The outsized impact of local legislation and competing executive orders, along with the number and scope of climate-related reporting requirements and associated policies have spiked in the United States over the last few years. They continue to significantly impact how businesses incorporate sustainable operations in strategic and financial planning. Awareness of these policies and the trends they signal offers valuable insight into sound, long-term strategic plans that best capture opportunities across regulatory and market dynamics that could impact your business.
The evolution of these policies and regulations, defined by the Task Force on Climate-Related Financial Disclosures (TCFD) as transition risk, will intensify as global economies transition toward net-zero. The U.S. federal government has passed mammoth policies offering rebates and incentives to accelerate this transition, with bills like the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) providing billions in funds to companies that take up sustainable practices.
Cities and states are passing even more ambitious laws, like California’s EV legislation or New York City’s Local Law (LL) 97, the latter of which employs a fine-based “stick” system for buildings’ emissions allowances, compared to the federal government's incentive-based, or “carrot” approach.
The last few years have also seen a flurry of executive and administrative actions on climate and sustainability, including the first-ever Securities and Exchange Commission (SEC) ruling on climate-related financial risk disclosure for publicly listed companies. These and many other climate policies recently enacted across varying government levels are far-reaching and pioneering. If today’s climate policies in the U.S. don’t directly affect your business, rest assured they will in the future.
Federal climate policy trends: Congress
Since the start of the Biden administration, the U.S. government has trended toward climate and clean energy policies that offer rebates and tax breaks rather than enforcing them with fees or fines. Though the last 50 years of U.S. environmental policy has been known for its “sticks,” historical precedents exist for the current administration’s employment of “carrots.”
The seminal Clean Air Act of 1970 initially included penalties on companies for producing air pollution, but in subsequent policy revisions, the EPA created an incentive program by establishing a price on the right to pollute. In theory, The EPA would establish a limited, expensive market for polluters where they are allowed a limited tonnage of air pollution per year. The government would provide incentives for those who clean up efficiently and voluntarily rather than pay the higher cost of purchasing a right to pollute, and companies would take the money rather than pay the higher cost. Although, in practice, it didn’t pan out due to implementation flaws, the program established a model for incentive-based climate policies.
In the past several years, Congress has passed some of the world’s most comprehensive and generous climate policies regarding money available to businesses. Relevant laws include the IRA (2022), IIJA (2021), Clean Energy for America Act (2021), and Clean Energy and Sustainability Accelerator (2021).
Most of these programs offer businesses money through tax benefits, rebates, grants, and other incentives. The IRA and IIJA (also known as the Bipartisan Infrastructure Law) allocate $1.2 trillion for transportation, infrastructure, energy, and climate resilience projects. In response, private companies have committed to over $866 billion in manufacturing projects since 2020. These policies incentivize corporate actors to promote U.S. interests, for example, onshoring manufacturing operations, which serves as a meaningful source of employment and, in turn, bolsters the economy. Missing out on similar opportunities created by IRA and IIJA while making plans and taking action to make your business more sustainable could mean losing a competitive edge.
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State and local climate policy trends
With the exception of the past several years, Congress has been largely unable to pass climate and sustainability legislation in recent decades, and state and local laws have filled the void. At local levels, climate and sustainability are more mixed, with politics being a leading determinant of the approach legislators, executives, and regulators take to mitigate or adapt to climate change. Local and state legislatures are also more experimental with their policies, which often lead the way in setting policymaking trends.
Good business practice is adapting to the most impactful regulations, even if the organization isn’t based in that state or locality. A prime example is legislation like California’s SB 253, which requires public and private businesses with revenues greater than $1B USD and that conduct business in California, regardless of where they are headquartered, to report their greenhouse gas emissions—including scopes 1, 2, and 3—starting in 2026. This course of action allows you to stay ahead of the competition and avoid future costs and risks.
Many state or local climate policies change how companies do business nationwide and inspire copycat laws in other parts of the country. California's Clean Cars 2040 Act mandates all new cars sold in the state to be emissions-free by 2040. Though it’s not the only driver, this legislation encourages car manufacturers to actively pivot business models to produce and sell more electric vehicles faster, should they want to sell into the world's fifth largest economy.
New York City’s LL97 imposes emissions reduction requirements on large buildings, impacting real estate and construction industries. Other cities and states have passed similar laws, including Boston, Washington DC, St. Louis, Denver, Reno, Maryland, and Oregon. Washington State’s cap-and-invest program establishes a comprehensive, market-based program to reduce carbon pollution and achieve the greenhouse gas limits set in state law. Businesses covered by the program must obtain allowances equal to their GHG emissions from the state’s Department of Ecology quarterly auctions hosted by Ecology or bought and sold on a secondary market, similar to stocks and bonds. With companies like Microsoft, Amazon, and Starbucks based in Washington, this program can potentially have an outsized global impact as these businesses rework their processes to emit less carbon overall.
