Released October 09, 2023 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--When the U.S. House of Representatives reconvenes and selects a new leader, members of Congress will begin to engage with the Biden administration on a complex and controversial topic: estimating, and applying, a sharply higher Social Cost of Greenhouse Gas emissions (SC-GHG) to federal agency purchasing decisions.
Opponents charge this would be the first step to applying sharply higher SC-GHG fees to industrial projects requiring a federal permit, potentially alerting the cost-benefit calculation, and economic viability, of some projects.
Critics charge that sharply higher SC-GHG fees could be used to block permit requests for unfavored oil and gas drilling projects, fossil-fueled power projects, oil and gas pipelines, and mining projects while also improving the cost-benefit calculations for favored projects like renewable generation or "green" hydrogen.
The SC-GHG, a more detailed measure than the more widely known social cost of carbon (SCC), measures the environmental damage from all greenhouse gases, not just carbon dioxide (CO2). Both SC-GHG and SCC seek to estimate the often-overlooked costs to the environment from producing goods and services, and then find a way to recover those costs from those whose economic activities create that environmental damage.
Those unrecovered costs are called "externalities," because the environmental damage is not reflected in the project's estimated construction costs or finished prices for goods or services those projects will produce. In the words of resource economists, consultants and policymakers, the goal is to "internalize the externalities." In other words, bring environmental costs into consideration of a proposed project's economics.
Matters may come to a head when Congress considers proposed federal agency budgets for Fiscal Year 2024, which began October 1. That's because the Biden administration on September 21 instructed federal agencies to begin incorporating SC-GHG into their purchasing decisions and their budget requests.
It hinted, but did not explicitly order, that those agencies should use a higher SC-GHG in their cost-benefit calculations for proposed industrial projects.
Congressional Republicans have drawn their rhetorical swords and vowed to challenge, and block if possible, the administration's plans.
U.S. Senator Shelley Moore Capito (R-West Virginia), ranking minority member of the Environment and Public Works Committee, blasted the move as relying on "flawed" science and politicized economics.
"The Biden administration continues to use unproven figures to attempt to justify its environmental policies that drive up costs for families, hamstring American employers and delay job-creating infrastructure projects from ever moving forward," she said in a statement the day the Biden mandate was released. "Today's announcement is more of the same devastating, top-down government mandates intended to kill energy jobs and make the United States more reliant on foreign countries."
"The problem is the math doesn't add up, and in fact, doesn't exist," she asserted, adding the order was "overreaching ... with no regard for transparency, public input, or impacts on millions of Americans."
However, U.S. Senator Sheldon Whitehouse (D-Rhode Island), a member the Environment and Public Works committee, praised the Biden move. "A robust (SC-GHG) should be used across government decision-making, not just in regulations," he told E&E News in an email. "Think grants, permitting, purchasing, royalty rates, investment decisions, and trade agreements, just to name a few."
Republicans are in the minority in the Senate, but that won't prevent them from asking hard questions during agency budget hearings, or finding other ways to delay or even block agency budget proposals. The GOP holds a slim majority in the House of Representatives, but that body currently is in chaos after removing Kevin McCarthy (R-California) as Speaker last week. The House currently is in recess, and may reconvene this week, with the first order of business being selecting a new Speaker.
The U.S. government is the world's largest consumer, spending more than $630 billion each year to purchase goods and services, according to a White House fact sheet issued September 21 to support the administration's new missive. It is Biden's latest effort to take a "whole-of-government" approach to decarbonizing first the Electric Power sector, and ultimately the entire economy.
The SCC or SC-GHG has been used in dozens of federal actions under four presidents since 2008, after a federal court told former President George W. Bush's Department of Transportation (DOT) (Washington, D.C.) to revise its vehicle fuel economy standard that gave short shrift to the climate damage caused by vehicles using internal combustion engines. The September 21 White House fact sheet said the DOT already recommends that applicants for discretionary infrastructure grants use the SC-GHG in the benefit-cost analyses of their project proposals.
The Obama administration set the SCC at $42 per ton of CO2 emitted, but the Trump administration cut that to less than $5 per ton. The Biden administration has been using an inflation-adjusted fee of $51 per ton. Officials are now working on an update that is expected to jump to around $190 a ton, according to a report in The New York Times.
