On September 21, 2023, the Biden administration outlined plans to expand federal agencies’ consideration of the social cost of carbon—a metric for the economic cost of each additional ton of carbon dioxide emitted to the atmosphere. This announcement tilts the balance of cost-benefit analyses in favor of activities that reduce greenhouse gas emissions, and it could have widespread effects for entities that receive federal funding or are subject to federal regulation.
Key actions covered by the announcement include:
- Developing budgets: Agencies will collaborate with the Office of Management and Budget to measure emissions associated with agency programs and can now use the social cost of carbon to inform and justify their annual budget proposals.
- Awarding discretionary grants: Agencies should consider potential climate benefits and costs when awarding discretionary grants. As a result, grant applicants can expect agencies to require or encourage use of the social cost of carbon when assessing proposed projects, and climate-beneficial projects likely will have a greater chance of winning grants.
- Calculating penalties: Agencies are directed—where “appropriate and consistent with their authorities”—to consider incorporating the social cost of carbon into the calculation of administrative penalties that are set by law at levels intended to reflect the harm to society caused by unlawful conduct. Thus, statutory and regulatory violations associated with increased greenhouse gas emissions may face steeper penalties.
- Procuring goods and services: Agencies should integrate the social cost of carbon into procurement practices “as appropriate and consistent with applicable law.” In particular, agencies should focus on “high-impact” procurements that can serve as pilots for considering the social cost of carbon and increasing economies of scale for low-emission technologies—like how the U.S. Postal Service has assessed climate benefits in selecting its next generation delivery vehicles. Agencies comprising the Federal Acquisition Regulatory Council have already proposed requiring major federal contractors to disclose greenhouse gas emissions and climate-related financial risks, as well as directing agencies to procure more efficient and environmentally friendly goods and services.
- Conducting environmental reviews: In January 2023, the Council on Environmental Quality (CEQ) issued interim guidance on how agencies should assess greenhouse gas emissions when conducting environmental reviews under the National Environmental Policy Act (NEPA). The new directive formally instructs agencies to consider the social cost of carbon in NEPA reviews and notes that CEQ is working to finalize its guidance.
Exactly how this directive will play out is still to be determined: while some of the outlined actions are already underway, others have been left to individual agencies to implement on a case-by-case basis. And the social cost of carbon itself is still an “interim estimate,” which is currently being challenged in the Supreme Court by several states whose lawsuit was dismissed by the Fifth Circuit Court of Appeals. (The interim estimate currently used by the Biden administration is $51 per metric ton of carbon dioxide, although the Environmental Protection Agency has proposed increasing that value to $190 per metric ton.)
The directive is, nonetheless, significant. It marks a shift toward consideration of the social cost of carbon (and, by extension, climate impacts) across all federal agencies and activities, in ways that will affect a range of non-federal entities in a variety of contexts.