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
UK Emissions Trading Scheme (ETS)
a limited number of emission allowances are allocated to companies, which they can trade with each other
Forces corporations to mitigate their emissions or be subject to financial penalties
Emit more GHG → buy more allowances
Enacted in 1/2021 to replace participation in the EU ETS
Applicable to energy intensive industries, the power generation sector, and aviation
UK Green Finance Strategy
As of 2022, required the largest companies and financial firms (listed companies and large asset owners/managers) to make public how they are responding to financial risks and opportunities from climate change
Comply or explain basis, so no financial penalties yet
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.
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
Fit for 55
Legislative package intended to reduce greenhouse gas emissions by at least 55% by 2030, using 1990 as a baseline
includes the EU Emissions Trading System (ETS), Effort Sharing Reduction (ESR), and Carbon Border Adjustment Mechanism (CBAM)
EU ETS
Cap-and-trade system where a limit is placed on GHG emissions from specific sectors each year
Created tradable emissions allowances and distributed to market participants
Forces corporations to mitigate their emissions (w/in allowances) or be subject to financial penalties by purchasing more
Applicable to the power, heat generation, energy intensive industrial sectors, aviation, and the maritime sector
Revised in 2021 to reflect an overall target of a 62% reduction in emissions from the sectors involved by 2030
EU ESR
Establishes bank and borrow system, similar to ETS but for the transport, buildings, and agriculture sectors
Emission allowances can be banked and used in the future or borrowed from subsequent year allowances
In May of 2023, revised regulation was enacted with a proposal to reduce emissions under ESR by at least 40% using 2004 as a baseline.
CBAM
Enacted to prevent carbon leakage and the offshoring of emissions through imposing a price of carbon emitted during the production of goods entering the EU
Mirrors the EU ETS for foreign producers, but with harsher carbon emissions prices
Between now and the end of 2025, importers will have to report emissions embedded in their goods subject to CBAM without paying a financial adjustment in a transitional phase
CBAM encompasses 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 is the most ambitious investment in combating the climate crisis, aiming to cut 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
Provides financial incentives for consumers and corporations through tax subsidies
The vast majority of this funding ($216 billion) is designated towards tax credits to corporations to catalyze private investment in clean energy, transport, and manufacturing
Enacted in 2022
Federal Supplier Climate Risks and Resilience Rule
An executive order to force federal contractors to publicly disclose their carbon emissions
Federal contractors receiving more than $50 million in annual contracts will be subject to these requirements:
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 would be required to only report Scope 1 and Scope 2 emissions
Proposed by the Biden administration in November 2022
California Legislation
California’s Cap and Trade Program
Minimizes GHG emissions by setting a limit on major emitters through extending businesses carbon allowances
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
Launched in 2013
California’s Corporate Data Accountability Act
Requires that large corporations that do business in California publicly disclose their greenhouse gas emissions
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 either the threshold amount for that year or 25 percent of total sales
Corporations must provide annual disclosures for scope 1 and scope 2 emissions starting in 2026 and must report scope 3 emissions starting in 2027
Enacted October 7th, 2023
New York Legislation
New York’s Climate Leadership and Community Protection Act
Intends to reduce GHG emissions by 40% by 2030 and 85% by 2050 using 1990 as a baseline
Through the CLCPA, a cap-and-invest program has been implemented, similar to the cap and trade program in CA
Anticipated that corporations with large greenhouse gas emissions will be required to purchase emissions allowances
Enacted in 2019
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
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
India
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
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
