On May 25, 2023, the U.S. Supreme Court issued a 9-0 decision ending a nearly 16-year battle over the Clean Water Act’s (CWA) applicability to certain wetlands. In a five-justice majority opinion, the Court found that the CWA applies only to wetlands that are “as a practical matter indistinguishable” from “relatively permanent, standing or continuously
EPA bets on CCS in proposed regulations under Clean Air Act
The Biden administration just announced draft regulations that would require most coal-fired and gas power plants to capture and sequester up to 90 percent of their carbon emissions by the middle of the next decade, a move with the potential to transform the U.S. electricity sector and perhaps offer a boost to the fledgling domestic…
Two reasons to expect little progress at COP27
We are not expecting further big climate reduction commitments from countries this year at COP27. The leaders of China and Russia (the world’s first- and fifth-largest climate polluters) are not attending the event, nor are officials from many of the largest economies, including India and Australia. U.S. President Joseph Biden will make only a short…
EPA Sharpens Enforcement Focus on Stationary Engines
US EPA periodically issues compliance advisories and enforcement alerts that highlight the agency’s enforcement efforts related to specific regulations and regulatory provisions. One recent EPA enforcement alert targets air emissions from stationary engines subject to the RICE NESHAP under 40 CFR Part 63, Subpart ZZZZ and new source performance standards in 40 CFR Part 60…
Environmental aspects of the Inflation Reduction Act of 2022
President Biden signed the Inflation Reduction Act of 2022 (the Act) into law on August 16, 2022. The Act represents an expansive investment in the energy industry, with many provisions targeting clean energy and climate change issues through funding and tax credits. However, several notable provisions from an environmental permitting and compliance standpoint are buried amongst the financial and tax provisions. These environmental provisions relate to permitting and compliance that the regulated industry, especially energy companies, should watch closely.
Funding for Permitting and Programmatic Development
The Act provided significant funding to regulatory authorities for a number of permitting-related activities.
For example, the National Oceanic and Atmospheric Administration (NOAA) received $20 million to assist with permitting and project review. The funds are meant to result in more efficient, accurate, and timely reviews for planning, permitting and approval processes through hiring and training personnel and obtaining new technical and scientific services and equipment.
The United States Environmental Protection Agency (U.S. EPA) received $40 million for its permitting and project review efforts. The funds will be utilized to develop efficient, accurate, and timely reviews for permitting and approval processes through hiring and training of personnel, development of U.S. EPA programmatic documents, procurement of technical or scientific services for reviews, development of environmental data and new information systems, purchase of new equipment, developing new guidance documents, and more.
The Act provided over $62.5 million to the Council on Environmental Quality to develop programmatic documents, tools, guidance, and improvement engagement. These funds will also support collection of data regarding environmental justice issues, climate change data, development of mapping/screening tools, and tracking and evaluation of cumulative impacts.
Several other federal agencies received millions in funding for review and planning of electricity generation infrastructure, like the Federal Energy Regulatory Commission, the Department of Energy, and the Department of the Interior. Funding will be used to facilitate timely and efficient reviews, as well as generate environmental programmatic documents, environmental data, and increase stakeholder and community involvement.
In sum, regulators involved in environmental and energy permitting received a substantial boost in funding targeting the permitting process, including supporting the development and build out of programmatic documents and capabilities. The funding could improve the timing of the permitting processes for these agencies, but it could also lead to additional administrative burdens in the form of new application and compliance materials and increased regulatory scrutiny where a regulator has more time and money to invest in the regulatory process.…
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Supreme Court Rejects Obama-Era EPA Plan to Regulate Existing Power Plants under Section 111(d) of the Clean Air Act
In a highly anticipated decision, the U.S. Supreme Court (Court) rejected U.S. EPA’s (EPA) Clean Power Plan in West Virginia v. EPA on June 30, 2022. Relying upon the “major questions doctrine,” the Court found that Congress had not intended to authorize EPA to regulate emissions using “generation shifting” (i.e., requirements that power production be…
The U.S. Supreme Court Reinstates Water Certification Rule, but Nationwide Permits Remain Subject to Challenge
On Wednesday April 6, 2022, in a 5-4 vote, the U.S. Supreme Court justices stayed a California district court’s October 21, 2021 decision to vacate the Section 401 Water Quality Certification Rule (401 WQC Rule). The U.S. Environmental Protection Agency (EPA) had requested that the district court remand the rule, saying it was planning…
Scope 1 and 2 Emissions Attestation Requirements under SEC’s Proposed Climate Disclosure Rule
We previously reported on requirements for Scope 3 emissions in the proposed climate disclosure rule released by the U.S. Securities Exchange Commission (“SEC”) on March 21, 2022 (“Proposed Rule”). In addition to Scope 3 emissions, the Proposed Rule would also require a registrant to disclose information about its direct GHG emissions (Scope 1) and indirect emissions from purchased electricity or energy sources (Scope 2). This post focuses on attestation requirements in the Proposed Rule for those Scope 1 and Scope 2 disclosures.
Who is subject to Scope 1 and Scope 2 attestation requirements and when is compliance required?
Section 229.1505 of the Proposed Rule would require a company that is an accelerated filer or large accelerated filer to include an attestation report in its Scope 1 and 2 disclosures. The attestation requirement also applies to foreign private issuers.