Differing or even competing legislation offers challenges and opportunities for businesses operating across multiple jurisdictions. Legislatures across national and regional levels are implementing climate-centric policies, whether focused on corporate disclosure, performance requirements and emissions caps, or promoting activities that accelerate a net-zero economy. The informed businesses that understand the inherent risks and opportunities these mandates create are positioned to reap the benefits.
Federal climate policy trends: Executive orders and regulatory actions
To date, President Biden has passed 138 executive orders (EOs), with a notable subset focused on climate change. He signed the EO on Tackling the Climate Crisis at Home and Abroad in 2021, directing federal agencies to prioritize climate change considerations in decision-making. The EO on Climate-Related Financial Risk (2021) directed federal agencies to assess and mitigate climate-related financial risks to the stability of the economic system. The EPA’s new 2023 rule on methane emission reductions from oil and gas operations is one of many recent administrative actions with climate and sustainability implications. These are just a few examples of executive orders and administrative rulemakings that support President Biden’s Investing in America agenda, which is mobilizing historic levels of private sector investment in the United States with a focus on clean energy manufacturing, batteries/EVs, biomanufacturing, and clean power.
EOs provide instructions or create policy without legislation, and the President is using EOs as the best tool for advancing his bold climate agenda. He has set ambitious goals of achieving a carbon pollution-free power sector by 2035 and a net-zero emissions economy by no later than 2050. Together, recent executive and administrative actions show that the executive branch is taking a whole-government and whole-economy approach to supporting sustainable practices with policy and has profoundly altered the business landscape in doing so.
Implications for business
All levels of government in the U.S. are ramping up policies in the name of climate action to mitigate and address the impacts of climate change. As these policies grow more numerous and diverse in their enforcement mechanisms, it is more important than ever for businesses to stay up-to-date on climate and sustainability policies to inform long-term business strategies and sustainability plans.
With incentives for the transition to a net-zero economy at an all-time high, businesses have a significant opportunity to grow their innovation and market leadership through sustainable practices using free government funding. Sustain.Life’s carbon accounting platform automates the emissions data required for many regional disclosure requirements, and our partner ecosystem can assist companies looking to integrate climate strategy into their broader long term planning.
Sources
1. Congress.gov, “H.R.3684 - Infrastructure Investment and Jobs Act,” https://www.congress.gov/bill/117th-congress/house-bill/3684 Accessed June 13, 2024
2. Buffalo Law Review, “Regulating with a Carrot: Experimenting with Incentives for Clean
Air,” https://digitalcommons.law.buffalo.edu/cgi/viewcontent.cgi?article=1842&context=buffalolawreview Accessed June 13, 2024
3. Congress.gov, “S.1298 - Clean Energy for America Act,” https://www.congress.gov/bill/117th-congress/senate-bill/1298 Accessed June 13, 2024
4. Congress.gov, “H.R.806 - Clean Energy and Sustainability Accelerator Act,” https://www.congress.gov/bill/117th-congress/house-bill/806 Accessed June 13, 2024
5. Office of Assemblymember Philip Y. Ting, “AB 1745 Fact Sheet,” https://a19.asmdc.org/sites/a19.asmdc.org/files/pdf/ab-1745-clean-cars-2040-fact-sheet.pdf Accessed June 13, 2024
6. NYC Sustainable Buildings, “Local Law 97,” https://www.nyc.gov/site/sustainablebuildings/ll97/local-law-97.page Accessed June 13, 2024
7. Energy.gov, “Building Performance Standards,” https://www.energycodes.gov/BPS Accessed June 13, 2024
8. Department of Ecology, State of Washington, “Washington's cap-and-invest program,” https://ecology.wa.gov/air-climate/climate-commitment-act/cap-and-invest Accessed June 13, 2024
9. The White House, “Executive Order on Tackling the Climate Crisis at Home and Abroad,” https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/ Accessed June 13, 2024
10. The White House, “Executive Order on Climate-Related Financial Risk,” https://www.whitehouse.gov/briefing-room/presidential-actions/2021/05/20/executive-order-on-climate-related-financial-risk/ Accessed June 13, 2024
11. United States Environmental Protection Agency, “EPA's Final Rule for Oil and Natural Gas Operations Will Sharply Reduce Methane and Other Harmful Pollution.,” https://www.epa.gov/controlling-air-pollution-oil-and-natural-gas-operations/epas-final-rule-oil-and-natural-gas Accessed June 13, 2024
12. The White House, “Investing in America,” https://www.whitehouse.gov/invest/ Accessed June 13, 2024
13. The White House, “FACT SHEET: President Biden to Catalyze Global Climate Action through the Major Economies Forum on Energy and Climate,” https://www.whitehouse.gov/briefing-room/statements-releases/2023/04/20/fact-sheet-president-biden-to-catalyze-global-climate-action-through-the-major-economies-forum-on-energy-and-climate/ Accessed June 13, 2024
