Using the Social Cost of Carbon in the Bureau of Land Management’s Planning: An Opportunity for a Carbon Price?
In new research (described in an earlier blog post), we lay out a legal argument for how the Bureau of Land Management (BLM) might implement a carbon pricing policy, based on the social cost of carbon, on coal extraction on federal lands (with RFF coauthors Joel Darmstadter, Nathan Richardson, also of the University of South Carolina School of Law, and Katrina McLaughlin). As we mentioned previously, BLM has a mandate to manage public land in a way that provides for multiple uses. This responsibility means that it must account not for just resource extraction or recreation or conservation. BLM must manage the land for multiple uses and also get a sustained yield (economically and for the good of the public) out of the land. Implementing a significant carbon charge on federal coal at the point of extraction (at the royalty stage) might make one of those uses, resource extraction, no longer viable. This would most likely create a legal threat to the use of a carbon charge in this way. But there is another option, described in our research, that BLM might use: it could consider the social cost of carbon in its planning process.
The Council on Environmental Quality’s newly revised draft guidance under the National Environmental Policy Act (NEPA) says that federal agencies should include climate change considerations in their planning efforts. Incorporating a carbon charge at this stage would be using the policy even farther “upstream.” In theory, BLM could examine a parcel of land that could be used for coal development, or grazing, or set aside as a wildlife reserve, and, at that point it, could consider a carbon charge in determining whether this land should be put up for coal leasing. As we note in the paper:
“This would be the earliest possible time to consider the [social cost of carbon, SCC] in shaping overall federal coal activity. Applying the SCC to federal coal could also be done systematically when BLM prepares resource management plans, its basic multiple-use planning activity under the Federal Land Policy and Management Act (FLPMA). This multiple-use planning is a particularly promising place to incorporate full-cost accounting for coal—that is, the full costs and benefits of coal across its complete life cycle. It is early in the coal decision sequence, it includes all BLM lands for coverage and consistency, it creates planning areas of similar resources and recognizes differences among them, it has extensive public engagement, and it is where BLM explicitly applies its mandate to consider multiple uses and environmental trade-offs. Such incorporation gives BLM the opportunity to decide whether given federal lands are suitable for coal leasing, considering (among many other factors) the climate impacts of extracted coal.”
Such an approach might rule out coal leasing for some, but not all, potential parcels. Although a sufficiently high carbon charge might prohibit most federal coal development when considered at the royalty stage, the same charge considered at the planning stage might allow for some federal coal development, particularly on parcels that face fewer competing uses. While the ultimate fate of the proposed NEPA draft guidance remains to be seen, incorporating a carbon charge at the planning stage could present a promising option that is less likely to endanger BLM’s multiple use mandate.
In this edition:
- New research on the legal and economic cases for federal coal carbon pricing
- Analysis on the effects of policy options to reduce traffic congestion and pollution
Charging for Coal’s Carbon
Last week a New York Times op-ed called for the federal government to account for carbon emissions in the price of coal: “The federal government should also take into account the economic consequences of burning coal … [and] the added costs associated with the impacts of greenhouse gas emissions.”
New research from RFF’s Alan Krupnick, Joel Darmstadter, Nathan Richardson (of the University of South Carolina School of Law), and Katrina McLaughlin explains why “federal coal seems like a logical target for launching a carbon pricing policy.” They argue that the Bureau of Land Management “does have the statutory authority and regulatory ability to increase royalty payments on new coal leases to account for externalities related to CO2 emissions.” However, they caution that while the legal case for such a fee seems strong, the economic case “appears noticeably weaker.” Read More
Conversations in the United States about policies to reduce emissions from fossil fuels have normally focused on a number of “downstream” approaches that target the end or intermediate users of fossil fuels. Notably, the US Environmental Protection Agency’s proposed Clean Power Plan addresses emissions from existing electric power plants, and fuel economy standards are reaching for a 50 percent reduction of carbon dioxide (CO2) emissions from the transportation sector.
