A federal court yesterday ruled for the first time on the legality of the Obama administration's estimated social cost of carbon.
The 7th U.S. Circuit Court of Appeals upheld the Department of Energy's use of the metric in its analysis of standards for commercial refrigeration equipment. The court upheld DOE's rules in their entirety against industry challenges.
"We conclude that DOE acted in a manner worthy of our deference," Senior Judge Kenneth Ripple, who was appointed by President Reagan, wrote in the opinion.
Judges William Bauer and Ilana Rovner, both Republican appointees, were the other members of the three-judge panel that heard the case. The Chicago-based appeals court serves Illinois, Indiana and Wisconsin.
DOE issued the two rules in question in 2014. One of the rules set energy efficiency standards for 49 classes of commercial refrigeration equipment, while the other stipulated test procedures for the standards.
The Air-Conditioning, Heating and Refrigeration Institute; the North American Association of Food Equipment Manufacturers; and small business Zero Zone Inc. filed lawsuits that raised concerns about both the rules themselves and DOE's rulemaking process.
Among their challenges, the industry entities questioned DOE's use of the social cost of carbon, a metric that represents the long-term economic damage to society, in U.S. dollars, from each incremental ton of carbon dioxide released into the atmosphere.
Federal agencies formed a working group in 2009 to create the social cost of carbon. The group last revised the estimate in 2015 to $36 per metric ton of CO2. That cost will rise to $50 a metric ton in 2030 and $69 a metric ton in 2050.
Industry had questioned DOE's statutory authority to use the estimates to quantify benefits of the efficiency rule. AHRI and Zero Zone also told the court that DOE had failed to respond to a comment letter from the U.S. Chamber of Commerce that raised concerns that the social cost of carbon estimates were arbitrary, shaped behind closed doors and based on inputs that were not peer-reviewed.
Republican foes of the social cost of carbon have raised similar arguments for years, particularly in reference to how EPA has used the metric to assess rule costs and benefits.
DOE can consider the social cost of carbon under the Energy Policy and Conservation Act, the 7th Circuit ruled. The department was reasonable in considering global climate benefits when it calculated national regulatory costs, Ripple said.
Ripple also wrote that although DOE didn't respond to the specific points in the chamber's letter, the department did address general concerns with the social cost of carbon "and made clear that, despite those concerns, the calculation of SCC could be used."
The decision highlighted a friend-of-the-court brief filed by New York University's Institute for Policy Integrity, which defended the Obama administration's process for deriving the social cost of carbon.
DOE's use of the metric, Ripple wrote, "was neither arbitrary nor capricious."
In 2008, the 9th U.S. Circuit Court of Appeals faulted the National Highway Traffic Safety Administration for failing to explicitly monetize climate benefits. But until yesterday, federal courts had yet to rule on the interagency working group's official social cost of carbon estimates.
A prior industry lawsuit in the 5th U.S. Circuit Court of Appeals over DOE's walk-in freezer and cooler rule challenged the department's use of the social cost of carbon, but DOE and manufacturers settled the case.
Denise Grab, an attorney at the Institute for Policy Integrity who filed the amicus brief in the refrigeration case, said that yesterday's decision provides "major support" for federal agencies to use the social cost of carbon as a policy tool.
"It is significant that the court resoundingly dismissed these challenges and found that the agency's approach was reasonable," Grab said. "This ruling will make it harder for opponents of climate action to justify spurious attacks against the social cost of carbon."
Industry had also challenged DOE's engineering analysis, its overall economic analysis and regulatory flexibility analysis, as well as DOE's assessment of the cumulative impacts of rules for refrigeration manufacturers.
The 7th Circuit rejected all of industry's arguments.
"This is not a close call," Ripple wrote of the challenges to DOE's technical work. "We are convinced that DOE's engineering analysis, including its use of an analytical model, was neither arbitrary nor capricious."
DOE's economic analysis, which assumed that the new standards would not result in significant changes in purchases behavior, was "certainly more balanced and careful than petitioners suggest," Ripple also wrote.
Along with upholding the content of the rules, the court found that DOE properly provided an adequate opportunity for stakeholders to comment on the rules.
"Petitioners were provided with a sufficient opportunity to see and comment upon technical data," Ripple wrote. "There is no basis here for our disturbing the agency's decision."
Click here to read the court's decision.
Correction: A previous version of this story misidentified Judge William Bauer as a Democratic appointee.
Want to read more stories like this?
E&E is the leading source for comprehensive, daily coverage of environmental and energy politics and policy.
Click here to start a free trial to E&E -- the best way to track policy and markets.