How to Deal with Hornets: The Administrative Procedure Act and the Social Cost of Carbon

• Author: Jay G. Stirling
• Position: J.D. Candidate, University of Iowa College of Law, 2015; B.A., Brigham Young University, 2006
• Pages: 853-880

How to Deal with Hornets: The Administrative Procedure Act and the Social Cost of Carbon Jay G. Stirling  ABSTRACT: This Note explores the extent to which the 2013 revision to the social cost of carbon (“SCC”)—a figure used in the cost-benefit analysis of federal rules involving carbon dioxide emissions—conforms to the Administrative Procedure Act’s (“APA”) notice and comment process. This Note analyzes two precedents the 2013 SCC revision process set: (1) an agency will not re-notice a proposed rule when it substitutes an old SCC with a revised SCC in the final rule; and (2) the interagency working group that calculates the SCC will not submit revised SCCs for independent notice and comment. This Note argues that these precedents, although likely permitted under present judicial interpretations of the APA, contribute to an uncertain regulatory environment for industries subject to carbon emissions regulation. This Note recommends that the Office of Information and Regulatory Affairs, a member of the interagency working group as well as the hub of executive oversight of the rulemaking process, should communicate more clearly and transparently about the SCC revision process, using the Federal Reserve System’s “forward guidance” communications strategy as a model.  J.D. Candidate, University of Iowa College of Law, 2015; B.A., Brigham Young University, 2006. Thank you to my wife and fellow law student, Talia, for her love, support, and perspective; to the staff of the U.S. House of Representatives Committee on Oversight & Government Reform for an introduction to the congressional oversight process; and to the Volumes 99 and 100 staff for bringing out my best work. 854 IOWA LAW REVIEW [Vol. 100:853 I. INTRODUCTION ............................................................................. 855 II. BACKGROUND: A TALE OF TWO NUMBERS .................................... 858 A. T HE SCC ................................................................................ 859 1. Legislative, Judicial, and Executive Roles in Rulemaking .................................................................... 859 2. Origin of the SCC .......................................................... 861 3. The Revised SCC and Subsequent Congressional Action ............................................................................. 864 B. T HE F EDERAL F UNDS R ATE ...................................................... 868 1. The Federal Reserve System ......................................... 868 2. Fed Communication: From “Never Explain” to “Forward Guidance” ...................................................................... 869 3. Views on the Effectiveness of Forward Guidance ....... 870 III. ANALYSIS: THE APA’S ROLE IN THE SCC REVISION PROCESS ....... 871 A. T HE R E -N OTICE C ONTEXT ....................................................... 871 B. T HE I NDEPENDENT N OTICE C ONTEXT ...................................... 873 IV. RECOMMENDATION: A COMMON PROBLEM, A COMMON SOLUTION ..................................................................................... 874 A. L OW C ONDITIONALITY ............................................................ 875 B. H IGH C REDIBILITY .................................................................. 875 C. H IGH T RANSPARENCY ............................................................. 877 D. H IGH F ORECAST A CCURACY ..................................................... 877 V. CONCLUSION ................................................................................ 879 VI. APPENDIX: TABLE .......................................................................... 880 2015] HOW TO DEAL WITH HORNETS 855 I. INTRODUCTION In April 2007, the U.S. Supreme Court ruled in Massachusetts v. EPA that greenhouse gases, like carbon dioxide (“CO 2 ”), fall within the Clean Air Act’s definition of “air pollutant.” 1 The decision empowered the Environmental Protection Agency (“EPA”) to directly regulate CO 2 from a variety of new sources. 2 In May of the same year, the Center for Biological Diversity v. National Highway Traffic Safety Administration decision in the U.S. Court of Appeals for the Ninth Circuit paved the way for a new type of indirect CO 2 regulation: the social cost of carbon (“SCC”). 3 First released in 2010, the SCC establishes a set of uniform values for federal agencies to use in the cost-benefit analysis of proposed regulations addressing CO 2 emissions. 4 A somewhat obscure rule used the SCC for the first time, 5 but it has since figured in more “economically significant rules” 6 with decisive effect. For example, a recent Department of Transportation (“DOT”) vehicle fuel efficiency standard, which used the SCC in its cost-benefit analysis, will cost manufacturers $350 billion over a 40-year period. 