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Focus on Regulation

EPA Comments on the Keystone NEPA Review—Monetizing the Social Costs of CO2 Emissions

On April 22, 2013, comments filed on the Keystone Pipeline draft supplemental environmental impact statement, EPA unveiled a new approach to evaluating climate change impacts under NEPA—monetizing social costs of CO2. In those comments, EPA’s Assistant Administrator for Enforcement and Compliance Assurance recommended that the State Department use “monetized estimates of the social cost of the GHG emissions from a barrel of oil sands crude compared to average U.S. crude.” What EPA means is that the final EIS should calculate the cost to society of the difference in GHG emissions between using Keystone crude and an average U.S. crude. Over fifty years, the State Department suggests the difference could be as much as 935 million metric tons of CO2.

EPA has an economic tool standing by for this estimate. In 2010, an interagency working group published a report entitled “Social Cost of Carbon for Regulatory Impact Analysis.” The report concludes with a table that estimates the cost per metric ton of CO2 of changes in agricultural productivity, human health, property damages from increased flood risk, and the impact to ecosystem services due to climate change. The costs are high, ranging from $4.7 to $136.2 per metric ton ($2007), depending on discount rates, the year in which the CO2 is emitted, and assumptions about future climate change impacts. One environmental group says the true social cost of carbon is even higher—$55 to 266 per metric ton.

At this time, EPA only recommends comparing the social cost of carbon of Keystone crude versus an average crude slate. But this social cost of carbon estimation method—once used—could also be used in other NEPA analyses, even though the utility of these estimates may be questionable under NEPA. Nonetheless, project opponents could use the cost estimation to argue that the cost of climate impacts outweighs the utility of a particular challenged project.

This is an important new development that warrants close attention by anyone planning a project for which greenhouse gases will be analyzed under NEPA.