Social Cost of Carbon: DOE Rejects Petition to Reconsider Microwave Rule

On Christmas eve, the Department of Energy (DOE) rejected the Landmark Legal Foundation’s petition to reconsider the agency’s final rule establishing first-ever energy-efficiency standards for microwave ovens.

LLF argues that the rule violates the Administrative Procedure Act, the federal law governing how agencies develop and adopt regulations. The final rule’s cost-benefit analysis incorporates the Obama administration’s revised (higher) 2013 social cost of carbon (SCC) estimates. Those estimates were not in the proposed rule, so the public had no opportunity to comment on them. In addition, LLF warns, with this “unilateral change,” all agency cost-benefit analyses “will be drastically affected,” potentially influencing administration policy on “everything from power plants to the Keystone XL pipeline.”

Whether or not the microwave rule itself has such wide-ranging implications, SCC analysis is a potent weapon in the war on coal and other fossil fuels. As a pretext for expanding government control of the economy, redistributing wealth, and rigging energy markets, nothing beats the social cost of carbon.

The SCC is an estimate of damages allegedly inflicted on society by a ton of carbon dioxide (CO2) emissions in a given year. Ratchet up carbon’s estimated social cost by about 50%, as the administration did in 2013, and every mandated or proposed reduction in CO2 emissions suddenly appears to be 50% more valuable — i.e., 50% less costly. This is a critical political asset, notes Cato Institute scholar Chip Kappenberger, “as costs are often the greatest barrier to approval.”

DOE’s argument for rejecting the LLF petition may be summarized as follows:

1. The revised 2013 SCC estimates did not influence the final rule’s regulatory requirements. Nor did the administration’s original (lower) 2010 SCC estimates influence the proposed rule’s regulatory requirements. The energy-efficiency standards in the proposed and final rules are the same. DOE used SCC analysis to estimate part of the benefits of those standards, not to set the standards.
2. Thus, the public was not denied an opportunity to comment on any factor DOE considered in developing the regulations.
3. Revisions in the SCC estimates were due to “refinements in the underlying models,” not changes in “methodology” or basic “inputs,” so the final rule establishes no hidden precedents.
4. The proposed rule stated that the administration was planning to revise the 2010 SCC estimates, so commenters had a heads up; the agency did not blindside them.
5. The public has opportunities to comment on more recent proposed rules that incorporate the 2013 SCC estimates.
6. In addition, in November 2013, Office of Management and Budget (OMB) invited public comment on the computer models agencies use to develop SCC estimates.
7. Hence, the administration need not rescind or redo the microwave rule to address LLF and other commenters’ concerns about the 2013 SCC estimates.

This tidy explanation does not tell us why OMB waited nearly four years to solicit public comment on federal agency SCC analysis. It does not rule out the possibility that, in other rulemakings, DOE and other agencies will use SCC analysis to set regulatory standards rather than merely assess their benefits.

Perhaps most importantly, DOE does not address the prior legal question: Where exactly in the Energy Policy Conservation Act, or any other statute, did Congress authorize the use of SCC analysis in regulatory development?

Whether or not courts ever review the microwave rule, the LLF petition has already begun to pay political dividends. It has raised the salience of SCC analysis as a regulatory menace, spurred congressional oversight, and prompted OMB to host a long-overdue public debate.

Friends of affordable energy should now seize the opportunity LLF has created.

SCC analysis is computer-aided sophistry. Its political function is to make uneconomic renewable energy look like a bargain at any price and make fossil energy look unaffordable no matter how cheap.

By fiddling with speculative inputs and discount rates, SCC analysts can get just about any result they desire. Raise the SCC estimate high enough, and it can appear to justify almost any carbon reduction scheme, however damaging to the economy or perilous to public health and welfare.

Affordable energy advocates should make strong efforts in 2014 to challenge the intellectual and moral bona fides of SCC analysis. Future congresses and the next president may then have the courage to reject this pseudoscience and the policies it supposedly justifies.