7 The DOT estimated the 1. Massachusetts v. EPA, 549 U.S. 497, 532 (2007) (quoting 42 U.S.C. § 7602(g) (2006)). 2. President Barack Obama, Remarks by the President on Climate Change at Georgetown University (June 25, 2013), available at http://www.whitehouse.gov/the-press-office/2013/06/ 25/remarks-president-climate-change (discussing Massachusetts v. EPA , the EPA’s subsequent finding that greenhouse gases are harmful, and the regulatory mandate flowing therefrom). 3. See infra notes 54–62 and accompanying text (discussing the Biological Diversity opinion). 4. INTERAGENCY WORKING GRP. ON SOC. COST OF CARBON, U.S. GOV’T, TECHNICAL SUPPORT DOCUMENT: SOCIAL COST OF CARBON FOR REGULATORY IMPACT ANALYSIS UNDER EXECUTIVE ORDER 12,866, at 2 (2010) [hereinafter 2010 SCC] (“The [SCC] is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year.”). 5. A Department of Energy (“DOE”) rule regarding “alternating current single-speed induction motor[s]” with output of 0.25 to 3 or more horsepower (“Hp”) first used the SCC. Energy Conservation Program: Energy Conservation Standards for Small Electric Motors, 74 Fed. Reg. 61,410, 61,412 tbls.I.1–I.3, 61,413, 61,415 (Nov. 24, 2009) (to be codified at 10 C.F.R. pt. 431). By way of reference, kitchen blenders typically have a peak output of 2 to 3 Hp. April Jones, Understanding Blender Specifications , COOKING FOR ENGINEERS (Jan. 4, 2011, 2:27 AM), http://www. cookingforengineers.com/article/287/Understanding-Blender-Specifications/print. 6. “Economically significant” is a term of art derived from an executive order defining “[s]ignificant regulatory action” as an action “likely to . . . [h]ave an annual effect on the economy of $100 million or more.” Exec. Order No. 12,866, 58 Fed. Reg. 51,735, 51,738 (Sept. 30, 1993). See OFF. OF INFO. & REG. AFF., http://www.reginfo.gov/public/jsp/Utilities/faq.jsp (last visited Nov. 10, 2014). 7. Mark Drajem, Obama Quietly Raises ‘Carbon Price’ as Costs to Climate Increase , BLOOMBERG (June 12, 2013, 2:52 PM), http://www.bloomberg.com/news/2013-06-12/tougher-regulations-seen-from-obama-change-in-carbon-cost.html. 856 IOWA LAW REVIEW [Vol. 100:853 conventional 8 benefits of reduced carbon emissions at $278 billion, 9 meaning that the costs of the new standard ($350 billion) would outweigh its benefits ($278 billion) by more than $50 billion. However, when the DOT factored in the SCC, which valued the carbon emissions reduction that the new standard would cause at $177 billion, 10 the new standard’s benefits ($455 billion) exceeded the costs ($350 billion) by more than $100 billion. Without factoring in the SCC, the standard was too costly; factoring in the SCC tipped the cost-benefit scales in favor of the new standard. 11 The White House’s Office of Information and Regulatory Affairs (“OIRA”) 12 has said that “there is no doubt that the [SCC] will” continue to appear in “economically significant rules.” 13 For example, in June 2013, President Obama directed the EPA to “complete new pollution standards for both new and existing power plants.” 14 A year later, the EPA published proposed emissions guidelines and estimated that the net benefits of the guidelines will be $26–46 billion in 2020. 15 Climate benefits calculated using the SCC accounted for 40–65% of the projected net benefits. 16 Many other directives in the June 2013 “President’s Climate Action Plan” 17 will also lead 8. Conventional benefits of carbon emissions regulations typically aggregate the value of benefits to individuals and to the nation. See Energy Conservation Program: Energy Conservation Standards for Standby Mode and Off Mode for Microwave Ovens, 78 Fed. Reg. 36,316, 36,317–20 (June 17, 2013) (to be codified at 10 C.F.R. pts. 429–30). A common benefit of this type is reduced operating costs. See id. at 36,319. In the context of vehicle fuel efficiency standards, a more fuel-efficient car requires less frequent refueling, which saves individual consumers money on fuel. Additionally, increased fuel efficiency leads to less air pollution, which reduces health problems associated with breathing polluted air, which in turn saves individuals money on healthcare. See Dan Utech, A Step Toward Cleaner Air and Healthier Communities , THE WHITE HOUSE BLOG (June 11, 2014, 5:14 PM), http://www.whitehouse.gov/blog/2014/06/11/step-toward-cleaner-air-and -healthier-communities. On the other hand, the SCC measures environmental benefits of carbon emissions regulations. See Energy Conservation Program: Energy Conservation Standards for Standby Mode and Off Mode for Microwave Ovens, 78 Fed. Reg. at 36,317–18. 9. Drajem, supra note 7. 10. Id. 11. Id. 12. Pronounced “oh-eye-ruh.” See infra notes 48–53 and accompanying text (discussing OIRA’s role in the rulemaking process). 13. Examining the Obama Administration’s Social Cost of Carbon Estimates: Hearing Before the Subcomm. on Energy Policy, Health Care & Entitlements of the Comm. on Oversight & Gov’t Reform , 113th Cong. 21 (2013) [hereinafter Hearing ] (statement of Howard Shelanski, Administrator, Office of Information and Regulatory Affairs). 14...