Executive Branch Climate and Sustainability Developments to Watch in 2023—a “Go To” List for Business Leaders
2022 marked a historic year for climate change action in the Executive Branch. The Biden-Harris administration continued to deploy a “whole-of-government” approach to combatting climate change, securing over $300 billion in funding for climate projects in the Infrastructure Investment and Jobs Act (IIJA; P. L. 117-58) and the Inflation Reduction Act (IRA, P. L. 117-169); catalyzing ambitious emissions reductions goals through private and international partnerships and continuing to implement new regulatory guidelines to reduce national emissions.
The administration is gearing up to sustain and grow its climate efforts in 2023. Agencies are expected to release a slew of proposed and final rules in the new year, with many aimed at tightening reporting and procedural requirements to reduce national emissions. With the chambers of Congress split between parties, the administration is set on assuring climate provisions are included in the “must pass” Farm Bill and will focus on implementing the IRA and IIJA. 2023 also marks the release of the fifth installment of the National Climate Assessment, which will provide crucial new insight into how climate change is impacting Americans that could be used to inform future climate programs. 2023 will also see the international community convene for two major climate milestones: the 28th Conference of the Parties (COP28) and the Global Stocktake. President Biden, who has taken a prominent role in international diplomacy, is expected to use these events to provide updates on the United States’ Nationally Determined Contribution (NDC) and a variety of climate programs, most notably the Energy Transition Accelerator (ETA).
We’ve broken down the eight critically important climate updates for business leaders to track in the new year with a focus on regulatory actions, legislative engagement, reporting and international diplomacy below.
Regulatory Action
With the split chambers of Congress serving as a significant barrier to passing further climate legislation, the Biden-Harris administration is expected to turn their focus towards doubling down on regulatory actions aimed at reducing emissions in the new year.
Climate Disclosure. In June of 2022, the Securities and Exchange Commission (SEC) proposed a new rule aimed at strengthening climate disclosure requirements for publicly traded companies. The rule adds a mandatory climate disclosure section to the fund prospectuses companies must complete, prompting companies to disclose if and how they develop and implement environmental, social and governance (ESG) frameworks. Since its release, this proposed rule has seen lots of engagement, especially as more and more Republicans hope to make rolling back ESG frameworks a centerpiece of the party’s investigative agenda. The SEC is expected to finalize and release a final rule in 2023, which could be instrumental in encouraging the market—and companies—to prioritize climate considerations in investments.
Climate-Related Financial Risk. In late 2022, the Commodity Futures Trading Commission (CFTC) voted to release a Request for Information (RFI) to understand the public’s stance on climate-related financial risk to inform the Commission’s future actions related to the subject as pertinent to the derivatives markets and underlying commodities markets. This RFI will likely inform a proposed rule that the Commission will release this year expanding the body’s consideration of climate-related risk in the transactions it has jurisdiction over. The Commission has said that it is looking to leverage information on climate-related risk to promote responsible innovation, ensure the financial integrity of all transactions subject to the Commodity Exchange Act (CEA; 7 U.S.C. Sec 1), avoid systemic risk, craft a response to the recommendations of the Financial Stability Oversight Council’s 2021 Report on Climate-Related Financial Risk, and inform the ongoing work of the Commission’s Climate Risk Unit in the new year.
Green Guides. In December of 2022, the Federal Trade Commission (FTC) announced that it is seeking public comment on proposed revisions which are set to increase consumer interest in buying environmentally friendly products to its “Green Guides for the Use of Environmental Claims” (“Green Guides”). Green Guides, which were last updated in 2012, are intended to provide guidance on environmental marketing claims. Notably, the proposed updates encompass the integrity of carbon offsets, degradable packaging claims, ozone-safe and ozone-friendly claims, and the consumer interpretation of “sustainability” and “recyclable.” Comments are due on April 24, 2023, and will be used to inform changes to the Green Guides, which are expected to be released later this year.
HFC Reduction. The Biden-Harris administration has targeted regulatory action towards especially potent greenhouse gases, especially hydrofluorocarbons (HFCs), which are commonly used in refrigerant products. Dovetailing on its previous final rule, which ordered a phase-down of domestic consumption of HFCs by 85 percent over the next 15 years, the Environmental Protection Agency (EPA) proposed a rule that would further limit HFCs. The rule, which was released in November, proposes a methodology for allocating HFC production and consumption allowances, which it cuts to 40 percent below historic levels, from 2024-2028. With the comment period for this rule closed as of December 2022, the EPA is expected to release a final rule sometime this year. A final rule would incentivize a move away from products and companies in many key industries in the United States that continue to use HFCs.
