On March 28, 2017 President Trump issued an executive order that seeks to completely reverse the Obama Administration’s climate policies. Executive Order 13783, Promoting Energy Independence and Economic Growth signals a profound shift in federal climate change policy, and reflects the Trump Administration’s desire to systematically reduce regulatory burdens across the energy industry and to promote the development of American energy resources.
A critical component of the Executive Order is the disbandment of the Interagency Working Group (IWG), which the Obama Administration had tasked with developing Social Cost of Carbon metrics for use in federal policy making. The Order also withdraws all of the technical documents that set forth the analytical framework for considering the Social Cost of Carbon in regulatory analyses.
The Social Cost of Carbon is an analytical tool that attempts to quantify the incremental climate impact that will result from a unit of carbon dioxide emissions so that an economic value can be assigned to the emissions. That value is then used as a point of comparison for regulatory actions that reduce carbon dioxide emissions. Many competing models exist, and each offers different productions about the future interactions between human behavior and the climate. These models frequently predict how climate change will affect net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services.
The IWG Social Cost of Carbon values were widely used in regulatory cost-benefit analyses during the Obama Administration to claim significant economic and social benefits from greenhouse gas regulatory programs. President Trump has now ordered executive agencies to return to the use of OMB Circular A-4 when preparing regulatory cost-benefit analysis. This approach, used during the George W. Bush Administration, provides guidance for regulatory agencies in anticipating and evaluating probable economic and public health consequences of federal regulations; however, it does not mandate the use of any specific analytical metric.
While it remains to be seen how federal agencies will implement the new Circular A-4 going forward, eliminating the use of the Social Cost of Carbon will make it very challenging to demonstrate a net benefit in a cost-benefit analysis for greenhouse gas regulations. This is because the methods generally suggested under Circular A-4 do not provide a method to evaluate the long-term, economy-wide impacts of climate change. When combined with the Executive Order’s command that executive agencies not finalize any regulation where costs exceed benefits, it may be difficult, if not impossible, to finalize any new regulations of greenhouse gas emissions.