In a Bloomberg Law Insight, partners Casey August, Jane Accomando, and Levi McAllister examined developments on carbon emission reduction and reporting that will likely shape how US companies approach sustainability goals in 2024 and beyond.
Carbon emission reduction has risen to the forefront of the global stage. Nearly 200 nations agreed to move away from fossil fuels at the COP28 climate summit in late fall. It was the first time many global nations made a concerted effort to implement lower-carbon energy sources and track their progress toward that goal.
That same focus on reducing and disclosing emissions can be seen throughout the US. The Securities and Exchange Commission is finalizing emission disclosure rules for public companies, and individual states have enacted broad new requirements for companies that buy or sell carbon credits or make carbon neutrality claims.
The increased need to measure, reduce, and report carbon emissions, along with a rise in greenwashing litigation claims, has companies paying closer attention to all things carbon. Here are some top decarbonization developments that will help shape how US companies approach their sustainability goals in 2024.
Green Tax Incentives
The Inflation Reduction Act of 2022 established or enhanced various tax credits for clean energy deployment and manufacturing facilities. It also introduced new methods for monetizing these tax credits, including the ability to sell credits for cash. However, many of the qualification and compliance requirements for claiming and monetizing these credits required implementation guidance.
The Treasury and the IRS have released a large volume of guidance on these matters since the Inflation Reduction Act was enacted, such as proposed regulations on the Section 48 investment tax credit, the Section 45X advanced manufacturing production credit, and the Section 45V clean hydrogen credit.
The advanced manufacturing production credit and clean hydrogen credit guidance in particular reflect debated policy choices on restricting credit qualification for critical mineral mining costs and on including relatively stringent rules for supporting the production of credit-eligible clean hydrogen. Almost all Inflation Reduction Act guidance released so far is subject to change pending stakeholder comments and further consideration.
Clean Energy Transportation
Last summer, the National Highway Traffic Safety Administration proposed revised corporate average fuel economy standards that, if adopted, would further implement the Biden administration’s directive to cut greenhouse gas emissions, reduce US reliance on hydrocarbons, and prioritize sale of more fuel-efficient vehicles. The proposed standards, while incremental, represent broader considerations of a rapidly evolving vehicular transportation sector, presenting new challenges and opportunities for automakers.
The NHTSA’s proposal reflects the Biden administration’s multipronged regulatory push to encourage clean transportation transition in the US. To capitalize on this, automakers must prioritize research and development, not just for improved EVs, but potentially for hydrogen vehicles as well. Addressing consumer anxieties around range and charging availability will also be crucial, requiring innovative solutions and partnerships with government and private entities to develop a robust charging network.
Voluntary Carbon Markets
As more companies explore the purchase of carbon offsets to help achieve their sustainability commitments, the Commodity Futures Trading Commission issued proposed guidance intended to increase transparency and bolster integrity of voluntary carbon credits that underlie derivative contracts subject to CFTC jurisdiction.
The proposed guidance identifies criteria that should be addressed in the design of a voluntary carbon credit derivative contract to help ensure trading in the contract is based on accurate information about the underlying voluntary carbon credit.
Getting ahead of the federal government, California passed the Voluntary Carbon Markets Disclosure Act, which creates significant new disclosure requirements that are potentially applicable to numerous entities—within and outside of California. Failure to comply with the law can result in severe civil monetary penalties of up to $500,000 per violation.
Nuclear Energy
Innovations in nuclear technology and safety have renewed public interest and acceptance of nuclear energy as a viable, necessary solution to achieving decarbonization.
Currently 94 nuclear power plants are licensed to operate in the US. They generate approximately 20% of the nation’s electricity. The vast majority of these reactors have extended their operating licenses to 60 years, and several already applied to the Nuclear Regulatory Commission to operate for another 20 years.
In addition, the Department of Energy has been providing funding opportunities for next-generation advanced and small modular reactors. As a result, we can expect more reactors to come online, including smaller reactors suitable for industrial use.
Sustainable Fuels
The aviation industry is the third-largest contributor of transportation greenhouse gas emissions. Sustainable aviation fuels, which can be created from renewable or waste materials, have been identified as a viable pathway to rapid decarbonization of the aviation industry.
To balance the significant cost barriers associated with using alternative fuels, industry participants have advocated for support from policymakers, particularly in defining green investments to help attract private capital and incentivizing sustainable aviation fuel production through grants and tax credits. However, a lack of federal and international standards still poses obstacles to full adoption and compliance.
Outlook
As the global community transitions away from fossil fuels and carbon emissions-related regulations tighten, this will be a pivotal year for companies in their journey toward carbon neutrality.
Tracking these trends and taking advantage of the opportunities they present will be key to achieving a net-zero future.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Reproduced with permission. Published January 30, 2024. Copyright 2024 Bloomberg Industry Group 800-372-1033. For further use, please read the full Bloomberg Industry Group guidelines.