Late last year, in the run-up to the U.N. global climate conference, the U.S. Environmental Protection Agency (EPA) released a rule applying SC-GHG costs on the Oil and Gas industry. That rule focused narrowly on lowering methane emissions. The fee reportedly was about $190 per ton of GHG, though the agency has gone out of its way to be opaque about the specific fee.
The White House's September 21 announcement did not set an explicit SC-GHG value. Rather, it directed federal agencies to "account for climate change impacts in budgeting, procurement, and other agency decisions." The "other agency decisions" appears to give "wink and nod" support for agencies to use those higher SCV-GHG costs, as determined by an interagency working group, in their permitting decisions.
The fact sheet continued: "From unprecedented wildfires, to extreme flooding, to record breaking hurricanes, Americans across the country are feeling the devastating impacts of the climate crisis. In just the first eight months of 2023, the U.S. experienced 23 separate billion-dollar weather and climate disasters--the highest number on record."
Those costs--from wildfire suppression to disaster relief--must be recovered somehow, whether through higher insurance premiums for homeowners, increased prices for goods and services tied to the disasters or higher permit fees for entering national parks and forests.
In its fact sheet, the White House said it accepted the recommendations from an interagency working group (IWG) that had identified how federal agency decisions could reflect a higher SC-GHG. "For over a decade," the fact sheet said, "federal agencies have routinely applied SC-GHG values when estimating the benefits and costs of regulations."
"The President has approved recommendations from the IWG on the expanded use of the SC-GHG for budgeting, procurement, and other agency decisions, including reaffirming its use for environmental reviews where appropriate," it added.
The fact sheet said SC-GHG was "a well-established metric for the known damages that greenhouse gas emissions cause across society."
The elephant in the room appears to be explicitly stating the new SC-GHG fee. The White House fact sheet did not name a number. Last year's EPA rule for reducing methane emissions from oil and gas projects did not specify a per-ton fee. Economists have come up with widely divergent estimates of environmental costs and damage caused by greenhouse gas emissions.
For now, pending Congressional approval of FY 2024 budgets, the White House directive will apply to agency procurement decisions. For example, purchasing electric vehicles instead of ones powered by internal combustion engines (ICEs) and procuring low-carbon cement for buildings and roads. Agencies will be expected to use electricity produced by low-carbon or no-carbon generators. But the military will not be required to purchase electric-powered tanks.
The fact sheet provided specific guidance agencies must follow when submitting their annual budget requests:
Measuring Programmatic Emissions: To value the benefits of investments that reduce emissions, first agencies must measure programmatic emissions. The Office of Management and Budget (OMB) will work with federal agencies to begin measuring baseline greenhouse gas emissions and use the SC-GHG to calculate the benefits and impacts of federal programs, starting with programs that already monitor emissions.
Assessing Discretionary Grants: The Department of Transportation already recommends that applicants for discretionary infrastructure grants use the SC-GHG in the benefit-cost analyses of their project proposals. Agencies should, as appropriate, expand the application of SC-GHG estimates to assess the potential climate benefits and costs of discretionary grants.
Considering Harm-Based Penalty Calculation Methodologies: Some administrative penalties for violations of statutory or regulatory requirements are set at monetary levels that reflect the harm to society caused by the unlawful conduct. Agencies should explore their processes for setting administrative penalties and, if found appropriate and consistent with their authorities, consider incorporating the SC-GHG into penalties.
Evaluating International Assistance: Agencies that assess international assistance and financing are encouraged to work with partner countries and international financial institutions to expand use of the SC-GHG metrics as appropriate and help ensure that such investments support the administration's climate goals.
And while the administration's instructions to federal agencies focus mainly on the agencies' purchasing decisions, there were subtle nods that SC-GHG could be factored into agencies' future decisions involving permitting for industrial projects.
