The Fifth Circuit recently allowed the federal government to resume use of the “social cost of carbon” (SCC), after a district court enjoined reliance on the metric earlier this year. The SCC aids cost-benefit analysis of regulatory actions and can provide insights into the impacts of climate change and greenhouse gas emissions reductions. The continued legal back and forth over the SCC demonstrates that it is a highly contested and important concept, supporting much of President Biden’s climate agenda and with potential spillover effects for corporate carbon pricing.
The legal battles directly stem from an Executive Order President Biden issued on his first day in office, but continue a dispute that began in the last two presidential administrations. Executive Order 13990 re-established an Interagency Working Group (IWG); directed it to issue an interim estimate of the SCC (the “interim SCC”); directed agencies to use the SCC “when monetizing the value of changes in greenhouse gas emissions resulting from regulations and other relevant agency actions”; and directed the IWG to continue work towards a “final” SCC figure, originally set to be published in January of this year. The portions of the order addressing the SCC were themselves a response to Trump Administration actions which disbanded the IWG and directed use of an SCC estimate far lower than what prevailed under the Obama Administration. In February 2021, the Biden IWG issued the interim SCC, which returned to the Obama-era estimates as follows:
Source: Interagency Working Group on Social Cost of Greenhouse Gases
Litigation over the Biden SCC estimates and effects on the Federal Government
A host of state attorneys general immediately challenged the interim SCC in two separate lawsuits in Louisiana and Missouri. Among other claims, these suits alleged the interim SCC failed to comply with the Administrative Procedure Act’s notice-and-comment requirements, was arbitrary and capricious, and otherwise was enacted without statutory authorization. In February, a District Court Judge in the Western District of Louisiana hearing one of these challenges issued a preliminary injunction, prohibiting agencies from “adopting, employing, treating as binding, or relying upon” any SCC estimates that depart from those used in the Trump Administration.
This opinion immediately reverberated across the federal government. In a motion to stay the injunction pending further appeal, the Justice Department wrote:
The consequences of the injunction are dramatic. Pending rule-makings in separate agencies throughout the government—none of which were actually challenged here—will now be delayed. Other agency actions may now be abandoned due to an inability to redo related environmental analyses in time to meet mandatory deadlines.
In light of this injunction, a host of federal rulemakings, grants, and agency processes were delayed, including federal oil and gas leasing and grants made under a $2.3 billion program for capital-intensive transportation projects. In court filings, the Justice Department further catalogued how the injunction was derailing federal operations dealing with climate change. A declaration filed by a high ranking Office of Management and Budget (OMB) official documented disruptions to at least 21 rulemakings by the Department of Energy, 5 by Environmental Protection Agency, 9 by the Department of Transportation, and 3 by the Department of the Interior. The injunction would have forced the Transportation and Interior Departments to redo 60 and 27 environmental impact analyses, respectively.
Apart from its impact on agency rulemaking, the injunction threatened to implicate the White House’s international climate efforts. For instance, the United States engages in regular conversations with the Canadian government to align SCC measurements across borders. Multilateral discussions with the Asian Development Bank may also be affected, as its energy policy reviews often incorporate references to SCC measures. The Justice Department argued the injunction would impede this international cooperation.
On March 16th, the Fifth Circuit stayed the injunction pending appeal. The Court primarily rested its decision on Plaintiff’s lack of standing, noting the states’ injuries are “merely hypothetical.” Even if an agency did consider the SCC, it would only be one factor agencies consider “in determining when, what, and how to regulate or take agency action” The Fifth Circuit also considered the breadth of the impacts on government activities caused by the lower court’s sweeping injunction.
The SCC moving forward
The IWG will now continue its work as litigation challenging the SCC continues. This includes the Louisiana proceeding and the Fifth Circuit’s stay, as well as a pending 8th Circuit appeal of a Missouri district court decision,  which dismissed another challenge to the interim SCC for lack of both standing and ripeness.
The IWG must still promulgate updated “final” SCC figures, which are expected to be higher than the interim ones based on President Obama’s IWG. It is unclear when this might occur: neither the White House nor OMB has issued an official update. Prior to the injunction, however, OMB had already solicited and received detailed public comment on how to incorporate the latest peer reviewed science and economics literature into the new SCC measure. Since, technical experts across federal agencies had been synthesizing and summarizing this input, with the “goal of providing updated estimates in the next couple of months.” Given delays caused by the litigation, it’s uncertain if the Government intends to honor this timeline. Additionally, the IWG had intended to subject their updated estimates to a peer review process and, to this end, EPA had published a request to nominate experts on January 25th.
The IWG’s work and the final SCC will be closely watched, both by the federal government and the private sector. Under the SEC’s recently proposed climate-disclosure rule, publicly registered companies that use an internal carbon price—i.e., an “estimated cost of carbon emissions used internally within an organization”—would be required to disclose the price per metric ton of carbon dioxide equivalent used, and the company’s rationale for selecting that price. While not bound to do so, in setting internal carbon prices some companies may reference or even adopt the IWG’s estimate of the SCC. However, with the fate of the interim SCC unclear, and an array of carbon markets around the globe setting other prices on carbon, many companies may be less inclined to adopt the IWG’s SCC in their internal carbon pricing.
 See, e.g., Complaint, Louisiana et al., v Biden et al., 21-CV-01074 (W.D. La., filed on April 22, 2021), ECF No. 1.
 Mem. in Sup. of Defs’ Motion for a Stay (“Gov. Mem.”), 21-CV-01074, (W. D. LA., February 19, 2022), ECF No. 103-1.
 Declaration of Dominic J. Mancini (“Mancini Decl.”), 21-CV-01074 (W. D. LA., February 19, 2022), ECF No. 104 at 10.
 Id. at 19–20.
 Louisiana v. Biden, 22-30087, (5th Circuit, March 16, 2022), Document #00516242341 at 5.
 Id. In particular, it noted how the injunction halted “the President’s directive to agencies in how to make agency decisions, before they even make those decisions.” Id. It also forced the government to comply with the Trump Administration’s SCC estimates, “even though that document was not mandated by any regulation or statute in the first place.” Id.
 Missouri, et al., v. Biden, 21-03013 (8th Circuit).
 Missouri, et al., v. Biden, 21-CV-287, (Aug. 31, 2021), ECF No. 48.
 Id. at 22-23.
 Id. at 23.
 Securities and Exchange Commission, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” Proposed Rule at 83–86 (March 21, 2022).