Methane Emissions Reduction. The Biden-Harris administration will continue its focus on reducing methane emissions. In November of 2022, the EPA updated its previous proposed rule to add additional provisions to its 2021 proposal that will tighten regulations on oil and gas industry drilling sites of all sizes and ages. The EPA projects that the updated new rule would reduce an estimated 36 million tons of methane emissions from 2023 to 2025. The proposed updates include ensuring that all well sites are routinely monitored for leaks until closure; providing for the usage of innovative and cost-effective methane detection technologies; leveraging data from remote sensing to fix large methane leaks; requiring flares are properly operated to reduce emissions, establishing emission standards for dry seal compressors; setting a zero-emissions standard for pneumatic controllers and pumps in all segments of the industry; and increasing recovery of natural gas that would otherwise go to waste. The agency has confirmed that it will issue a final rule on methane in 2023 based on the previous proposals mentioned.
Transportation Emissions Reduction. Several agencies are set to release new rules in the new year tightening emissions standards in the transportation industry. The EPA is expected to both expand its regulatory engagement on emissions reductions for light-duty vehicles as well as issue guidance for heavy-duty vehicles in the new year. Following its 2021 final rule that limits emissions until 2026 for light-duty vehicles, the administration is now planning to pursue a separate rulemaking that will establish multi-pollutant standards as well as implement ambitious emissions reductions standards for Model Year (MY) 2027 and beyond per President Biden’s August Executive Order (EO) on the matter. The Biden-Harris administration is also setting its sights on heavy-duty vehicles and has announced that it is crafting rules over the next three years that will address greenhouse gas (GHG) emissions for MY 2027 and on.
The Department of Transportation has proposed two rules that supplement the EPA’s regulatory path for vehicle emissions reductions, which are set to be finalized in 2023. One would establish a process to measure and report on GHG emissions associated with transportation to inform performance measures for state departments of transportation and metropolitan planning organizations. The second would mandate a third installment to a consumer information awareness campaign which, among other things, seeks to increase the public’s awareness regarding the risks associated with GHG emissions from transportation.
Taken together, these actions would help the United States achieve significant emissions reductions since the transportation industry accounts for a large amount of the country’s total emissions. Their implementation will also encourage the use of electric vehicles, innovative carbon capture and storage (CCUS) solutions and renewable fuels for all types of transportation.
Renewable Fuel Tax Credits. The Biden-Harris administration has previously signaled an interest in promoting sustainable aviation fuel (SAF), and 2023 looks to be the year that many of the administration’s ambitions are realized. In December 2022, the Treasury Department and Internal Revenue Service (IRS) issued a notice that precludes the implementation of the SAF tax credit created by the IRA. The SAF tax credit is $1.25 for each gallon of SAF that has a minimum reduction of 50 percent in lifecycle GHG emissions; there is a supplemental credit of $0.01 for each percent that the reduction exceeds 50 percent. The notice explains what fuels are eligible for the credit, the various methods in which a claimant may claim the credit and which parties must be registered for the different activities in the process. Public comment is open on the notice until February 17, 2023, after which the entities will begin implementation of the finalized notice.
On January 1, 2021, the IRS began a new phase of its Alternative Fuels Tax Credit. In the new year, the fueling equipment for natural gas, propane, hydrogen, electricity, E85 or diesel fuel blends containing a minimum of 20 percent biodiesel will be eligible for a tax credit of 30 percent of the cost or 6 percent in the case of property subject to depreciation, of up to $1,000.
Agriculture and Climate. Following the passage of the IRA and the IIJA, which authorize the United States Department of Agriculture (USDA) to take a more active approach to addressing the climate crisis, the USDA is implementing a variety of climate-focused programs. In order to address climate-based threats to agricultural production, the USDA is developing a new strategy that leverages voluntary incentives to build on its 90-Day Progress Report on Climate-Smart Agriculture and Forestry and Action Plan for Climate Adaptation and Resilience.
The USDA is also expected to begin implementing provisions of Rep. Abigail Spanberger (D-VA) and Sen. Mike Braun’s (R-IN) Growing Climate Solution Act (S.1251), which was included in the 2022 year-end package, this year. The bill directs the USDA to establish a voluntary Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Certification Program to help reduce entry barriers into voluntary environmental credit markets for agricultural stakeholders. Under the bill, the USDA must also establish an advisory council to make recommendations regarding the list of protocols and qualifications, best practices, and voluntary environmental credit markets. The USDA is set to begin setting up the program later this year.
