Biden directive pushes wider use of climate cost metric in US agency actions

The White House on Sept. 21 stepped up its call for agencies to weigh climate costs in their decision making, including in environmental reviews under the National Environmental Policy Act.

A new directive tells agencies to consider the social cost of greenhouse gas emissions — a metric for assessing damages GHGs cause across society — in developing their budgets and procurement. For environmental reviews, the White House recommends agencies use it "as appropriate," according to a White House fact sheet.

The White House noted that federal agencies for over a decade have routinely applied social cost of greenhouse gas values when estimating the benefits and cost of regulations. The Sept. 21 directive approves recommendations from an interagency working group to expand the use of those metrics.

President Joe Biden is ordering agencies to consider the cost estimates when measuring emissions associated with federal programs and to help justify agency budgets. The federal government, which spends over $630 billion annually on goods and services, should also integrate the climate cost figures into procurement "as appropriate and consistent with applicable law," the White House said.

Other potential new applications could include using the cost metric to gauge the climate benefits and costs of discretionary grants and to help set penalties for violations of statutory or regulatory requirements.

Biden is also making agencies consider the values in environmental reviews conducted under the National Environmental Policy Act (NEPA) "as appropriate." The White House said the directive is consistent with Council on Environmental Quality (CEQ) guidance that agencies mitigate greenhouse gas emissions "to the greatest extent possible."

"Agencies already often quantify greenhouse gas emissions in their environmental reviews and when they do so, it is a relatively simple — yet tremendously informative — step to also apply the [social cost of greenhouse gas] estimates to those emissions to provide context about their climate change impacts," the White House said.

"By facilitating comparison of the climate consequences of alternative options in budgeting, procurement, and other agency decisions, appropriate use of [these] metrics can help agencies bolster the federal government's efforts to combat the climate crisis," the White House added.

The Biden administration developed an interim estimate of the social cost of greenhouse gas emissions of $51 per ton after reconvening an interagency working group. However, it is eyeing a potentially large increase to the climate metric.

Mixed reaction

While the new White House action stops short of being an "airtight" requirement, it is nonetheless a directive from the president to all federal agencies, and every agency is going to have to respond, said Rachel Cleetus, policy director and lead economist for the Union of Concerned Scientists' climate and energy program.

"I think it's significant when it comes to permitting in the context of large energy projects, signifying that major infrastructure must consider climate implications," and it points toward projects aligned with climate goals, Cleetus said.

Christi Tezak of ClearView Energy Partners said the new guidance "doesn't appear to change the status quo" for NEPA reviews by the Federal Energy Regulatory Commission.

"FERC already includes them in their NEPA documents and neither the interim GHG guidance nor the fact sheet provide direction to an agency on how to use the [social cost of carbon] in a project-level review to determine significance for purposes of NEPA," Tezak said.

FERC has been mired in debate over whether to use the metric to determine significance in its gas project reviews. The matter has been frequently litigated, along with the scope of whether those reviews should consider upstream and downstream emissions.

A FERC order approved Sept. 21, authorizing an expansion of Sempra's Port Arthur LNG facility, uses the tool to estimate climate-related damages but sticks with the view that those calculations do not enable FERC to determine whether the emissions are significant.

Reaction to the White House's new actions split along party lines.

"Whether purchasing a new fleet of US Postal Service vehicles or conducting an environmental review on a major infrastructure project, factoring the true costs of climate change into federal decision-making will help save taxpayers' money and lead to investments that are better for the future of our planet — a win-win," said US Senator Tom Carper, Democrat-Delaware, chairman of the Senate Environment and Public Works Committee.

But Republicans in Congress expressed alarm, calling the administration's cost estimates "flawed."

"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," said Senator Shelley Moore Capito, Republican-West Virginia, ranking member of the Senate environment committee. "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."

Capito said the directive would affect the environmental review process for "projects of all kinds."

S&P Global Commodity Insights reporter Molly Christian produces content for distribution on Capital IQ Pro .