On March 28, President Trump signed a highly anticipated Executive Order that will significantly impact future and existing environmental regulations. While media rumors regarding the content of the Executive Order were for the most part correct, the implications of this administrative action remain to be seen.
President Trump’s “Executive Order on Promoting Energy Independence and Economic Growth” includes four major provisions, which are described in more detail below.
Review of Estimates of the Social Cost of Carbon. Probably the most impactful component of this Executive Order to withdraw any technical support documents issued by the Interagency Working Group (IWG) on how to include the Social Cost of Carbon (SC-CO2) in regulatory rulemaking. The IWG itself will be disbanded.
Executive Order 12866, issued by President Bill Clinton in 1993, requires that significant regulatory actions be submitted for review to the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB). In 2009, after an agency was ordered by the courts to consider the SC-CO2 in a rulemaking process, the IWG was formed by the Council of Economic Advisers and the Office of Management and Budget to determine how best to monetize the net effects (both positive and negative) of CO2 emissions and sought to harmonize a range of different SC-CO2 values across multiple Federal agencies.
The IWG’s recommended estimates, which were first issued in 2010, have been used to analyze rulemakings directly targeting carbon dioxide emissions, as well as others setting standards for conventional or toxic pollutants that indirectly affect CO2 emissions.
The IWG periodically updated the SC-CO2 based on a review of three large integrated assessment models (DICE, FUND, and PAGE). This final calculated carbon value output is highly influenced by a series of model input assumptions such as the discount rate, world carbon cycle balance and selected damage functions for sea level rise.
Even with updated scientific knowledge, the models’ ability to use historical data to back-cast past changes in climate has remained weak, putting doubt on its capacity to project future changes. Given these knowledge gaps, the IWG’s resulting SC-CO2 estimate always suffered from a large degree of uncertainty.
For example, the sensitivity to assumption changes is illustrated by the updated 2013 carbon externality value of $36/metric ton CO2 (2007$)—37% higher than the initial $26.30/metric ton CO2 value calculated in 2010.
Regardless, incorporating the SC-CO2 into past regulatory cost/benefit analyses, Federal agencies often estimated that the benefits from regulations that reduced coal use, increased renewable generation and/or improved energy efficiency and that these benefits outweighed higher compliance costs. With the reversal of the executive order, the carbon value is now eliminated from future regulatory impact assessments. However, it does not affect any existing final regulations.
Review of the Environmental Protection Agency’s (EPA) “Clean Power Plan” (CPP) and related rules. The latter category includes the New Source Performance Standard for new and modified power plants and the proposed Federal Plan for the CPP. Specifically, this provision in the E.O. instructs the EPA to “publish for notice and comment proposed rules suspending, revising, or rescinding” the CPP. Furthermore, it states that Attorney General Jeff Sessions should “request that the court may stay the litigation or otherwise delay further litigation.” As discussed in our December 2016 and January 2017 newsletters, the future of the CPP remains somewhat uncertain. The Court of Appeals could deny Jeff Sessions’ request to stay the litigation and rule on the case regardless. Should the Appellate Court rule for the EPA, the plaintiffs are likely to appeal the case to the Supreme Court. Should the Appellate Court rule for the plaintiffs, the EPA is likely not appealing the decision. However, as was done in other legal cases before, other parties who have been intervening in support fo the EPA could appeal the decision to the Supreme Court. With nominee Neil Gorsuch likely joining the Supreme Court by the time the case will be heard, a ruling for the plaintiffs and therefore an end to the CPP is likely, but not 100% certain.
With this E.O. the EPA is instructed to propose a new rule that would effectively “override” the existing Clean Power Plan. However, going through the public notice and comment period takes time and resources. At least it would take the gamble out of the equation by not having to rely on a favorable decision by the Supreme Court.
However this highly unusual litigation process over this highly unusual regulation plays out, the end of the Clean Power Plan seems all but inevitable.
Lifting the Federal Land Coal Leasing Moratorium. Since most federal lands are located in the Western United States, lifting the coal leasing moratorium on federal lands will only have an effect on coal leases in the Rockies and the Powder River Basin coal basins. The last PRB federal coal lease (before last year’s moratorium) was issued in 2011 and interest in new leases in the PRB has been very limited. However, some smaller coal leases may be issued in the Rockies coal basin (mainly Utah and Colorado).
Review of Regulations Related to U.S. Oil and Gas Development. The Executive Order also requests the Secretary of the Interior to review three recently finalized rules pertaining oil and gas exploration on federal and Indian lands, as well as the rights to explore for oil and gas on non-federal lands (i.e., National Wildlife Refuge lands). Revising these rules will have only limited effect on expanding gas and oil production in the Western U.S. Additionally, the Secretary of Interior is also asked to review and take appropriate actions against a rule finalized late last year that made oil and gas flaring and venting at the exploration site subject to royalty payments. Rescinding this rule will improve the well economics in the Western U.S. somewhat, but increases in production will still be limited due to local issues.