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US EPA Releases Ambitious Proposed Rules for Federal Vehicle Emissions Standards

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The U.S. Environmental Protection Agency (EPA) yesterday announced new proposed federal vehicle emissions standards that are intended to accelerate the ongoing transition to cleaner vehicles and reduce emissions. The proposals would avoid nearly 10 billion tons of CO2 emissions through 2055, equivalent to more than twice the total U.S. CO2 emissions in 2022. The proposed regulations are designed to ensure that electric vehicles (EVs) make up as much as 67 per cent of new passenger vehicles sold in the U.S. by 2032. If implemented, we anticipate that the proposed regulations will have a significant impact on Canada’s economy given the high level of integration of automotive sectors and Canada’s rich supply of critical minerals essential to the production of EVs and EV batteries. This bulletin briefly summarizes the proposed rules: Light- and Medium-Duty Vehicles. The first set of proposed standards, the “Multi-Pollutant Emissions Standards for Model Years 2027 and Later Light-Duty and Medium Duty Vehicles”, builds on the EPA’s existing emissions standards for passenger cars and light trucks for model years (MYs) 2023 through 2026. The EPA projects that, with the new standards, EVs could account for 67% of new light-duty vehicle sales and 46% of new medium-duty vehicle sales in MY 2032. The proposed MY 2032 light-duty standards are projected to result in a 56% reduction in projected fleet average greenhouse gas emissions target levels compared to the existing MY 2026 standards. The proposed MY 2032 medium-duty vehicle standards would result in a 44% reduction compared to MY 2026 standards. Heavy-Duty Vehicles. The second set of proposed standards, the “Greenhouse Gas Standards for Heavy-Duty Vehicles – Phase 3”, would apply to heavy-duty vocational vehicles (such as delivery trucks, refuse haulers or dump trucks, public utility trucks, transit, shuttle, school buses) and trucks typically used to haul freight. These standards would complement the criteria pollutant standards…

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President Biden Signs Inflation Reduction Act

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The United States has just passed arguably its most significant and meaningful legislative instrument on climate change and clean energy. It is intended to have positive implications for climate and clean energy markets around the globe. On Sunday, August 8, 2022, the US Senate passed the Inflation Reduction Act of 2022 (the Act). The Act was then passed by the House of Representatives on Friday, August 12, 2022, and President Biden signed it into law today (Tuesday, August 16, 2022). The Act represents a central pillar of President Biden’s policy agenda and is extremely ambitious in scope, with significant implications for healthcare, taxes, and climate change. It authorizes approximately US$430 billion in spending, with approximately US$369 billion of that sum directed to clean energy and addressing climate change. This bulletin highlights the central climate and energy provisions of the Act. It is noteworthy that Senate Democrats estimate that the Act will raise US$739 billion in new revenue through measures such as increasing the IRS’s enforcement of tax evasion, and a new 15% minimum tax rate applicable to corporations with profits of $1 billion or more. These new revenues are intended to more than offset the expenses resulting from new programs, resulting in a projected reduction in the federal government’s deficit. The Senate was the critical hurdle for the Act, with approval remaining in doubt until its final passing by a vote of 51-50 (along strict party lines with Vice President Harris casting the 51st and tie-breaking vote).   Senate Democrats indicate that the climate change provisions of the Act will result in a 40 percent reduction in carbon emissions by 2030 compared to 2005 levels when fully implemented. While this falls short of America’s updated Paris Target of a 50-52% reduction from 2005 GHG emissions by 2030, it constitutes meaningful progress toward that goal.    The climate and energy portions…

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CFTC Seeks Comment on Climate-Related Financial Risk

