Current Global Climate Legislation, by Region
Our world is beginning to be dominated by the threats of the climate crisis. Governments globally are acting to mitigate greenhouse gas emissions and transition towards a future free from fossil fuel reliance. To maintain an understanding of the plethora of global climate legislation that is constantly being enacted and revised, keep reading!
United Kingdom Climate Legislation
The United Kingdom has implemented extensive legislation to maintain their commitment to being net-zero by 2050. Legislation has been enacted to promote clean energy, invest in climate change mitigation, and regulate corporate emissions.
UK Climate Legislation, at a glance
The UK Emissions Trading Scheme (ETS), implemented in January 2021 as a successor to EU ETS participation, operates through a system of allocated emission allowances that companies can trade among themselves.
This market-based mechanism compels corporations to either reduce their greenhouse gas emissions or face financial penalties through the purchase of additional allowances. The scheme specifically targets energy-intensive industries, power generation, and aviation sectors.
In parallel, the UK Green Finance Strategy, introduced in 2022, requires major companies and financial institutions, including listed companies and large asset owners/managers, to publicly disclose their approach to climate-related financial risks and opportunities. Currently operating on a "comply or explain" basis, this initiative encourages transparency without imposing immediate financial penalties.
European Union Climate Legislation
The European Union has committed to becoming the first climate-neutral continent through their establishment of a European Green Deal. By 2030, the EU plans to reach at least 55% less net greenhouse gas emissions than in 1990. To achieve this feat, they enacted the Fit for 55 legislative package. The EU has also been enacting legislation that requires public and large companies, both in the EU and beyond, to report their carbon emissions.
Read our guide on the complete overview of EU Climate Legislation here
EU Climate Legislation, at a glance
Corporate Sustainability Reporting Directive In July 2023, required that specific companies provide detailed reporting on sustainability issues, publishing basically an Environmental Social Governance Report Applicable to all public and large companies in the EU or those generating a net turnover of €150 million in the EU and which have at least one subsidiary or branch in the EU Three stages of implementation 1 January 2024 for companies already subject to the non-financial reporting directive 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings
Read our comprehensive guide about CSRD here
In July 2023, the European Union introduced groundbreaking legislation requiring specific companies to provide comprehensive sustainability reporting through Environmental Social Governance Reports. This mandate applies to all public and large companies operating within the EU, specifically those generating a net turnover of €150 million and maintaining at least one subsidiary or branch in the EU.
The implementation of these regulations follows a carefully planned timeline, beginning on January 1, 2024, for companies already subject to non-financial reporting directives. This will be followed by large companies not currently under these directives in 2025, and finally extending to listed SMEs, small and non-complex credit institutions, and captive insurance undertakings in 2026.
A cornerstone of the EU's environmental strategy is the "Fit for 55" legislative package, which sets an ambitious target to reduce greenhouse gas emissions by at least 55% by 2030, measured against 1990 levels. This comprehensive package incorporates three key mechanisms: the EU Emissions Trading System (ETS), Effort Sharing Reduction (ESR), and Carbon Border Adjustment Mechanism (CBAM).
The EU ETS operates as a sophisticated cap-and-trade system, imposing annual limits on greenhouse gas emissions across specific sectors. This system creates tradable emissions allowances for market participants, compelling corporations to either reduce their emissions within allocated allowances or face financial penalties through additional purchases. The scope of ETS encompasses power and heat generation, energy-intensive industries, aviation, and the maritime sector. Following a 2021 revision, the system now targets a 62% reduction in emissions from these sectors by 2030.
Complementing the ETS, the EU ESR establishes a bank and borrow system for the transport, buildings, and agriculture sectors. This flexible mechanism allows emission allowances to be either banked for future use or borrowed from subsequent year allocations. A significant update in May 2023 strengthened the regulation, proposing a minimum 40% emission reduction using 2004 as the baseline.
The CBAM serves as a crucial safeguard against carbon leakage and emission offshoring by imposing carbon prices on goods entering the EU. This mechanism mirrors the EU ETS for foreign producers but applies stricter carbon emissions pricing. During the transitional phase through 2025, importers must report emissions embedded in their CBAM-subject goods, including cement, iron, steel, aluminum, and fertilizers, without immediate financial adjustments.
Read our comprehensive guide about CBAM here
The Carbon Border Adjustment Mechanism (CBAM) was enacted as a strategic measure to combat carbon leakage and prevent the offshoring of emissions by implementing a carbon pricing system on goods entering the EU.
