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Perhaps the best way of summarizing COP27 was that, in the end, it boiled down to solving a tension between competing views of global priorities in addressing climate change. The Developed World was primarily focused on improving mitigation  (emissions reduction offers at COP27 in the shape of a welter of improved Nationally-Defined Contributions (NDC).  However, the Developing World was focused on the need to address the impacts of increased global temperatures which climate change is already inflicting on them – the now famous ‘Loss and Damage’ issue (broadly, unavoidable losses and damages caused by climate impacts that are not tackled through adaptation and risk reduction strategies).

The fact that COP27 will be remembered for the historic creation of a Loss and Damage Fund (LADF) perhaps demonstrates a recognition that without addressing climate justice now, it will be difficult to achieve progress on mitigation (even though any delay in taking aggressive emissions reduction action is likely to increase dangerous global warming and therefore cause greater climate-changed-related damage in the future). 

The History of the LADF

The creation of a dedicated LADF was proposed more than three decades ago, by the Alliance of Small Island States (AOSIS). Although discussions on the issue since then had remained superficial and highly technical, in retrospect there were some important developments which prepared the ground for the agreement in Sharm.…

Continue Reading COP27: Loss and Damage COP

As noted in our COP27 recap, this year’s climate summit in Sharm el-Sheik involved both the historic creation of a fund to compensate countries most impacted by climate change, as well as lost opportunities to adopt more ambitious and accelerated climate mitigation commitments.  Perhaps hidden between these headlines, President Biden announced an initiative with significant implications for federal contractors.  Under this proposal, the United States would become the first country to require major government suppliers and contractors to set science-based emissions reduction targets aligned with the Paris Agreement.  It would also require contractors to disclose their greenhouse gas (GHG) emissions and climate risks. 

This initiative—the proposed Federal Supplier Climate Risks and Resilience Rule—would have wide-reaching impacts if ultimately finalized.  Collectively, the proposed rule would cover about 86 percent of the federal government’s supply chain GHG impacts and 86 percent of federal annual spending.  To put this in perspective, in the last fiscal year alone the United States purchased $630 billion in goods and services.

The comment period for the proposed Federal Supplier Climate Risks and Resilience Rule closes on January 13, 2023.  The proposed compliance requirements for major contractors would start two years after publication of a final rule.  If promulgated, this rule may be challenged in court along the lines of the Biden Administration’s COVID-19 vaccine mandate for federal contractors. …

Continue Reading US Government Proposes Rule Requiring Major Federal Contractors to Disclose Greenhouse Gas Emissions and Establish Science-Based Emissions Reduction Targets

The United Nations annual climate change conference—officially known as the 27th Conference of the Parties to the UN Framework Convention on Climate Change (“UNFCCC”), or COP27 for short—held in Sharm el Sheik, Egypt, finally concluded early Sunday morning, more than 24 hours late.

COP27 was held amidst the ongoing Russian war in Ukraine and the consequent economic turmoil, including Europe’s scramble to secure non-Russian gas. It was previewed by a UNFCCC report which concluded that on its current trajectory the world faced warming of between 2.5 and 2.9 degrees Celsius by the end of the century, and accompanied by a new report from the International Energy Agency’s 2022 World Energy Outlook which concluded that the world needed to spend at least $4 trillion annually to tackle climate change from now until 2030.

Against this challenging backdrop, COP27 was never going to be straightforward. But those difficulties were compounded by divisions between developing and developed world over the priorities that should form the focus for COP27. Those divisions manifested themselves most clearly in tensions before, during, and at the conclusion of the Conference over the issue of “loss and damage.” This acrimony overshadowed almost all other aspects of the COP, which will nonetheless be viewed as historic for being the first COP to not only place the loss and damage issue on the official agenda, but for its creation of a separate fund to compensate countries most impacted by climate change. But loss and damage aside, the broader picture that emerged from COP27 was one of lost opportunities to adopt more ambitious and accelerated climate mitigation commitments in response to the dire scientific warnings about the impact of rapid global warming on the planet. In particular, efforts calling for a phase down of all fossil fuels were ultimately unsuccessful in the Summit’s final agreement and highlighted the mismatch between the pace of global emissions reduction commitments and that which is needed to avoid the most disruptive climate impacts.…

