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Federal Court Supports Use of Social Cost of Carbon

On August 8, 2016, the Seventh Circuit handed down its opinion in Zero Zone, Inc. v. United States Department of Energy, upholding the agency’s use of the social cost of carbon (SCC) in its regulatory impact analysis of commercial refrigerator energy efficiency standards. The ruling may have paved the way for a new chapter in economically efficient U.S. climate policies, and our brief for the case was acknowledged in the judges’ opinion.

The SCC is the U.S. government’s official estimate of the economic damage caused by each ton of carbon pollution, and it is used extensively in assessing the benefits and costs of proposed regulations that have climate effects. The Zero Zone decision marks first time that a court has ruled on the legality of an agency’s use of the SCC. The ruling provides major support for the SCC as a regulatory policy tool, and the judges rejected a host of arguments that are often used to challenge rules that reduce emissions. As a result of this ruling, other federal agencies will likely be more confident in using the SCC going forward. Cass Sunstein, former head of the Office of Information and Regulatory Affairs, called the decision “one of the most important climate change rulings ever.”

The Institute for Policy Integrity filed an amicus curiae brief in the case, supporting the Department of Energy’s use of the Social Cost of Carbon. The Zero Zone court acknowledged Policy Integrity’s brief and adopted reasoning consistent with many of our brief’s arguments. The court echoed citations and analysis presented in our brief on each social cost of carbon issue addressed in the opinion, including:
  1. The Department of Energy (DOE) had authority to consider environmental benefits under the Energy Policy and Conservation Act (see Opinion at 39-40; Policy Integrity Br. at 5-8)
  2. The Interagency Working Group and DOE’s method of valuing the social cost of carbon was not irrational. (see Opinion at 40-41; Policy Integrity Br. at 10-15)
  3. It was not irrational for DOE to consider the present value of climate impacts stretching out over centuries, but costs over a 30-year time period because “DOE is…comparing the costs of achieving the emissions reductions in each year of the analysis, with the carbon reduction value of the emissions reductions in those same years.” (see Opinion at 41-43 (quoting 79 Fed. Reg. at 17,779); Policy Integrity Br. at 24-26)
  4. DOE acted reasonably when it compared global benefits to national costs” (see Opinion at 43-44; Policy Integrity Br. at 19-23)

The government’s brief was limited by word count and needed to address a number of other issues relating to the rulemaking, so Policy Integrity’s brief was the only brief to address any of these issues in detail, or issues (1) or (3) at all.

The case garnered considerable media attention.