The Proposed Rule does not make compliance with Scope 1 and 2 disclosure and attestation requirements immediate. Instead, subject companies are provided a grace period to achieve compliance with Scope 1 and 2 disclosure requirements. The Proposed Rule would also provide a transition period for the assurances required for the Scope 1 and 2 disclosure attestations (see further discussion below). The proposed compliance timeframes are as follows:
|Filer Type||Scopes 1 and 2 GHG Disclosure Compliance Date||Limited Assurance||Reasonable Assurance|
|Accelerated Filer||Fiscal year 2024 (filed in 2025)||Fiscal year 2025 (filed in 2026)||Fiscal year 2027 (filed in 2028)|
|Large Accelerated Filer||Fiscal year 2023 (filed in 2024)||Fiscal year 2024 (filed in 2025)||Fiscal year 2026 (filed in 2027)|
Who prepares the attestation report?
Under the Proposed Rule, a GHG emissions attestation provider would be required to prepare and sign the attestation report. The attestation provider would not need to be a registered public accounting firm. However, the Proposed Rule includes characteristics of acceptable attestation providers including:
- Expertise in GHG emission based on significant experience in measuring, analyzing, reporting, or attesting to GHG emissions.
- Independence from the reporting company and any of its affiliates.
According to the agency, the proposed expertise requirement is intended to ensure that the attestation provider is sufficiently competent to perform the attestation engagement. With respect to independence, SEC states that emissions disclosures by independent attestation providers should improve the reliability of the disclosure.…
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The SEC’s proposed climate change rule: impact on private companies
The Securities and Exchange Commission recently proposed amendments to their existing disclosure policy that would require publicly traded corporations to disclose more information regarding climate change related risks, and how those risks may impact the company’s business and outlook (read, “bottom line and stock value”). While the SEC regulates publicly traded corporations, privately held companies need to also track these proposed rule amendments:
- The SEC has been requiring reporting on climate change / greenhouse gas emission information since 2010, so this overall concept is not new. However, the proposed disclosures would expand these obligation by requiring the publicly traded corporation to disclose (among other things):
- The company’s process for identifying, managing, measuring and managing climate change risks;
- If the company uses (“best,” “worst” and “most-likely” case) scenarios to assess risk, what assumptions and analytical choices the company uses to reach these outcomes;
- The Company’s “direct” and “indirect” emissions (the latter, from purchased electricity or other forms of energy); and, of particular significance; and – possibly of greatest significance,
- The Company’s indirect emissions from upstream and downstream activities.
This last bullet is far-reaching and likely to be controversial due to its impact on upstream privately held companies that sell products or services to publicly traded companies. Should this proposal be promulgated:
- Publicly traded companies will be obliged to make heightened demands upon their upstream vendors and suppliers to measure and disclose information re carbon dioxide (or other greenhouse gas) emissions associated with the sourcing, manufacture and transport of products to the SEC-regulated customer;
- Commercial counter-parties should anticipate new terms in contracts that would require such disclosures from private companies – including possibly indemnification for misstatements about carbon emissions;
- Small and medium-sized enterprise are likely not going to have in-house capabilities to perform such assessments, so an increased potential for out-sourcing this would be necessary if vendors want to remain on their customers’ “preferred provider” lists.
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Understanding the Scope of the SEC’s Proposed Scope 3 Emissions Reporting Mandate
On March 21, 2022, the U.S. Securities Exchange Commission (“SEC”) approved and released a proposed rulemaking package (the “Proposed Rule”) that would enact sweeping changes to climate-related disclosures. One key component of the Proposed Rule is a reporting requirement for certain Scope 3 emissions.
What are Scope 3 Emissions
Scope 3 emissions are “all other indirect emissions not accounted for in Scope 2 emissions.” These emissions relate to emissions from sources outside a company’s control – for example, Scope 1 emissions are direct emissions from sources owned or controlled by a company, and Scope 2 emissions are emissions primarily resulting from the generation of electricity consumed by the company. While companies generally can calculate Scope 1 and 2 emissions without significant difficulty, estimating Scope 3 emissions presents additional challenges, as Scope 3 emissions occur from other entities not owned or controlled by the company that serve the company’s value chain.
Who Must Report
The Proposed Rule requires non-smaller-reporting-company (“SRC”) registrants to disclose Scope 3 emissions and intensity: (i) if material or (ii) if the registrant set a GHG emissions reduction target or goal that includes Scope 3 emissions. Thus, the Proposed Rule does not require reporting of all Scope 3 emissions, and a company’s obligation to report would depend on company-specific factors, discussed below.
First, the Proposed Rule exempts SRCs from disclosing Scope 3 emissions. The SEC defines SRCs as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that: (1) had a public float of less than $250 million; or (2) had annual revenues of less than $100 million and either: (i) no public float; or (ii) a public float of less than $700 million.
Second, the Proposed Rule applies a materiality qualifier to Scope 3 emissions that companies must report. SEC regulations and Supreme Court precedent define “material” emission as emissions with a “substantial likelihood that a reasonable investor would consider them important when making an investment or voting decision.” The SEC provides several examples of material Scope 3 emissions. Generally, the SEC advises that Scope 3 emissions may be material where they assist investors to understand transaction risks. Companies with significant Scope 3 emissions could face disruptions in cash flow and business models to the extent new laws or policies encourage changes to products, suppliers, distributors, or other commercial providers in a company’s value chain. Moreover, consumer demand could influence a shift to less carbon-intensive products and services. Conversely, companies sourcing materials and products with lower emissions compared to competitors may see cost savings and higher demand from consumers. Thus, the SEC’s materiality approach is quite broad and requires companies to understand their company’s value, risks, and opportunities in deciding whether to report Scope 3 emissions.
Third, even if Scope 3 emissions do not represent material emissions, a company must report Scope 3 emissions if it adopted emissions targets. The Proposed Rule requires a company to disclose whether its emissions targets include Scope 3 emissions, and if they do, report such emissions. This requirement allows investors to track a company’s compliance with its emissions targets and gauge what potential additional investments a company might need to implement to meet its targets.…
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