Continue Reading COP27: A Flawed though still Consequential Climate Summit

COP27 was never going to be a ‘Big COP’ in the way that COP26 in Glasgow was.  It was not originally designed to be one of the five-year ratchet reviews of NDCs set out by the 2015 the Paris Agreement and there were no major new climate change texts due to be negotiated.  Sharm’s value is likely to be assessed, at least in part, on whether it effectively tees up important items for next year, including:

  • the Global Stocktake (the technical dialogue will conclude in June next year, and the political phase at COP28);
  • the Global Goal on Adaptation, due to conclude next year;
  • the New Collective Quantified Goal on climate finance, due to conclude in 2024; and
  • the increasingly important future discussions on loss and damage. 

However, COP27 remains an important waypoint – not least in how successful it eventually is in avoiding acrimonious debate and significant tensions over loss and damage.

Glasgow was a five-year review point.  But the UNFCCC assessed that not enough progress had been made by countries’ emissions reductions targets towards the 1.5 degree target and required all member countries to return to COP27 with improved goals.  So COP27 represents an important departure from the UNFCCC’s agreed timetable and in that sense demonstrates the increasing urgency of reducing emissions: an urgency juxtaposed against the record high attendance of representatives from oil and gas companies and the anguished debate about the role of gas as a transitional fuel.…

Continue Reading COP 27 – Week one Summary

COP27 began in Sharm el Sheikh, Egypt, yesterday. It begins inauspiciously, set against the global impacts of Russia’s invasion of Ukraine and the resulting food and energy insecurity and dramatic price rises which have pushed climate change down domestic political agendas across the world and increased demand for new sources of fossil fuel to reduce reliance on Russian gas.  By the same token, the Russian aggression creates a lever that presents COP27 with a rare, perhaps unique, opportunity to accelerate the energy transition. 

Furthermore, since the effects of climate change are non-discriminatory, the need to tackle it is a genuine global need: a visionary take on COP 27 is that it could offer a ‘safe haven’ for international dialogue and collaboration where world leaders can find effective pathways forward on food, energy, nature and security. However, the augurs are not positive…

Billed as the ‘Implementation COP’ it was designed to require countries to improve their Nationally Determined Contributions (NDC) to reducing climate-change inducing emissions. However, the tussle over the agenda, which began at 1300 on Saturday and did not conclude until midday on Sunday, suggests that the alternative name for this COP – ‘The African COP’ – is more appropriate and that the focus and key to its success lies elsewhere.

Why Does COP27 Matter?

COP27 marks 30 years since the adoption of the UNFCCC[i] and seven years since the 2015 Paris Agreement of COP21[ii], which was the first legally-binding global treaty on climate change. It was the Paris Agreement that introduced NDCs which require countries to set out by how much they will reduce their national emissions each year, with a target of limiting global warming to 1.5°C by the end of the century.  The Paris Agreement also imposed a requirement to improve ability to adapt and build resilience to climate change; and to align finance flows with ‘a pathway towards low greenhouse gas emissions and climate-resilient development’.…

Continue Reading What to Expect from COP 27

On October 5, 2022, the Treasury Department and the IRS issued notices requesting comments on different aspects of the energy tax benefits in the Inflation Reduction Act (“IRA”). All comments are due by Friday, November 4, either electronically on www.regulations.gov or alternatively by mail to the IRS. Written comments submitted after that date will be considered as long as such consideration will not delay the issuance of guidance.

In each case, the Notices focus on a subset of the IRA expanded and enhanced existing consumer and business energy tax credits and the new credits, including tech-neutral production and investment tax credits, a clean hydrogen production credit, a nuclear power production tax credit, and credits for producing necessary components for clean energy production, among others. The Notices solicit general comments, but also focus on specific definitional and operational issues. The requests emanate from, among other things, the new domestic production and sourcing requirements in the IRA, including requirements for sourcing critical minerals for the manufacturing of electric vehicles and for constructing certain qualified facilities using materials produced in the United States. Requests also arise in reference to the new two-tiered credit structure, where, for many of these credits, taxpayers are eligible for a higher credit (typically five times the base amount) if they meet certain wage and apprenticeship requirements. And one Notice focuses on the new direct pay or transferability feature for some credits, which essentially results in a cash payment to the taxpayer regardless of whether they have any tax liability in the year in which the credit is claimed.…

Continue Reading IRS issues notices requesting comments on IRA clean energy tax credits

In a series of prior blog posts, we previously highlighted the historic implications of the Inflation Reduction Act (IRA) for the U.S.’s international climate commitments, as well as for private companies navigating the energy transition.  Shortly after our series published, the Senate passed the IRA on Sunday August 7th with only minor modifications to the bill’s $369 billion in climate and clean energy spending.  Today, the House passed the IRA without any further changes, and soon hereafter President Biden is expected to sign it into law. 