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The U.S. Commodity Futures Trading Commission (CFTC) has released a Request for Information seeking public comment on climate-related financial risk (the RFI). The CFTC notes that the RFI will inform its understanding and oversight of climate-related financial risk relevant to the derivatives markets, underlying commodities markets, registered entities, registrants, and other related market participants. This bulletin briefly summarizes the RFI. The RFI is seeking comments on questions posed by the CFTC around the following topic areas: data; scenario analysis and stress testing; risk management; disclosure; product innovation; voluntary carbon markets; digital assets; financially vulnerable communities; public-private partnership/engagement; and capacity and coordination. The CFTC indicated that it may use the responses and comments received through the RFI to inform potential future actions including the issuance of new or amended guidance, interpretations, policy statements, or regulations, or other potential action by the CFTC. All of the CFTC’s commissioners voted in favour of the RFI. However, Commissioner Mersinger, in a concurring statement included in the RFI, indicated that several of the questions in the RFI were beyond the jurisdiction of the CFTC. Commissioner Mersinger asserted that the CFTC does not regulate commodity markets and does not have statutory authority to create a registration framework for participants within voluntary carbon markets nor the authority to regulate digital assets or distributed ledger technology outside of activities related to derivatives. In addition, Commissioner Pham stated that the CFTC should seek to harmonize any climate risk management framework with existing prudential and other regulatory regimes for registrants already subject to such regimes. The RFI follows the CFTC’s first Voluntary Carbon Convening (the Convening) which discussed issues related to the supply and demand for high quality carbon offsets, including product standardization and the data necessary to support the integrity of carbon offsets’ greenhouse gas emission avoidance and claims.…

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U.S. Judge Cites Climate Change in Cancelling Oil and Gas Leases

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A federal judge of the U.S. District Court for the District of Columbia has cancelled oil and gas leases of 80.8 million acres in the Gulf of Mexico, citing inadequate environmental assessments of the impact of GHG emissions on climate change. The judge determined that the Interior Department “acted arbitrarily and capriciously in excluding foreign consumption from their [GHG] emissions calculations” contrary to requirements under the National Environmental Policy Act (NEPA).  Environmental groups claimed the NEPA analysis performed by the Bureau of Ocean Energy Management was irrational and inconsistent with available data in determining that the GHG emissions associated with the lease sale would be lower and not contribute to climate change compared to a no-action scenario. The Interior Department must now conduct new analysis taking into account GHG emissions resulting from the development and production of the leases, including the associated emissions from foreign consumption. The Interior Department must then consider the new analysis in determining whether to hold a new auction for the cancelled leases.  President Biden, during his campaign for office, had stated that there would be no new drilling for oil and gas on federal lands and signed an Executive Order to that effect early last year. However, Attorneys General from 13 states successfully sued to have previously planned auctions from the Trump Administration go forward, with major oil companies including Shell, BP, Chevron and Exxon Mobile bidding $192M for the now cancelled drilling rights.  For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.

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U.S. Democrats Unveil Border Carbon Adjustment Legislation

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U.S. Senator Chris Coons and House Representative Scott Peters, both Democrats, earlier this week unveiled the “Fair, Affordable, Innovative, and Resilient (FAIR) Transition and Competition Act” (the Act), which, if enacted, would establish a border carbon adjustment (BCA) to be imposed as a fee on imports, starting on January 1, 2024. This follows the recent release of climate and emissions reduction proposals by the European Commission which also include BCAs for imports into the European Union. This bulletin briefly outlines the key provisions of the Act. Sectors. The Act would apply to industrial facilities that produce the following products: Steel; Aluminum; Cement; Iron; and Any product which is composed of over 50 percent of any of the above products. Determination of domestic environmental cost incurred. The Act would empower the Secretary of the Treasury (the Secretary) to annually determine the domestic environmental cost incurred for each sector or the average cost to produce a covered fuel (natural gas, petroleum, and coal), to comply with federal, state, regional, or local law, regulation, policy or program which, inter alia, is designed to limit or reduce greenhouse gas (GHG) emissions, including cap-and-trade systems, carbon taxes, and fees. Border carbon adjustment. The Secretary would administer the BCA through regulation and guidance. The Secretary of State and the United Stated Trade Representative would engage with other countries to reduce global GHG emissions and ensure fairness in the application of the emissions-based tariffs. A fee would be applied to any covered good (either a covered fuel or product produced within a sector) to be determined based on the domestic environmental cost incurred multiplied by the production of GHG emissions of the product or the upstream GHG emissions of the covered fuel. The BCA would not apply to (i) countries on the Least Developed Countries list of the OECD and (ii) countries that…

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