost of carbon, to $38 a metric
ton in 2015 from $23.80, adjusts the calculation the government uses
to weigh costs and benefits of proposed regulations. The figure is
meant to approximate losses from global warming such as flood damage
and diminished crops.
With the change, government actions that lead to cuts in emissions
-- anything from new mileage standards to clean-energy loans -- will
appear more valuable in its cost-benefit analyses. On the flip side,
approvals that could lead to more carbon pollution, such as
TransCanada Corp. (TRP)’s Keystone pipeline or coal-mining by
companies such as Peabody Energy Corp. (BTU) on public lands, may be
viewed as more costly.
“As we learn that climate damage is worse and worse, there is no
direction they could go but up,” Laurie Johnson, chief economist for
climate at the Natural Resources Defense Council, said in an
interview. Johnson says the administration should go further; she
estimates the carbon cost could be as much as $266 a ton.
Public Comment
Even supporters questioned the way the administration slipped the
policy out without first opening it for public comment. The change
was buried in an afternoon announcement on May 31 about efficiency
standards for microwave ovens, a rule not seen as groundbreaking.
“This is a very strange way to make policy about something this
important,” Frank Ackerman, an economist at Tufts University who
published a book about the economics of global warming, said in an
interview. The Obama administration “hasn’t always leveled with us
about what is happening behind closed doors.”
Industry representatives are equally puzzled.
“It’s a pretty important move. To do this without any outside
participation is bizarre,” said Jeff Holmstead, a lawyer at
Bracewell & Giuliani LLP (1222L) representing coal-dependent power
producers and other industry groups. A legal challenge to the
determination would be difficult, but could be tried by itself or in
a challenge to a specific rulemaking that uses the cost, he said.
Leading Models
The administration first arrived at this calculation in 2010 using
“leading expert models” and updated it “applying the same methods
and assumptions,” Office of Management and Budget spokesman Ari
Isaacman Astles said in an e-mail.
The Economic Report of the President in March said the
administration would update estimates “as new scientific and
economic analysis become available.”
The administration’s new carbon cost is key to a wide range of
policies, which get subject to cost-benefit analysis in the
rulemaking process or at OMB. Obama is considering more energy
efficiency standards for everything from buildings to vending
machines.
In addition, the Environmental Protection Agency is late on issuing
rules to cap greenhouse-gas emissions from new power plants, a
standard that would preclude the construction of new coal-fired
power plants that don’t have expensive carbon-capture technology.
Lobbyists representing companies such as American Electric Power Co.
(AEP) and Southern Co. (SO) have urged the EPA to scale back that
plan.
In each of these cases, the carbon costs would help determine if the
administration would act, and how far to go.
Fuel Efficiency
For example, the administration’s vehicle fuel-efficiency standards
would cost industry $350 billion over the next 40 years, while
benefits in energy security, less congestion and lower pollution
totaled $278 billion, according to a regulatory analysis using the
prior carbon cost estimates cited in a paper by administration
economists. It’s only by including the $177 billion in benefits from
less carbon dioxide that the rules provide a net benefit to the
country, according to the paper by Michael Greenstone, now an
economics professor at the Massachusetts Institute of Technology.
The government-wide assessment should be used by Obama in deciding
whether to approve TransCanada (TRP)’s Keystone pipeline from the
oil sands of Alberta to refiners along the Gulf of Mexico, according
to environmental activists.
According to the EPA, that pipeline could lead to 935 million metric
tons of carbon-dioxide emissions over 50 years, putting the cost
according to this latest calculation at more than $37 billion. This
calculation is under dispute, as the State Department says in its
own analysis that the pipeline won’t lead to additional production
of oil sands.
Keystone Challenge
Still, if Obama approves the pipeline, the higher carbon-cost
estimate could to be a part of any lawsuit challenging the decision,
according to Bill Snape, senior counsel for the Center for
Biological Diversity.
“It won’t be a game changer, but it would help” in any legal
challenge, he said.
The increase in the estimate is being cheered by environmentalists
as one small sign that President Barack Obama is going to make good
on a pledge from his inaugural address to tackle global warming in
the face of opposition from Republicans in Congress.
“Four months ago, President Obama spoke of our obligation to combat
climate change, saying failure to do so would betray our children
and future generations,” filmmaker Robert Redford said in a
statement released by NRDC yesterday. “I just hope he has the
courage of his convictions.”
To contact the reporter on this story: Mark Drajem in Washington at
mdrajem@bloomberg.net
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