Big legislative changes are coming in the US. Biden has signed the Inflation Reduction Act into law, putting the US on track for its 2030 climate target.
The act brings a raft of incentives for companies to transition to lower-carbon business models.
This isn’t the first climate policy development for US firms in 2022. Earlier this year, it became clear that mandatory climate disclosure and climate stress testing are on the horizon.
The opportunities for US companies in the net-zero transition have never looked greater. At the same time, businesses need to get ahead of regulatory risks, reporting requirements and investor demand.
Here’s what to look out for:
1. The historic climate bill for industry and innovation
The Inflation Reduction Act bridges the gap between climate ambition and action.
It’s a leg up for high-emitting, risk-exposed sectors, and unlocks funding for the clean energy industry.
For innovative companies ready to develop low-carbon technologies and clean energy, the Inflation Reduction Act provides certainty that business will be viable.
As part of USD $369 billion in climate and energy provisions, the act brings:
- Billions of dollars in tax credits to expand domestic wind and solar production, and battery storage, to clean the electricity grid
- 10% of costs covered for producing critical battery minerals and metals (like cobalt, nickel, lithium and rare earth elements)
- Investment tax credits to build clean tech manufacturing facilities and storage technology
- Tax credits for sustainable aviation fuels, which increase with lifecycle emissions reductions (compared to petroleum-based fuel)
The tax credits should remain available for the next decade.
Other industry-specific provisions include:
- For the agricultural sector: grants for commodity-based biofuel projects and energy-efficient incentives, with support for conservation
- Grants for clean vehicle manufacturing (linked to how much of the battery’s critical minerals and components are sourced domestically or from countries with a free trade agreement)
- Grants to reduce air pollution at ports, through zero-emissions equipment and tech (like electric forklifts)
- Energy-efficiency incentives for the building and real estate sectors
Oil and gas majors will see funding available to cut emissions, and penalties for failing to do so, including:
- Access to the clean tech subsidies, to build or expand their carbon capture and storage, nuclear or hydrogen businesses
- Crackdowns on methane emissions in natural gas production and distribution, with a charge of $900 per tonne (rising to $1,500 after two years)
- Help to the tune of $1.5 billion for improving and installing equipment to reduce methane leaks, and grants for monitoring air pollution
The first step to understanding how your business or supply chain will be impacted is measuring your emissions. CarbonChain can help you across the commodities supply chain.
2. Mandatory disclosure is coming. Get ahead by voluntarily reporting your emissions.
Carbon disclosure has entered the mainstream. Companies worth over 64% in global market cap are meeting investor and customer demand by voluntarily and publicly reporting their climate data.
Like other information that can impact returns, investors need to know a company’s carbon emissions and exposure to climate-related risks. The mechanism of annual reporting helps companies and financial institutions understand their carbon footprint and risks, cut emissions and report progress against targets.
In March, the Securities and Exchange Commission (SEC) proposed a new climate disclosure rule. It would mean that from 2024, all publicly-trading companies (with some exceptions), including banks, need to report:
- Climate-related risks (including, governance, oversight, management and mitigation)
- Greenhouse gas (GHG) emissions
- Climate targets and goals, including progress against them
The emissions reported would be from direct operations (scope 1) and electricity consumption (scope 2). Companies would have to report their upstream and downstream activities (scope 3), like goods bought and sold, if they’re significant or if the company has a scope 3 target.
To make these disclosures comparable and useful, a company’s report would have to follow the recommendations of the TCFD (Task Force on Climate-Related Financial Disclosures).
Measuring your emissions for the first time can be a complex process and difficult to get right. A range of teams need to be involved (procurement, back office, sustainability, ideally with C-Suite and board oversight), and your carbon accounting methodology needs to follow the GHG Protocol.
If your company isn’t already disclosing in line with these standards, get ahead now and voluntarily report for the last financial year. This will ensure you have a strong process in place when rules come into force, and you’ll have time to verify your data and correct any errors in the calculation process. You can use software to help, especially with tricky scope 3 emissions.
3. Climate stress tests are on the horizon for investors and lenders
US banks are set to face stress tests for environmental risks. These would assess the financial system’s ability to withstand climate-related risk under various scenarios.
This means banks are likely to intensify their scrutiny on their portfolios, to identify carbon hotspots and companies exposed to the biggest climate-related risks. Some are already conducting stress tests to inform their net-zero transition strategies.
While it’s still a recommendation, Federal Reserve chair Jerome Powell made clear in January that launching climate stress testing is a priority.
It’s time to get ahead
All this is just the beginning. As the US reclaims a leading role on climate, companies need to join and double down on climate action. With major opportunities and risks in the transition to a net-zero economy, business-as-usual is no longer feasible.
The time is now for innovative CEOs to seize opportunities in innovation and technology, and to embed reporting and decarbonization across company processes.
Procurement teams should engage with suppliers, to explore how to monitor and reduce emissions while building competitive advantage, in light of new and upcoming US legislation.
Prepare your supply chains for US legislation
Need help with your carbon accounting? CarbonChain measures your supply chain emissions — quickly and accurately — so you can make reductions, pinpoint risks and fulfill reporting requirements.