As an alternative to developing a large number of these downstream policies, an “upstream” approach—targeting fossil fuels as they come out of the ground—might be a better way to go. Such an option recently appeared in a New York Times op-ed and some policymakers are already thinking along these lines. Congressman Jim McDermott (D-WA/7th) recently introduced a bill (H.R. 972) that would require fuel producers and importers to purchase emissions permits. In 2014, Senators Whitehouse (D-RI) and Schatz (D-HI) released draft legislation calling for an upstream carbon tax on all fossil fuels. Even though a new law might not actually be necessary to start implementing upstream regulation, the current timing for such an approach may be right. Sally Jewell, secretary of the US Department of the Interior, recently stated, “What are we doing to achieve a low carbon future? . . . Our task by the end of this administration is to put in place common-sense reforms that promote good government and help define the rules of the road for America’s energy future on our public lands.”
In a new RFF discussion paper, we take a look at coal. Forty percent of US coal is produced on federal land managed by the Bureau of Land Management (BLM). We examine whether BLM could—and perhaps should—impose an upstream carbon charge on this production. Because coal is the most carbon-intensive of fossil fuels, and because our research shows a significant discrepancy between the price of coal from federal lands (around $12 per ton) and the estimated global damages of coal (around $94 per ton, given the administration’s middle estimate of around $46 per ton of CO2 for 2020), federal coal seems like a logical target for launching a carbon pricing policy. (The $46 estimate emerges from research into the social cost of carbon conducted by a series of interagency groups. See further comments below). Read More
Over the past several decades, fishery management has undergone significant change as nations around the world have implemented catch share programs. Among such programs, individual transferable quotas (ITQs)—a type of catch share that provides a market-based approach—often are designed with multiple objectives in mind. Goals can include ensuring that a fishery’s overall catch is sustainable and, at the same time, providing steady jobs and promoting the well-being of fishing communities. In fact, recent policies in the United States, including a mandate under the Magnuson Stevens Fishery Conservation and Management Act, specifically require that the design and evaluation of such policies take into account the impact of management changes on fishing jobs and communities. But how do those requirements affect a program’s economic efficiency goals? Read More
RFF ON THE ISSUES: BLM fracking regulations; Energy efficiency in buildings; European emissions fall
In this edition:
- Comments on BLM’s new fracking regulations
- Improving energy efficiency in buildings
- A policy option for the EU Emissions Trading System
BLM Fracking Regulations
The Bureau of Land Management (BLM) recently released the “first federal fracking rules” since the US shale boom began. The rules apply to oil and gas producers who drill on public land. In a new blog post, RFF’s Alan Krupnick writes: “Our rapid assessment is that, other than for the requirement of frack tanks … no new ground is being broken vis-à-vis the states as a whole … all that can be said in general is that with state regulations extremely heterogeneous and the ground shifting so quickly, BLM’s regulations are more stringent for some states and less stringent for others.” Read More
This post originally appeared on Robert Stavins’s blog, An Economic View of the Environment.
Recently I was reminded of the controversy that erupted late in 2014 about remarks made by the distinguished health economist, Jonathan Gruber, professor at MIT for two decades. Professor Gruber, one of the country’s leading experts on health policy, had played an important role in the construction of the Obama administration’s Patient Protection and Affordable Care Act, subsequently derided by its political opponents as “Obamacare.”
A brief but intense political controversy and media feeding-frenzy erupted when videos surfaced in which Professor Gruber – largely in a series of academic seminars and conferences – explained how the Act was crafted and marketed in ways that would make it easier to develop political support. For example, he noted that insurance companies were taxed instead of patients, fundamentally the same thing economically, but vastly more palatable politically. He went on to note that this was possible because of “the lack of economic understanding of the American voter.” His key point was that the program’s “lack of transparency is a huge political advantage.” Is that a controversial or even unique observation?
A Truism of Political Economy
Any economist who has worked on the development or analysis of public policy – in areas ranging from health care policy to environmental policy to financial regulation – recognizes the truth of the key insight Gruber was communicating to his audiences. It is inevitably in the interests of the advocates of a policy to make the policy’s benefits transparent and to make its costs vague, even unobservable; just as it is in the interests of the opponents of a policy to make that policy’s benefits obscure and its costs as clear as the light of day. Read More
Today the United States Bureau of Land Management (BLM) released their long awaited final rules on hydraulically fracked wells on federal land after two rounds of proposed rules in 2012 and 2013 proved highly contentious. In our article on the 2013 proposed rules, we hoped BLM rules would be a model for states to follow, but concluded that they backed off of more stringent regulations in 2012 and that the BLM rules didn’t break new ground, being more stringent than some states and less in others.
Is three times a charm?