Applying a significantly higher SC-GHG fee to proposed projects could scramble their economics. When the administration recently permitted the Willow oil drilling project in Alaska, it used the current fee of $51 per ton of CO2 emitted. That added about $469 million per year to the project's overall $8 billion cost, according to a Times estimate. But at the higher level of $190 per ton, the SC-GHG fee would have exploded to nearly $1.7 billion per year, making the project uneconomic.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Opponents charge this would be the first step to applying sharply higher SC-GHG fees to industrial projects requiring a federal permit, potentially alerting the cost-benefit calculation, and economic viability, of some projects.
Critics charge that sharply higher SC-GHG fees could be used to block permit requests for unfavored oil and gas drilling projects, fossil-fueled power projects, oil and gas pipelines, and mining projects while also improving the cost-benefit calculations for favored projects like renewable generation or "green" hydrogen.
The SC-GHG, a more detailed measure than the more widely known social cost of carbon (SCC), measures the environmental damage from all greenhouse gases, not just carbon dioxide (CO2). Both SC-GHG and SCC seek to estimate the often-overlooked costs to the environment from producing goods and services, and then find a way to recover those costs from those whose economic activities create that environmental damage.
Those unrecovered costs are called "externalities," because the environmental damage is not reflected in the project's estimated construction costs or finished prices for goods or services those projects will produce. In the words of resource economists, consultants and policymakers, the goal is to "internalize the externalities." In other words, bring environmental costs into consideration of a proposed project's economics.
Matters may come to a head when Congress considers proposed federal agency budgets for Fiscal Year 2024, which began October 1. That's because the Biden administration on September 21 instructed federal agencies to begin incorporating SC-GHG into their purchasing decisions and their budget requests.
It hinted, but did not explicitly order, that those agencies should use a higher SC-GHG in their cost-benefit calculations for proposed industrial projects.
Congressional Republicans have drawn their rhetorical swords and vowed to challenge, and block if possible, the administration's plans.
U.S. Senator Shelley Moore Capito (R-West Virginia), ranking minority member of the Environment and Public Works Committee, blasted the move as relying on "flawed" science and politicized economics.
"The Biden administration continues to use unproven figures to attempt to justify its environmental policies that drive up costs for families, hamstring American employers and delay job-creating infrastructure projects from ever moving forward," she said in a statement the day the Biden mandate was released. "Today's announcement is more of the same devastating, top-down government mandates intended to kill energy jobs and make the United States more reliant on foreign countries."
"The problem is the math doesn't add up, and in fact, doesn't exist," she asserted, adding the order was "overreaching ... with no regard for transparency, public input, or impacts on millions of Americans."
However, U.S. Senator Sheldon Whitehouse (D-Rhode Island), a member the Environment and Public Works committee, praised the Biden move. "A robust (SC-GHG) should be used across government decision-making, not just in regulations," he told E&E News in an email. "Think grants, permitting, purchasing, royalty rates, investment decisions, and trade agreements, just to name a few."
Republicans are in the minority in the Senate, but that won't prevent them from asking hard questions during agency budget hearings, or finding other ways to delay or even block agency budget proposals. The GOP holds a slim majority in the House of Representatives, but that body currently is in chaos after removing Kevin McCarthy (R-California) as Speaker last week. The House currently is in recess, and may reconvene this week, with the first order of business being selecting a new Speaker.
The U.S. government is the world's largest consumer, spending more than $630 billion each year to purchase goods and services, according to a White House fact sheet issued September 21 to support the administration's new missive. It is Biden's latest effort to take a "whole-of-government" approach to decarbonizing first the Electric Power sector, and ultimately the entire economy.
The SCC or SC-GHG has been used in dozens of federal actions under four presidents since 2008, after a federal court told former President George W. Bush's Department of Transportation (DOT) (Washington, D.C.) to revise its vehicle fuel economy standard that gave short shrift to the climate damage caused by vehicles using internal combustion engines. The September 21 White House fact sheet said the DOT already recommends that applicants for discretionary infrastructure grants use the SC-GHG in the benefit-cost analyses of their project proposals.
The Obama administration set the SCC at $42 per ton of CO2 emitted, but the Trump administration cut that to less than $5 per ton. The Biden administration has been using an inflation-adjusted fee of $51 per ton. Officials are now working on an update that is expected to jump to around $190 a ton, according to a report in The New York Times.