Health Equity and Environmental Justice. Addressing the intersecting relationship between climate change and health equity continues to be a priority for the Biden-Harris administration. The U.S. Department of Health and Human Services (HHS) Office of Climate Change and Health Equity (OCCHE) has published a number of technical resources to support the organizations that signed the White House/HHS Health Care Sector Pledge. In May 2022, HHS further expanded its health equity initiatives by establishing the Office of Environmental Justice (OEJ), which will serve as “the HHS-wide hub for environmental justice policy, programming, and analysis.” HHS also published a progress report that highlights implementation of five priority climate areas identified in the agency’s 2021 Climate Action Plan. One of the priority areas, the development of climate-resilient grant policies at HHS, has an estimated date of completion of 2025. A recent announcement by the HHS Agency for Healthcare Research and Quality (AHRQ) seems to align with this initiative, calling for health services research grant applications that address the intersection of climate change and healthcare. Hospitals and other provider types and settings, including primary care, long-term care, mental health and pharmacy, are encouraged to apply. Potential research topics could relate to measuring and reducing carbon footprint, increasing climate resilience and addressing equity.
The administration has also emphasized the importance of combining international and domestic action to combat the global health threat of climate change. At COP27, the HHS delegation announced a joint plan with the National Health Service (NHS) of England to collaborate on a proposal to align procurement requirements, with initial meetings planned to occur before Earth Day 2023 and “an intent to align guidance as much as possible by COP28.” We will likely see other nations join in these discussions.
Legislation
IRA and IIJA Implementation. With the chances of achieving another large investment in climate slim in 2023, the Biden-Harris administration will focus on implementing the projects that the IRA and IIJA outlined. Many agencies still need to fully allocate the cash for the climate programs outlined by the two bills, which represent significant investments in transportation emissions reductions, sustainable infrastructure, clean fuels and conservation. An agency central to this process is the Treasury Department, which has been charged with administering a slew of tax credits. The administration will also be responsible for defending IRA and IIJA provisions against Republican legal challenges and international trade disputes that are likely to arise in the new year.
Farm Bill. One area where the administration hopes to achieve climate reform will be in the agricultural sector. The Farm Bill is up for reauthorization in 2023 and is considered a “must-pass bill,” meaning that members will be incentivized to reach across the aisle to secure its passage by the end of the year. The Biden-Harris administration wants the final text of the act to include several climate provisions that incentivize soil conservation and promote the adoption of clean energy systems by farmers. Republicans, still angered by the inclusion of climate provisions in the IRA and IIJA, which they saw as unnecessary, are likely to oppose provisions addressing climate in the Farm Bill. Despite this, some climate advocates express hope that the administration will be able to reach some bipartisan compromises on climate-friendly agriculture.
Reporting
National Climate Assessment. The fifth installment of the National Climate Assessment (NCA5) will be released by the Global Change Research Program (USGCRP) in 2023. NCAs are published every four years and shed light on how global climate change impacts the United States’ natural environment, public health and various transportation and supply systems. In light of a record drought period in the Southwestern United States, and a growing number and severity of other extreme weather events including hurricanes and wildfires over the last few years, this report will highlight the urgent need for increased climate actions to preserve communities, especially those most vulnerable climate change. The Biden-Harris administration might leverage NCA5 findings to call for further climate reforms and funding to address damaged ecosystems.
Energy Infrastructure Emissions Research. In 2023, the EPA will solicit input and collect information on projects related to emissions reductions. Most notably, the EPA released a docket on efforts to reduce GHG emissions from new and existing fossil fuel-fired electric generating units (EGUs), which the agency will use to guide future recommendations regarding further GHG emissions reductions from EGUs. Organizations can provide input on this docket until March 27, 2023, after which a proposed rule will likely be released late in the year or early 2024.
International Policy
Global Stocktake and COP 28. The new year will see two major international climate events take place: the Global Stocktake and COP28 in the United Arab Emirates later this year. 2023 will be the first time a Global Stocktake is completed. The United Nations (UN) process aims to evaluate the progress countries have made toward realizing their NDCs and inform their drafting of future NDCs. Although the Biden-Harris administration previously updated the United States’ NDC, the administration might further refine the document to reflect additional emissions reductions achieved under the IRA and IIJA. Although the Global Stocktake is expected to dominate conversations at COP 28, President Biden will also use the event to provide key updates on some of the United States’ signature international climate initiatives, including the Green Shipping Challenge, the Global Methane Pledge and the Energy Transition Accelerator (ETA).