However, this is only the beginning of the road; the IRA will have sweeping implications beyond the four corners of its pages.  In the coming months and years, we expect to see intense jockeying over agency rulemakings that will shape the IRA’s implementation, as well as determine its ultimate success as an energy policy.  

I. Congressional Permitting Reform

As an initial matter, it seems Congress has not finished its work revamping the nation’s climate and energy laws.  As part of his agreement to support the IRA, Senator Joe Manchin (D-WV) announced that “President Biden, Leader Schumer and Speaker Pelosi have committed to advancing a suite of commonsense permitting reforms this fall that will ensure all energy infrastructure, from transmission to pipelines and export facilities, can be efficiently and responsibly built to deliver energy safely around the country and to our allies.”  While the exact contours of this legislation are not currently known, Senator Manchin’s office recently released a legislative framework, which includes proposals to, among other things:…

Continue Reading House Passes Inflation Reduction Act, Marks a New Era for Climate Policy

Like many governments around the world, UK politics currently appear somewhat unstable. And the UK’s problems are a reflection of the world, where established views and beliefs are suddenly no longer the unassailable certainties they have seemed to be for decades.

Davos met this week for the first time in two years against this very unsettled backdrop.  A few thoughts and reflections on discussions there follow…

Conversation seemed to centre around emerging trends which challenge the apparent established order of the postwar years. Liberalised economies, increasing globalisation and spreading democracy have been remarkably successful at lifting many millions of people out of poverty and providing them access to electricity, clean water, food and economic opportunity.

Yet now the acceptance of the universality of that approach appears to be under challenge and the world economy teeters on the edge of a downturn……

Continue Reading A few thoughts from Davos…

Securities and Capital Markets

On March 21, 2022, the SEC proposed landmark rules regarding climate-related disclosures that would, if finalized, impact both domestic and foreign private issuers that are subject to the reporting requirements of the Securities Exchange Act of 1934.  The much-anticipated proposal will elicit discussion regarding the type, amount, and materiality of certain climate-related information that a company could be required to report.  The proposal also highlights the significant shift in market expectations globally regarding a company’s oversight of evolving climate-related risks and opportunities.  The SEC also published a fact sheet describing the proposed new disclosure requirements, which includes a matrix outlining the proposed phase-in periods and accommodations for the new disclosures.  The timing and scope of final rules remains uncertain, but the earliest that certain large accelerated companies would need to comply with the proposed rules if adopted would be 2023 (with the possibility of a filing by 2024).

Below we summarize:

  1. Background developments that led to the proposal;
  2. Key provisions of the proposed rules;
  3. Controversial elements of the proposal that may engender further debate; and
  4. What companies should be doing now.

Background

In recent years, investors have become increasingly focused on climate-related issues and risks related to a company’s business.  This heightened awareness has resulted in the SEC taking various steps to address investor demand for more transparent, comparable, decision-useful climate-related disclosure.  For example, in 2010, the SEC released guidance on how companies should apply existing disclosure requirements pertaining to a company’s business operations and exposure to material climate-related matters.[1]

In March 2021, SEC Commissioner and then-Acting Chair Allison Herren Lee requested public input from investors, companies and other market participants on whether current disclosures regarding climate-related opportunities and risks provided adequate information to investors.[2]  ESG-related task forces were also established with the purpose of evaluating climate-related disclosures and claims.  In July 2021, SEC Chair Gary Gensler announced the SEC would propose mandatory climate-related disclosure rules.  In September 2021, the SEC’s Division of Corporate Finance issued a Sample Letter to Companies Regarding Climate Change Disclosures to provide companies with additional guidance regarding climate-related disclosures.
Continue Reading SEC Proposes Landmark Climate-Related Disclosure Rules