Late last year, in the run-up to the U.N. global climate conference, the U.S. Environmental Protection Agency (EPA) released a rule applying SC-GHG costs on the Oil and Gas industry. That rule focused narrowly on lowering methane emissions. The fee reportedly was about $190 per ton of GHG, though the agency has gone out of its way to be opaque about the specific fee.
The White House's September 21 announcement did not set an explicit SC-GHG value. Rather, it directed federal agencies to "account for climate change impacts in budgeting, procurement, and other agency decisions." The "other agency decisions" appears to give "wink and nod" support for agencies to use those higher SCV-GHG costs, as determined by an interagency working group, in their permitting decisions.
The fact sheet continued: "From unprecedented wildfires, to extreme flooding, to record breaking hurricanes, Americans across the country are feeling the devastating impacts of the climate crisis. In just the first eight months of 2023, the U.S. experienced 23 separate billion-dollar weather and climate disasters--the highest number on record."
Those costs--from wildfire suppression to disaster relief--must be recovered somehow, whether through higher insurance premiums for homeowners, increased prices for goods and services tied to the disasters or higher permit fees for entering national parks and forests.
In its fact sheet, the White House said it accepted the recommendations from an interagency working group (IWG) that had identified how federal agency decisions could reflect a higher SC-GHG. "For over a decade," the fact sheet said, "federal agencies have routinely applied SC-GHG values when estimating the benefits and costs of regulations."
"The President has approved recommendations from the IWG on the expanded use of the SC-GHG for budgeting, procurement, and other agency decisions, including reaffirming its use for environmental reviews where appropriate," it added.
The fact sheet said SC-GHG was "a well-established metric for the known damages that greenhouse gas emissions cause across society."
The elephant in the room appears to be explicitly stating the new SC-GHG fee. The White House fact sheet did not name a number. Last year's EPA rule for reducing methane emissions from oil and gas projects did not specify a per-ton fee. Economists have come up with widely divergent estimates of environmental costs and damage caused by greenhouse gas emissions.
For now, pending Congressional approval of FY 2024 budgets, the White House directive will apply to agency procurement decisions. For example, purchasing electric vehicles instead of ones powered by internal combustion engines (ICEs) and procuring low-carbon cement for buildings and roads. Agencies will be expected to use electricity produced by low-carbon or no-carbon generators. But the military will not be required to purchase electric-powered tanks.
The fact sheet provided specific guidance agencies must follow when submitting their annual budget requests:
Measuring Programmatic Emissions: To value the benefits of investments that reduce emissions, first agencies must measure programmatic emissions. The Office of Management and Budget (OMB) will work with federal agencies to begin measuring baseline greenhouse gas emissions and use the SC-GHG to calculate the benefits and impacts of federal programs, starting with programs that already monitor emissions.
Assessing Discretionary Grants: The Department of Transportation already recommends that applicants for discretionary infrastructure grants use the SC-GHG in the benefit-cost analyses of their project proposals. Agencies should, as appropriate, expand the application of SC-GHG estimates to assess the potential climate benefits and costs of discretionary grants.
Considering Harm-Based Penalty Calculation Methodologies: Some administrative penalties for violations of statutory or regulatory requirements are set at monetary levels that reflect the harm to society caused by the unlawful conduct. Agencies should explore their processes for setting administrative penalties and, if found appropriate and consistent with their authorities, consider incorporating the SC-GHG into penalties.
Evaluating International Assistance: Agencies that assess international assistance and financing are encouraged to work with partner countries and international financial institutions to expand use of the SC-GHG metrics as appropriate and help ensure that such investments support the administration's climate goals.
And while the administration's instructions to federal agencies focus mainly on the agencies' purchasing decisions, there were subtle nods that SC-GHG could be factored into agencies' future decisions involving permitting for industrial projects.
Applying a significantly higher SC-GHG fee to proposed projects could scramble their economics. When the administration recently permitted the Willow oil drilling project in Alaska, it used the current fee of $51 per ton of CO2 emitted. That added about $469 million per year to the project's overall $8 billion cost, according to a Times estimate. But at the higher level of $190 per ton, the SC-GHG fee would have exploded to nearly $1.7 billion per year, making the project uneconomic.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
