US carbon 'cost' ruling may hit oil lease sales

Louisiana's recent win in litigation that barred President Joe Biden's administration from using a contested calculation for determining the "social cost of carbon" could upend federal oil and gas lease sales planned in the coming months.

A federal judge in Louisiana last week issued an injunction blocking the federal government from further use of the calculation, which pegs the cost of releasing CO₂ emissions at $52/metric tonne, in any decision-making. Louisiana attorney general Jeff Landry, who brought the suit, hailed the nationwide injunction, saying it would halt Biden's "attempt to control the activities" of people and businesses and support the state's energy economy.

But that win has raised new questions about how the federal leasing process will move forward, since Interior Department relied on the carbon cost formula for draft environmental reviews for lease sales in New Mexico, Wyoming, Colorado and other states that were scheduled to begin as early as this quarter. The economic cost of carbon also featured prominently in environmental reviews of a planned offshore lease sale in the Cook Inlet off Alaska.

Interior officials are "sort of in a 'damned if we do, damned if we don't' scenario," New York-based think tank Institute for Policy Integrity senior attorney Max Sarinsky said. "This insanely overbroad injunction prohibits them from using the best available metric to assess climate impacts of their lease sales. If they do not include that assessment, that of itself could be problematic."

Last week's ruling is already creating issues across other parts of Biden's regulatory agenda. The libertarian group the Competitive Enterprise Institute on 15 February cited the ruling in a petition asking the US Environmental Protection Agency to abandon a rule tightening fuel mileage standards for cars and trucks, despite the fact the regulation was completed well before the judge's ruling. The agency in the vehicle rule projected $130bn of climate benefits, under one economic assumption.

"Given the magnitude of the [carbon] benefits claimed by this rule, those claims are of central relevance to the outcome of the rule," the petition said.

Interior is required under its oil and gas lease sale process to first finalize its pending environmental reviews, all of which relied on the social cost of carbon to project climate damages from leasing. In the case of the lease sale in Wyoming, for example, Interior calculated damages from oil production could reach $9.6bn under a severe global warming scenario.

But if Interior excludes references to the cost of carbon, the agency risks running afoul of other recent court rulings that faulted the agency for failing to take a sufficiently hard look at climate effects. A federal court on 27 January threw out a $192mn lease sale in the Gulf of Mexico over that very issue.

Oil and gas groups are urging Interior to resume leasing, citing a separate court ruling last summer from a different federal judge in Louisiana that dissolved Biden's pause on oil and gas leasing. The Western Energy Alliance accused the agency of defying the order, since it has now missed a 45-day notice period to hold lease sales this quarter. Interior in court filings said it aimed to restart leasing this quarter.

"The Department continues to miss deadlines, drag its feet and ignore a judge's ruling to hold sales," the industry group's president Kathleen Sgamma said.

Interior said it is continuing to comply with the court's leasing order from last summer. The agency said it was reviewing recent court orders from Louisiana, including the social cost of carbon injunction.

"We do not have any updates as to timing of the next steps in the process," Interior said.

By Chris Knight