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The “Global Energy Regulation Roundup” is dedicated to capturing and understanding emerging climate, energy, and reporting measures. Currently, international governments are increasingly establishing stricter policies on emissions reporting, trade, and energy. The purpose of this monthly blog is to highlight approaching regulations and educate key stakeholders about their effects on a range of industries.
United States of America
On March 6th, the Securities and Exchange Commission (SEC) adopted rules to enhance and standardize climate related disclosures by public companies and in public offerings. The final rule, which came after almost two years from the initial announcement, reflects the commission’s efforts to respond to investors’ demand for consistent, comparable, and reliable information about the financial effects of climate related risks on registrants’ operations.
The final rules will require a registrant to disclose:
Climate related risks are reasonably likely to have material impact on strategy, operations, or financial condition.
For large, accelerated filers (LAFs) and accelerated filers that are not otherwise exempt, they will be required to submit information about material Scope 1 and/ or Scope 2 emissions.
Climate related targets or goals
Capitalized costs, expenditures, charges, and losses incurred because of severe weather events.
For more detailed information on the SEC disclosure ruling please read the blog titled, “SEC Final Climate Related Disclosure Ruling.”
Later in the Month, the Biden Administration announced new automobile emission standards. The new rules relaxed initial tailpipe limits proposed last year but eventually came close to the previous limits set. The EPA said that under its final rule, the industry could meet the limits if 56% of new vehicle sales are electric by 2032, alongside 13% plug in hybrids or other partially electric cars, as well as more fuel-efficient ICE vehicles. In 2023, EV sales increased to 7.6% of new vehicles sales from 5.8% in 2022. These standards will phase in over model years 2027 through 2032.
European Union
The European Council has officially approved the Corporate Sustainability Due Diligence Directive (CSDDD), which creates a legal liability for companies relating to environmental and human rights violations within their supply chain. The new due diligence requirements apply to the direct operations of the company, as well as to their subsidiaries and supply chain. EU-based companies, as well as non-EU companies that conduct a set level of business in the EU, could become responsible for the actions of their suppliers. In short, to comply with the CSDDD, companies must identify, prevent, mitigate, and account for negative human rights and environmental impacts within their operations, subsidiaries, and value chain.
Additionally, Germany, launched a bidding process for subsidies to support energy intensive firms switching to green production in a 4 billion euros funding round. As part of the country’s ambitious climate neutrality target by 2045, Berlin plans to award companies in sectors, such as steel, glass, paper, and chemicals, 15-year subsidies in return for reducing carbon emissions in production. This program is called the “Climate Protection Contracts” and is approved by the European Commission, with intent to compensate companies for the extra costs green production in industries where climate friendly production processes is currently not cost competitively.
Asia
US Treasury Secretary Janet L. Yellen spoke in late March about her plans to raise the issue of overcapacity of green technology exports with her Chinese counterparts. “China’s overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as other key stakeholders around the world.” She compared China’s investment in green energy technology production to what she described as its previous overinvestment in steel and aluminum, saying it created “global spillovers.”
Since the passage of the Inflation Reduction Act (IRA), there has been over $200 billion of clean power investments in the private sector announced, which is almost half of the $400 billion in tax credits and subsidies that the historical bill included. Last year alone, China has invested more than $130 billion in its solar sector. The IRA does not provide tax credits for buyers of electric vehicles that contain components made in China, Russia, North Korea, or Iran.