Social cost of carbon gets its day in court in Minn.

Source: Jeffrey Tomich, E&E reporter • Posted: Monday, September 8, 2014

The federal government’s social cost of carbon values is going on trial in Minnesota.

Required by state law to establish a dollar value for the environmental damages caused by power plants carbon dioxide emissions, state utility regulators sent the contentious issue to an administrative law judge.

If it plays out like it has so far, the case will pit advocacy groups that successfully petitioned the Minnesota Public Utilities Commission to refresh outdated values for damages caused by CO2 emissions against utilities and big power users, which will try to poke holes in the methodology used by the federal interagency work group and experts.

The PUC presided over four hours of discussion yesterday before voting unanimously to refer the matter to the state Office of Administrative Hearings, where an administrative judge will determine whether the federal social cost of carbon values is the best available measure of CO2 externality costs.

The commission’s order represents a setback for clean energy groups, which urged the commission to adopt the federal government’s carbon damage value and avoid a protracted evidentiary hearing process — one they said was unlikely to yield a more accurate value (EnergyWire, June 17).

The Minnesota Department of Commerce’s Division of Energy Resources also formally supported the position.

Bill Grant, deputy commissioner of energy and telecommunications for the department, said the state, working alone, is unlikely to come up with a more precise value for global damages caused by carbon emissions than the various experts, consultants and economic models used by the federal interagency work group. And it would be costly for consumers.

“It would not be an efficient use of ratepayer funds,” he said.

The federal social cost of carbon already has been used in 60 federal proceedings, including the regulatory impact analysis in EPA’s Clean Power Plan released June 2, Grant said. And an Aug. 25 Government Accountability Office report concluded that the interagency working group established by the Obama administration to estimate the social cost of carbon had used an open approach that relied on consensus-based decisions (Greenwire, Aug. 26).

“We don’t have a better approach to coming up with a value than the one in front of you right now,” he told commissioners. “It’s not as if this isn’t an untested value.”

Opponents disagreed. They argued that the commission’s original¬†order¬†in February to update power plant pollutant externality values indicated that a new CO2 damage value would be would play out in a contested case before an administrative judge.

For regulators to decide the matter before it was fully vetted at the state level would deny them due process and potentially subject ratepayers to continued rate increases, representatives for the Minnesota Chamber of Commerce and Minnesota Large Industrial Group said.

“I feel the ratepayers have been subject to a little bit of regulatory rope-a-dope,” said Andrew Moratzka, an attorney representing the Minnesota Large Industrial Group, a consortium of big electricity users in the state.

Mandated value

The CO2 externality value represents a dollar estimate of the incremental damage caused by each ton of carbon emitted from a power plant stack.

A law enacted by the state during the 1990s requires the PUC to establish externality values for CO2 and other power plant pollutants to help guide utility planning decisions. The commission in 1997 adopted a range of values, from 42 cents to $4.37 per ton of CO2. They have been updated annually for inflation since 2001, but there has been no further effort to quantify the damages caused by carbon pollution from power plants.

Clean energy advocates last year petitioned the PUC to refresh the environmental damage values for CO2 and three other criteria pollutants. The commission agreed, and ruled that the 17-year-old CO2 value was no longer scientifically supportable — a point commissioners were reminded of yesterday.

“The existing externality cost for carbon dioxide is very much out of date,” said Frank Kohlasch of the Minnesota Pollution Control Agency.

A stakeholder group was organized at the commission’s request to look at the scope and process of updating the CO2 value. But there was little consensus among the parties, which included utilities, big power users, and environmental and clean energy advocates.

While environmental groups pushed for the PUC to include in the value damages caused by other greenhouse gases, coal producer Peabody Energy Corp. said regulators should factor in benefits of CO2 emissions.

In the end, the Department of Commerce recommended that the PUC adopt the federal social cost of carbon — a decision that would put a price of about $36 on each ton of CO2 emitted from Minnesota power plants in 2015.

Open timeline

It’s unclear how long it will take the administrative case to play out. The commission’s order yesterday allows the Department of Commerce to seek approval to retain an expert. There will be testimony filed, an evidentiary hearing and the administrative judge’s decision.

PUC spokesman Dan Wolf said there’s no statutory deadline for the administrative judge to issue a recommendation, which would then have to be approved by the commission.

Also unknown is how the value will weigh in future decisions about the state’s energy mix.

Already, the PUC is requiring the state’s largest electric utility, Xcel Energy Inc., to run a federal social cost of carbon analysis as part of its next integrated resource plan. The commission can similarly require other utilities to do the same.

Leigh Currie, a Minnesota Center for Environmental Advocacy attorney representing the clean energy coalition, told commissioners that state law requires them to establish a value for environmental damages caused by power plant emissions and that they have already determined that the current value for CO2 is outdated.

“The Legislature said we have to do this, we have to have a value in place,” she said.

But commissioners said putting the federal CO2 value on trial would build acceptance and provide transparency.

“I don’t want to find the errors later. I want to find the errors now,” Commissioner David Boyd said. “This is a very significant decision.”