SOCIAL COST OF CARBON IN ENVIRONMENTAL IMPACT ASSESSMENT.

• Author: Wright, David V.

INTRODUCTION

Avoiding dangerous climate change requires significant greenhouse gas (GHG) emission reductions driven by a mix of tools. (1) One such tool is environmental impact assessment (EIA). (2) Recently, calls for integration of climate change considerations into EIA have been intensifying. In Canada, changes to the federal EIA regime are now being implemented, with climate change considerations figuring prominently in the new "impact assessment" (IA) legislation. (3)

Integrating climate change considerations into IA is not a straightforward exercise. (4) To make analysis of climate change considerations a meaningful part of IA, governments must choose from a range of approaches and frameworks that include carbon budgeting, decarbonization pathways, sectoral targets, and offset rules, among many other tools. (5) Such approaches are means of contextualizing the climate change considerations in a way that can assist in fulfilling the traditional EIA purposes of informed decision making and planning.

This article explores whether the social cost of carbon (SCC) may have a role to play as a tool to integrate climate change considerations into IA. SCC is a dollar figure representing the estimated value of damages avoided per unit of carbon emissions reduced. (6) It provides an economic valuation of the impacts of climate change. (7) For example, SCC could be deployed to contribute to understanding of the merits and drawbacks of proposed projects, particularly in relation to economic dimensions and international climate change commitments. Notwithstanding the limitations associated with SCC, (8) we ultimately conclude that using SCC estimates as a way to understand climate considerations in IA could improve consistency and coherence between project-level decisions, national emission reduction targets, and international commitments. It may contribute to understanding how project-level decisions relate to the overarching international objective to mitigate the worst effects of climate change, as agreed to in the United Nations Framework Convention on Climate Change (UNFCCC).

This paper is the first to provide detailed consideration of the potential roles of SCC in IA in Canada. Our primary inquiry asks whether SCC holds promise as a part of IA and how it could be most effectively used. Part I introduces impact assessment, including the goals, components, and evolution of the tool. Part II introduces SCC, explaining what it is and how it has been used to date, and discussing several critiques and limitations. Part III goes on to consider what roles SCC could have in integrating climate change considerations into IA. The potential roles are explored in relation to the purposes of IA, the assessment and decision-making phases of IA, strategic assessment, and associated limitations and challenges. The paper concludes with final reflections and starting points for further research.

While a small amount of literature and litigation has surfaced in the United States, (9) to date there has been no similar work in the Canadian context. This paper is particularly timely given the comprehensive reform of the Canadian IA regime that is currently underway. Bill C-69, (10) which contained the new Impact Assessment Act, (11) received Royal Assent in June 2018. The new Act includes the first ever explicit requirement to factor climate change considerations into IA in Canada. (12) Key provisions of the bill related to climate change withstood proposed changes put forward during Senate proceedings and final consideration in the House of Commons. (13) As an example of a new comprehensive impact assessment statute, the structure, approach, and requirements of the IAA provide a useful, cogent basis for considering potential roles of SCC in IA in Canada and beyond. This paper also has relevance internationally as other countries work to put in place policies and tools--including carbon pricing mechanisms--to achieve targets under the Paris Agreement. (14) Analysis in this paper may also contribute to reconciling unexplained differences between SCC values and different emerging carbon price benchmarks, (15) and to improving shortcomings in SCC practices in Canada and the US. (16)

1. INTRODUCING ENVIRONMENTAL IMPACT ASSESSMENT

   Impact assessment plays a unique role in the overall effort to manage the impact of human activities in the natural world. Whereas most environmental protection tools seek to regulate the environmental impacts of existing, ongoing human activities, IA seeks to predict the impact of proposed activities before they may be allowed to proceed. The primary goal of I As is to inform decisions on whether and under what conditions to approve proposed new activities. (17)

   IA processes vary from jurisdiction to jurisdiction. Some are broader in scope, some apply to a broader range of proposed activities, and some offer a greater range of process options to suit a range of different types of proposed activities. However, the basic elements of most IA processes are remarkably similar. IA processes tend to be triggered by a combination of a list of activities to be assessed (or not to be assessed) and some discretion to deviate from the list. (18) Planning of the IA process tends to involve a review of the proposed activity to see whether or how thoroughly it needs to be assessed, a decision on what process is most suitable for the assessment, and determinations on the scope of the activity to be assessed and the scope of the issues to be considered in the assessment.

   The planning phase of an IA process is usually followed by the preparation of an Environmental Impact Statement (EIS), often either by or on behalf of the proponent. The EIS is then reviewed by government officials and intervenors, resulting in a consideration of the issues or concerns associated with the proposed activity, ultimately resulting in a decision as to whether, and under what conditions, the proposed activity should or can be approved. Most IA processes include some form of follow-up, often designed narrowly to ensure compliance with terms and conditions rather than more broadly to ensure appropriate adaptation of the approved project in case impacts were underestimated or to ensure learning for the benefit of relevant future IAs. (19)

   When IA was first introduced in the 1970s, (20) the focus was largely on biophysical impacts of proposed activities and identifying economically viable mitigation measures to reduce these impacts as much as practically possible. Only in rare cases of predicted large scale environmental effects that could not be mitigated were assessed activities not approved at all. (21) Over time, IA has become more ambitious in its objectives, to considering whether the proposed activity contributes to sustainability and whether it is the preferred way to meet the stated need, purpose, and rationale of a proposed activity.

   This evolution of IA has, of course, not been linear, with significant instances of retreat. (22) A notable example was the repeal and replacement of Canada's federal assessment legislation in 2012, which significantly weakened the regime and narrowed its application. (23) Notwithstanding uneven practice and implementation, key elements have evolved over the past 40 years, including the following:

   * A transition from a focus on biophysical impacts to a broader range of impacts, benefits, risks, and uncertainties associated with a proposal.

   * A transition from assessing the proposal in isolation to assessing it in the context of a range of alternatives.

   * A shift from a focus on project assessments to the integration of strategic and regional assessments, creating a tiered overall assessment and decision-making process. (24)

   * An increased role for the public as an important source of information and as an active and interested participant in the process of determining whether a proposed activity is a good way to meet the stated need, purpose, and rationale.

   * A shift toward more cooperation among affected jurisdictions, including indigenous governments, in carrying out IA processes.

   Efforts to improve IA have resulted in recent years in discussions both in the literature and in the context of law reform efforts in Canada about the concept of next generation IA. Next generation IA is based on the idea that for IA to become an effective tool for sustainability, what is needed is a more comprehensive and integrated approach to addressing the multiple shortcomings of the IA experience to date. Only an integrated approach, it is suggested, will take IA from its current state toward a truly effective tool for sustainability-based decision making, with the goal of ensuring new activities actually make a net contribution to the elusive goal of sustainability. (25)

   Among the key elements of a transition to next generation IA is the consideration of need, purpose, and rationale from a societal rather than proponent's perspective; the consideration of a range of promising alternatives to the proposed activity; the integration of regional, strategic, and project level assessments, particularly with respect to future development scenarios and cumulative effects; implementation of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP); (26) the design of engagement processes to maximize mutual learning opportunities for proponents, government officials, Indigenous peoples, and interested members of the public; and better direction to decision makers on how to ensure approved projects will contribute to sustainability. (27) These elements are thought to be interdependent if IA is to become a truly effective decision-making tool. (28)

   The federal IA process in Canada has gone through a number of significant transitions since its introduction in the 1970s. It first became legally binding in the 1980s in the form of the Environmental Assessment Review Process (EARP) Guidelines Order. It was first...