The United States Climate Legislation

Climate legislation in the U.S. is highly susceptible to political agendas and varies among states depending on the scope 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 clean energy future. 

Here’s everything you need to know about U.S. Climate Legislation:

Federal

The Inflation Reduction Act

The Inflation Reduction Act is the most ambitious investment in combating the climate crisis, aiming to cut total U.S. greenhouse gas emissions by up to 41 percent below 2005 levels by 2030 and designating $369 billion in funding for climate- and energy-related purposes. The IRA provides financial incentives for consumers and corporations through subsidies to invest in clean energy alternatives, like electric vehicles and renewable energy (1). Tax provisions are a large aspect of the IRA, constructed to save families money on their energy bills and to accelerate the deployment of clean energy, clean vehicles, clean buildings, and clean manufacturing (2). The vast majority of this funding ($216 billion) is designated towards tax credits to corporations (3). It is intended to catalyze private investment in clean energy, transport, and manufacturing. A majority of the spending in the IRA is going to be offset by increasing government revenue through increasing the minimum tax on corporations by 15% (4).

What’s the Legislation Timeline?

• Enacted in August of 2022

What Companies are Affected?

• Eligibility for tax credits are dependent on the project undertaken by the corporation, more information can be found here

Federal Supplier Climate Risks and Resilience Rule (5)

The Federal Supplier Climate Risks and Resilience Rule was proposed by the Biden administration as an executive order to force federal contractors to publicly disclose their carbon emissions.

What’s the Legislation Timeline?

• Proposed in November of 2022
• Is currently being implemented

What Companies are Affected?

• Federal contractors receiving more than $50 million in annual contracts will be subject to the following requirements
  • Have to publicly disclose Scope 1, Scope 2, and relevant categories of Scope 3 emissions
  • Disclose climate-related financial risks
  • Set science-based emissions reduction targets
• Federal contractors with more than $7.5 million in annual contracts but less than $50 million are only required to report Scope 1 and Scope 2 emissions

Financial Penalties for Non-Compliance?

• No clear financial penalties, likely that the government would cease conducting business with the contractor 

California

California’s Cap and Trade Program (6)

The cap-and-trade program in California has minimized greenhouse gas emissions in the state by setting a limit on major emitters through extending businesses carbon allowances. This program has been applied to emissions that account for around 80% of California’s GHG emissions. Each year, fewer allowances are created and the annual cap declines. 

What’s the Legislation Timeline?

• Launched in 2013
• Carbon emission allowances have declined by 3% annually since 2013
• Less and less offsets are able to be used to minimize allowances used
  • Allowed for 8% of total compliance obligation through 2020; 4% between 2021 and 2025; 6% between 2026 and 2030. Beginning in 2021, at least half the offsets used for compliance must come from projects that directly benefit California.

What Companies are Affected?

• Initially was applicable to electric power plants and industrial plants that emit 25,000 tons of carbon dioxide equivalent per year or more but since 2015, was extended to fuel distributors meeting the 25,000-metric ton threshold (7)

Financial Penalties for Non-Compliance?

• If a deadline is missed or there is a shortfall, four allowances must be surrendered for every metric ton not covered in time (8)

California’s Corporate Data Accountability Act (9)

The CDAA is the first of its kind in the U.S., requiring that large corporations that do business in California publicly disclose their greenhouse gas emissions. This is incredibly significant legislation as California is the world’s fifth largest economy, so this act forces a significant amount of corporations to publicly report their carbon emissions. 

What’s the Legislation Timeline?

• Enacted October 7th, 2023
• Corporations must provide annual disclosures for scope 1 and scope 2 emissions starting in 2026 and must report scope 3 emissions starting in 2027 

What Companies are Affected?

• Applicable to businesses that generate over $1 billion in annual revenue and either are engaging in any transaction for the purpose of financial gain within California, are organized or commercially domiciled in California, or have California sales exceeding the threshold amount for that year or 25% of total sales 

Financial Penalties for Non-Compliance?

• California Air Resources Board is authorized to seek administrative penalties of up to $500,000 for corporate noncompliance with CCDA (10)

New York

New York’s Climate Leadership and Community Protection Act (11)

The NY CLCPA is incredibly ambitious with the intention to reduce total GHG emissions in NY state by 40% by 2030 and 85% by 2050, using 1990 as a baseline. By 2030, 70% of the state’s electricity will be generated from renewable sources. The state is heavily incentivizing renewable energy and energy efficiency. Through the CLCPA, a cap-and-invest program has been advanced, similar to the cap-and-trade program in CA. 

What’s the Legislation Timeline?

• The CCLCPA was enacted in 2019 but the cap-and-invest program is still in pre-proposal stages

What Companies are Affected?

• It is anticipated that corporations with large greenhouse gas emissions will be required to purchase emissions allowances (12)
• Specifically, electricity sector, industrial sources, other stationary sources such as large refrigerant utilization facilities, waste sector, and transportation and heating fuel suppliers sector (13)

Financial Penalties for Non-Compliance?

• Compliance regulations are still being debated as the cap-and-invest program has yet to be enacted

Recent legislation in the U.S., the Federal Supplier Climate Risks and Resilience Rule and California’s Corporate Data Accountability Act, has required that many corporations publicly disclose their carbon emissions. Other climate related legislation in the U.S. has placed caps on carbon emissions through the creation of emissions allowances, specifically in California and New York. Understanding Scope 3 emissions through having data on your partners and suppliers is essential to remain compliant. At DitchCarbon, we extract, normalize, and make actionable emissions data from all of your suppliers. We help you understand your emissions then reduce your carbon footprint to maintain compliance with U.S. legislation.

1. https://www.epi.org/blog/the-inflation-reduction-act-finally-gave-the-u-s-a-real-climate-change-policy/
2. https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf
3. https://www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it
4. https://www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it
5. https://www.sustainability.gov/federalsustainabilityplan/fed-supplier-rule.html
6. https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program/about
7. https://www.c2es.org/content/california-cap-and-trade/
8. https://www.c2es.org/content/california-cap-and-trade/
9. https://ghgprotocol.org/blog/statement-californias-climate-corporate-data-accountability-act-requires-companies-disclose
10. https://www.crowell.com/en/insights/client-alerts/california-raises-the-bar-for-corporate-accountability-as-newsom-signs-the-most-sweeping-climate-disclosure-laws-in-the-nation#:~:text=On%20Saturday%2C%20October%207%2C%202023,California%20to%20comply%20with%20sweeping
11. https://www.suny.edu/sustainability/goals/clcpa/
12. https://capandinvest.ny.gov/