Environment

Obama Raises the Cost of Carbon Emissions 60 Percent


A worker carries a torch after heating a pipe joint during construction of the Gulf Coast Pipeline Project in Atoka, Okla.

Photograph by Daniel Acker/Bloomberg

A worker carries a torch after heating a pipe joint during construction of the Gulf Coast Pipeline Project in Atoka, Okla.

The U.S. Department of Energy’s new efficiency standards for microwave ovens aren’t exactly a sizzling read. Amid the dry, technical language it’s easy to miss the significance of a few passages that the Obama administration tucked into the obscure regulation without consulting anyone. They amount to a sweeping change in the way the U.S. measures the effects of carbon emissions and will reverberate well beyond the kitchen.

The rule mandates cuts to “vampire” power, electricity the microwaves use in standby mode. Making them more energy-efficient will cost manufacturers and consumers about $1.3 billion over 30 years, the Energy Department says. But because the better appliances will cut carbon emissions and energy bills, the agency estimates there will be a $4.6 billion benefit to society.

The government arrived at this number by calculating what economists call the social cost of carbon, a controversial practice of trying to fix a dollar amount to the harm pollution causes society—and, conversely, to estimate the savings from cleaner fuels and technologies. With the microwave rule, the administration is changing the way it makes these calculations for all kinds of polluters.

Three years ago, federal agencies used their own formulas to calculate the social cost of carbon. The Department of Transportation pegged it at $7 per metric ton; the Environmental Protection Agency said $40. That obviously didn’t make sense, says Michael Greenstone, a Massachusetts Institute of Technology professor and former White House economist. In 2010 he and a group of federal officials came up with what they considered a more accurate number for the entire federal government to use: $23.80 per metric ton. “Everybody understands that there are things you can do to make the number larger and things you can do to make the number smaller,” Greenstone says. “This was the consensus judgment of a wide range of agencies with competing interests.”

The provision the administration has now slipped into the microwave regulations updates this carbon cost figure with a much higher one—$38 a ton, an increase of 60 percent. Assigning a higher social cost to carbon has the effect of making coal mining, oil drilling, and other heavy industry appear more environmentally costly to regulators than before. On the flip side, it lets the administration claim greater societal benefits from its efforts to improve efficiency standards on air conditioners, vending machines, lighting fixtures, and, yes, microwave ovens.

“To do this without any outside participation is bizarre,” says Jeff Holmstead, a lawyer at Bracewell & Giuliani who represents power producers that depend on coal. Holmstead’s clients likely have the most to fear from the change. The EPA will soon issue rules to cut power-plant emissions, which could force coal-fired plants to cut production or shut down. Because of the new social cost of carbon—which makes the plants appear to be taking a heavier toll on the environment—the rules will be easier for the administration to justify.

Yet even some liberal supporters of the administration question why it didn’t open up the process to public comments. “This is a very strange way to make policy about something this important,” says Frank Ackerman, an economist at Tufts University who published a book about the economics of global warming. The administration says it wasn’t up to anything sneaky. The economic models federal officials use to measure the social cost of carbon have been revised to reflect damage from higher sea levels and other effects of global warming. Ari Isaacman Astles, a spokeswoman for the Office of Management and Budget, says the administration simply adopted the revised models.

Environmentalists are pushing the White House to consider the more expensive carbon costs in deciding whether to grant TransCanada (TRP) a permit for the Keystone XL pipeline—just what the fossil fuel industry wants to avoid. According to an EPA analysis, the pipeline’s emissions could total 935 million metric tons over 50 years. Under the old way of accounting for emissions, the toll on society from all that pollution would have been $22 billion. Under the Obama administration’s new calculus, it would come in at a far higher, and harder to defend, $36 billion.

The bottom line: The White House raised the price it puts on emissions, making green policies look more valuable.

Drajem is a reporter for Bloomberg News in Washington.

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