Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon Peter Howard & Jason Schwartz* I. Introduction ................................................................................ 204 II. Development and Use of the Social Cost Metrics .................... 210 A. History and Development of the Social Cost of Carbon ...... 211 B. Development of the Social Cost of Methane ........................ 217 C. Use of the Metrics in Regulatory and Related Proceedings ........................................................................... 219 III. Strategic Use of the Global SCC Can Foster International Cooperation Benefiting the United States ............................. 221 A. The Economics of Avoiding a Tragedy of the Global Climate Commons ................................................................. 221 B. Other Countries Have Strategically Selected a Global SCC ......................................................................................... 223 C. Foreign Countries’ Existing Policies and Pledges Promise Carbon Reductions Worth Trillions to the United States ... 225 D. Game Theory and International Reciprocity ....................... 227 E. The Obama and Bush Administrations Believed Using the Global SCC Would Spur Global Cooperation ............... 232 IV. Additional Policy Justifications for the Global SCC ............... 238 A. Inevitably Significant “Spillover” Effects Justify a Broader Perspective ............................................................................. 238 B. U.S. Willingness to Pay to Prevent Climate Damages Beyond U.S. Borders ............................................................. 241 C. Lack of Equity Weights Already Favors U.S. Interests ........... 244 V. Binding Legal Obligations Prescribe Using a Global SCC Value ........................................................................................ 245 * Peter Howard is the Economics Director and Jason Schwartz is the Legal Director at the Institute for Policy Integrity at the New York University School of Law. Jason Schwartz is also an adjunct professor at NYU School of Law. Correspondence can be sent to [email protected]. This article does not necessarily reflect the views of NYU School of Law. 203 204 COLUMBIA JOURNAL OF ENVIRONMENTAL LAW [Vol. 42:S A. International Law Commits the United States to Account for Global Effects ................................................................... 245 B. Two Key Statutes Require Consideration of Global Climate Costs ......................................................................... 247 C. Considering Global Climate Costs Under Other Key Statutes Is Reasonable ........................................................... 250 D. Standards of Rationality Require Consideration of Important, Globally Interconnected Climate Costs and Counsel Against Misleading Domestic-Only Estimates........ 254 VI. Conclusion: Arguments Against Using Global Values Are Short-Sighted and Fallacious .................................................. 259 - Opponents Make Inappropriate Judgments and Inaccurate Statements About Negotiation Strategy ....................................... 259 - Opponents Make Inaccurate Statements About Legal Requirements and Agency Practices ............................................ 262 - Opponents Present a Grossly Misleading Slippery Slope ................ 266 Appendix A ...................................................................................... 270 Appendix B ...................................................................................... 285 I. INTRODUCTION President Obama’s administration adopted a global perspective toward measuring the effects of U.S. climate change regulations and calculated the global benefits of U.S. reductions in greenhouse gas emissions. The Obama administration justified this perspective in part on the globally interconnected economics and science of climate change: the United States directly benefits when foreign countries reduce their greenhouse gas emissions, and so it is in U.S. interests to encourage foreign countries to take a global perspective on climate change by modeling that perspective ourselves. Federal agencies’ various statutory authorities to regulate greenhouse gases support—and may require—this global perspective. The Trump administration is expected to break sharply from President Obama’s approach to climate change regulation. However, in any attempts to roll back regulatory requirements for greenhouse gas reductions, legal standards may force the Trump administration to consider the globally interconnected climate damages caused by deregulation. This Article outlines both the economic arguments for why a global perspective on climate costs and benefits is