Let’s go through what BLM says is “new.” From an environmentalist perspective, the requirement for frac tanks to store waste fluids as opposed to keeping open the use of lined pits is a step forward, going beyond nearly all state regulatory practice. But the data show that there are risk-risk tradeoffs. Tanks in tornado alley are probably a bad idea, and have been not infrequently used as target practice. But tank leaks and spills are easier to monitor and not vulnerable to rainy weather. With the industry moving to mobile storage tanks anyway, and with exceptions able to be made (in tornado alley?), the rule seems reasonable. One concern is that the exceptions are to be “limited and rarely granted” and not on cost grounds.
The requirement to submit details about the geology and fracking plans before drilling is a very good idea, so long as BLM has criteria to reject some plans and enough personnel to make reviews serious rather than pro forma. This provision also comes with a plan to distribute the data to the public on the web site, although the details remain to be worked out. Another great idea, but execution is critical.
There are a few provisions about casing and cementing as well as well integrity testing and reporting. Plans in these areas do not require approval, however, and criteria for deciding when inadequacies or bad test results show up are not provided. The requirement for a successful mechanical integrity test prior to fracking is a step towards lower risks compared with current regulation, but has been overtaken by best practice and state regulation.
There are several rules which return to the generally more stringent 2012 proposal. Most important is the requirement that testing be carried out on each well. The 2013 rules permitted well sampling among wells with similar specifications and geologic parameters.
Finally, the BLM is now requiring fracking fluid disclosure after completions through FracFocus, the reporting tool set up by the Groundwater Protection Council with funding from the US Department of Energy. As FracFocus improves, this strategy will look better and better. The 2012 rules asked for disclosure before the drilling began, but BLM argued that the actual mixture used was a field decision. There are still exceptions for trade secret protection, which can be granted via an affidavit attesting for the need – an approach that appears no different than the 2013 rules but weaker than in 2012 where chemical information would have had to be submitted to substantiate claims.
How do these rules stack up against the states’ rules? Read More
If I want to know the calorie content of a candy bar or whether a new sweater requires hand washing, I can just look at the label before I buy. Similarly, if I want to know the operating costs for a new refrigerator, I can study the Energy Guide, a federally mandated label for all appliances. But if I’m considering renting space in a 20-story downtown office building, I might have a hard time finding out what to expect in terms of the energy bills. Some signals may exist—perhaps I can see that the windows are new and the building owner discloses the age of the heating and cooling system. Or maybe the building is Energy Star or LEED certified. But suffice it to say that the information will be imperfect, difficult to verify, and probably insufficient if energy costs are important in my leasing decision. Read More
A new study appearing in Nature Climate Change (of which I am a coauthor) explores how institutional considerations of risk affect the cost of large-scale investments in the power sector that increase or reduce carbon dioxide emissions. Unlike previous studies that assume uniform costs for investments, we apply financial charges that vary from country to country and for different technologies. We find that these differences significantly increase overall costs of mitigation (up to 40 percent globally), and even more dramatically alter the pattern of regional effort (with increases up to 100 percent in developed countries with lower investment risk). These results further highlight the challenges facing climate negotiators working to create a long-term, comprehensive post-2020 agreement this year in Paris.
Previous studies assume that firms throughout the world have access to technology and finance at the same cost. However, in the real world, that is not the case. Financial charges vary significantly from country to country depending, for example, on the integrity of judicial systems and the competence and credibility of public administration. Investments in currently non-commercial or politically challenged technologies—such as carbon capture and storage and, in some nations, nuclear power—bear higher financial charges. Read More
In this edition:
- An upcoming RFF First Wednesday Seminar on offshore energy leasing in the Arctic
- RFF climate research featured as part of the US Climate Resilience Toolkit
Arctic Drilling Plans
Shell has announced that it will proceed with its Arctic drilling plans, “assuming timely approval from the US federal government.” The company has spent significant time and money on oil exploration in Alaska’s Chukchi and Beufort Seas, acknowledging that “technical, fiscal, regulatory, [and] political” issues may still affect its Arctic development efforts.
Next month’s RFF First Wednesday Seminar on April 1, co-hosted with the Stanford Woods Institute for the Environment, will highlight efforts by the Obama administration to develop a targeted leasing model and drilling standards tailored to the Arctic. Experts will discuss the strengths and weaknesses of these regulations and the broader framework needed to support integrated Arctic management and prudent development. Register to attend in person or watch the live webcast. Read More