Wednesday, November 30, 2022

New Rule Proposes that Federal Contactors Disclose GHG Emissions

On November 10th the White House announced that the Administration is proposing a new rule- the Federal Supplier Climate Risks and Resilience Rule. This rule would require major Federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets.

 Under the proposed rule, the suppliers and contractors to the Federal government receiving more than $50 million in annual contracts would be required to publicly disclose Scope 1, Scope 2, and relevant categories of Scope 3 emissions, disclose climate-related financial risks, and set science-based emissions reduction targets. Smaller Federal suppliers and contractors with more than $7.5 million but less than $50 million in annual contracts would be required to report Scope 1 and Scope 2 emissions. All Federal contractors with less than $7.5 million in annual contracts would be exempt from the rule. 

According to National Grid, Scope 1 and 2 emissions are direct and indirect emission by an organization. Those emissions that are owned or controlled by a company, whereas Scope 3 emissions are a consequence of the activities of the company but occur from sources not owned or controlled by it. An example of  Scope 1 emissions would be from burning fuel in their fleet of vehicles (if they’re not electrically-powered) or heating a building with a gas furnace.

Scope 2 emission are emissions that a company causes indirectly when the energy it purchases and uses is produced. For example, the emissions from the generation of the electricity they use to power buildings, electric cars and trucks and other electric powered equipment.

Scope 3 emissions encompasses emissions that are not produced by the company itself, and not the result of activities from assets owned or controlled by them, but by those that it’s indirectly responsible for, up and down its value chain. An example of this is when they buy, use and dispose of products from suppliers.

Each major contractor (those with more than $50 million in contracts) would have to publish an annual climate disclosure report that would include a qualitative disclosure of climate-related risks. In addition, each major contractor would also be required to publish science-based targets to reduce GHG emissions in line with what the latest science deems necessary to meet the goals of the Paris Agreement, as validated by a third party. It is unclear how a federal supplier of $50 million in goods or services is going to mitigate the GHG emissions in the grid, other than by buying carbon credits or what the costs associated with compliance will be.  

As UN Secretary-General, Mr. Guterres recently pointed out  the criteria for net-zero commitments can have loopholes wide enough to “drive a diesel truck through. At the recently ended COP-27 meeting Mr. Guterres said that net-zero pledges should be accompanied by a plan for how the transition is being made. “Management must be accountable for delivering on these pledges.” 

The Federal Acquisition Regulatory Council, which consists of the Department of Defense, the General Services Administration, the National Aeronautics and Space Administration, and is chaired by the Office of Federal Procurement Policy in the Office of Management and Budget, has issued this proposed rule under the Federal Acquisition Regulation (FAR). The FAR is the primary regulation for use by all executive agencies in their acquisition of supplies and services with appropriated funds.

Lets look at the Scope 1, 2 and 3 emissions disclosure for Amazon for the period 2019-2012. If you recall, Amazon was a co-creator of The Climate Pledge, a commitment to reach net-zero carbon by 2040—10 years ahead of the Paris Agreement. Since they created the Pledge in 2019, more than 300 companies have joined Amazon in making this commitment. Amazon appears to have no "science based" plan for meeting their commitment." 

With all of growth that Amazon has chased and despite purchasing carbon offsets and solar farms, Amazon’s carbon emission in 2021were 40% greater than they were in 2019. Though, their carbon intensity decreased by 18% over the same period. Carbon Intensity quantifies total carbon emissions, in grams of carbon dioxide equivalent (CO₂e), per dollar of gross merchandise sales. Amazon has not released a plan of how they will  meet their climate pledge. Rather, Amazon states: “As companies invest in new products and services, and their businesses grow substantially, the focus should not be solely on a company’s carbon footprint in terms of absolute carbon emissions, but also on whether it’s lowering its carbon intensity." 

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