While it mirrors the EU ETS framework, it imposes more stringent carbon emissions prices on foreign producers. The system is currently in a transitional phase lasting until the end of 2025, during which importers must report the emissions embedded in their CBAM-subject goods without immediate financial adjustments. The mechanism's scope covers several key industrial sectors, including cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.
United States Climate Legislation
Climate legislation in the U.S. is highly susceptible to political agendas and varies among states with differences in the scope and the degree of the legislation. The Biden/Harris Administration maintains climate policy as a key aspect of their political agenda and has proposed legislation to promote the transition to a future free from reliance on fossil fuels. Certain states have committed to mitigating the impacts of the climate crisis and are promoting climate conscious agendas.
Climate Legislation, at a glance
Federal Legislation
- The Inflation Reduction Act
The Inflation Reduction Act represents America's most ambitious investment in addressing the climate crisis, with a target to reduce U.S. greenhouse gas emissions by up to 41 percent below 2005 levels by 2030.
The Act allocates $369 billion for climate and energy-related initiatives, with $216 billion specifically designated for corporate tax credits to stimulate private investment in clean energy, transport, and manufacturing. Enacted in 2022, the Act provides financial incentives through tax subsidies for both consumers and corporations.
- Federal Supplier Climate Risks and Resilience Rule
The Federal Supplier Climate Risks and Resilience Rule, proposed by the Biden administration in November 2022, introduces stringent requirements for federal contractors.
Those receiving more than $50 million in annual contracts must disclose their Scope 1, Scope 2, and relevant Scope 3 emissions, along with climate-related financial risks, and establish science-based emissions reduction targets. Contractors with annual contracts between $7.5 million and $50 million face lighter requirements, needing to report only Scope 1 and Scope 2 emissions.
- California Legislation
California's environmental legislation includes two major initiatives. The Cap and Trade Program, launched in 2013, targets major emitters by setting emission limits through carbon allowances, covering approximately 80% of California's GHG emissions. The program's effectiveness is maintained through an annually declining cap and fewer allowances.
Additionally, the Corporate Data Accountability Act, enacted in October 2023, requires large corporations generating over $1 billion in annual revenue and conducting business in California to publicly disclose their greenhouse gas emissions, with phased reporting requirements beginning in 2026 for Scope 1 and 2 emissions, and 2027 for Scope 3 emissions.
- New York Legislation
New York's Climate Leadership and Community Protection Act, enacted in 2019, sets ambitious targets to reduce GHG emissions by 40% by 2030 and 85% by 2050, using 1990 as a baseline.
The Act implements a cap-and-invest program similar to California's cap and trade system, with expectations that large greenhouse gas emitters will need to purchase emissions allowances.
Asia Climate Legislation
The leading economies in Asia are striving towards eventual carbon neutrality, and utilizing cap-and-trade systems to achieve this feat. China has committed to achieving carbon neutrality by 2060. Intending to generate 1,200 gigawatts of renewable energy by 2025, China is by far the global leader in solar and wind power production.
As one of the fastest growing economies in the world, Indian climate policy is incredibly important to ensure that growth can be decoupled from increased emissions. India has committed to be net-zero by 2070 and to have 50% of its electricity generated from renewable energy sources by 2030. Currently, 40% of electricity is generated from clean energy as India is making significant investments in the construction of renewable energy sources, including green hydrogen.
Climate Legislation, at a glance
China
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Emissions Trading Scheme (ETS) Implemented to mitigate greenhouse gas emissions in the power sector through utilizing a cap-and-trade system Corporations in the power sector are allocated a certain amount of emission permits and can trade these permits with a cap on total allocation. Revised in 2021 included clause that all corporations subject to the ETS will have to publicly disclose their carbon emissions
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Implemented to mitigate greenhouse gas emissions in the power sector through utilizing a cap-and-trade system
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Corporations in the power sector are allocated a certain amount of emission permits and can trade these permits with a cap on total allocation.
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Revised in 2021 included clause that all corporations subject to the ETS will have to publicly disclose their carbon emissions
India
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Cap and Trade System Initial stages of the cap-and-trade system intended to increase demand and supply of carbon credits in India, then will evolve into a mandatory emissions reduction structure in which sectors are granted emissions allowances
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Initial stages of the cap-and-trade system intended to increase demand and supply of carbon credits in India, then will evolve into a mandatory emissions reduction structure in which sectors are granted emissions allowances
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In July 2022, the parliament published a bill establishing the framework for a carbon credit trading scheme, enacting the first stage of the cap-and-trade system