in the interest of the 2017] Think Global: Reciprocity & Global SCC 205 United States, and the legal arguments for why a global perspective may be required in any regulatory or deregulatory actions on climate change.1 To control U.S. emissions of carbon dioxide, methane, and other greenhouse gases despite the absence of any new, meaningful congressional legislation on climate change, President Obama turned to regulatory authorities already existing in statute. His 2013 Climate Action Plan called for new regulations of, for example, carbon dioxide emissions from power plants, methane emissions throughout the economy, transportation fuel economy, and energy efficiency in appliances, lighting, and buildings.2 Using existing authorities under the Clean Air Act, the Energy Policy and Conservation Act, and other statutes, the Environmental Protection Agency (“EPA”), Department of Energy, Department of Transportation, and Department of the Interior responded with dozens of regulations to protect our economy, health, security, and the environment. By presidential orders dating back to the Reagan administration, every major regulation—or deregulation—must be accompanied by an economic analysis showing that the rule’s benefits justify its costs.3 To evaluate the benefits of climate regulations as well as the costs of federal actions that may increase greenhouse gas emissions, a federal interagency working group developed a metric called the “social cost of carbon,” which attempts to measure the marginal global damages of each additional ton of carbon dioxide—that is, the worldwide damages to agriculture, property values, health, and so forth. The value is currently about $40 per ton of carbon dioxide.4 The interagency working group has also developed a 1. By a global perspective on the costs of climate regulation, we mean that if U.S. regulation is anticipated to increase greenhouse gas emissions, federal agencies should account for the global damages of those increased emissions. To the extent that U.S. regulations that reduce greenhouse gas emissions motivate other countries to make reciprocal emissions cuts, U.S. agencies do not count the global compliance costs of those reciprocal foreign actions. 2. EXEC. OFFICE OF THE PRESIDENT, THE PRESIDENT’S CLIMATE ACTION PLAN (2013). 3. Exec. Order No. 12,291, 46 Fed. Reg. 13,193, § 2(b) (Feb. 17, 1981); Exec. Order No. 12,866, 58 Fed. Reg. 51,735, § 6(a)(3)(C) (Sept. 30, 1993) (revoking Executive Order 12,291, but keeping the requirement that regulatory action be justified by a cost-benefit analysis); Exec. Order No. 13,563, 76 Fed. Reg. 3821, § 1(b) (Jan. 18, 2011) (affirming Executive Order 12,866’s requirements). 4. INTERAGENCY WORKING GRP. ON SOC. COST OF GREENHOUSE GASES, TECHNICAL SUPPORT DOCUMENT: TECHNICAL UPDATE OF THE SOCIAL COST OF CARBON FOR REGULATORY IMPACT ANALYSIS UNDER EXECUTIVE ORDER 12,866, at 4 (2016) [hereinafter 2016 TSD]; see also INTERAGENCY WORKING GRP. ON SOC. COST OF CARBON, TECHNICAL SUPPORT DOCUMENT: 206 COLUMBIA JOURNAL OF ENVIRONMENTAL LAW [Vol. 42:S “social cost of methane” metric, currently around $1200 per ton of methane (methane is, pound for pound, a much more potent greenhouse gas than carbon dioxide).5 Like the social cost of carbon, the social cost of methane values global damages. Typically, U.S. regulatory impact analyses focus on costs and benefits to the United States, since many U.S. regulations only or predominately affect the United States.6 However, the Obama administration reasoned that climate regulations are a special category requiring an international perspective on costs and benefits. Greenhouse gases mix freely in the atmosphere and affect the climate worldwide: U.S. emissions affect every other country, and foreign emissions affect the United States. If every country considers only the domestic costs of emissions within its own borders (or, conversely, only the domestic benefits of emissions reductions) and ignores the global externality, no country will ever reach the efficient level of emissions reductions. As the interagency working group on the social cost of carbon explained: Emphasizing the need for a global solution to a global problem, the United States has been actively involved . in encouraging other nations . to take significant steps to reduce emissions. When these SOCIAL COST OF CARBON FOR REGULATORY IMPACT ANALYSIS UNDER EXECUTIVE ORDER 12,866 (2010) [hereinafter 2010 TSD]. The working group calculated the central estimate for year 2015 emissions at $36 in 2007 USD. Inflating this value to 2016 USD using the Bureau of Labor Statistics’ CPI Inflation Calculator gives a value of about $42. 5. INTERAGENCY WORKING GRP. ON SOC. COST OF GREENHOUSE GASES, ADDENDUM TO TECHNICAL SUPPORT DOCUMENT ON