Last week, the U.S. Environmental Protection Agency (EPA) released a pre-publication version of a Proposed Rule to designate PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund).  This marks the next step in a trend of increasing regulation of per- and polyfluoroalkyl substances (PFAS), a class of chemical substances to which PFOA, PFOS, and a number of other substances belong.  PFAS have been used for a variety of applications, including firefighting foams, stain guards, and non-stick coatings, and are now widely found in the environment.

Under CERCLA, EPA has the authority to require potentially responsible parties (PRPs) to remediate sites contaminated by hazardous substances, and to recover costs from such PRPs for EPA-led cleanups.  These provisions do not yet apply to PFAS because they are not CERCLA hazardous substances, but if the Proposed Rule is finalized, these familiar provisions would apply to PFOA and PFOS.  Similarly, the hazardous substance designation would allow private parties that incur costs to investigate and remediate PFOA and PFOS to use CERCLA’s cost recovery and contribution provisions to pursue other PRPs for recovery of associated costs. 

The Proposed Rule, if finalized, could have significant impacts on Superfund sites that are presently undergoing remediation or even where remediation has already been completed.  For sites being remediated now, the EPA-approved remedial plans would have been calibrated to address other hazardous substances (say, solvents) already designated under CERCLA.  The addition of PFOA and PFOS as hazardous substances may require a change in plans and/or additional work to address PFOA and PFOS as well as the original drivers.  For sites that have already been closed without investigation and remediation of PFOA and PFOS, designation of such substances as hazardous under CERCLA could cause those sites to be reopened and additional remedial efforts to be required.

EPA’s proposed CERCLA hazardous substance rule follows a significant reduction earlier this summer in EPA’s non-binding health advisory levels for PFOA and PFOS in drinking water.  In 2016, EPA had set a non-binding health advisory level of 70 parts per trillion (ppt) for both PFOA and PFOS.  In June of this year, EPA issued revised advisory levels of 0.004 ppt for PFOA and 0.20 ppt for PFOS, as well as new health advisory levels for additional PFAS GexX (10 ppt) and PFBS (2000 ppt).  The health advisory levels continue to be non-binding, but EPA has signaled its intention to promulgate a final rule setting a maximum contaminant level for PFOA and PFOS, enforceable under the Safe Drinking Water Act, by the end of 2023.  The proposed rule is expected later this year. 

Following publication in the Federal Register, EPA will accept public comment on the Proposed Rule for 60 days.  The precise text and timing of the final rule is not yet clear and may be impacted by the volume and tenor of public comments.  It also remains to be seen whether EPA will propose to designate other PFAS as CERCLA hazardous substances, and if so, which ones.

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The offshore wind industry stands to gain additional momentum this summer as the Inflation Reduction Act (IRA) moves through Congress to its anticipated passage. The budget reconciliation package associated with the bill continues to reflect a substantial investment in the further development of renewable energy measures, several of which relate to offshore wind and related transmission infrastructure projects. Future offshore wind development prospects are particularly bright for several New England and east coast states, which earlier this summer joined the Biden administration in announcing a new federal-state partnership to grow American-made clean energy. While offshore wind is not the sole beneficiary of these legislative initiatives, the impacts could prove to be transformative for planned and contemplated offshore installations. 

Inflation Reduction Act

     The IRA contains several incentives for offshore wind development.  These include:

  • An energy investment tax credit (ITC) provides a scaled tax credit of up to 30 percent for offshore wind projects that begin construction before January 1, 2026.
  • A new tax credit of 10 percent for the domestic production of wind components and specialized offshore wind installation vessels. 
  • An expansion of the Outer Continental Shelf Lands Act to include the exclusive economic zone of U.S. territories, including Puerto Rico, Guam, and the U.S. Virgin Islands. This would allow for the development of offshore wind projects in these areas. The Act instructs the Department of the Interior (DOI) to evaluate applicable lease opportunities.
  • An end to the Trump-era moratorium currently prohibiting federal leasing on the outer continental shelf off the coast of the southeastern U.S.
  • A $3 billion grant to install electrified equipment and reduce emissions at U.S. seaports, where infrastructure is a linchpin for supply chain development and management.

The IRA does impose certain restrictions on the leasing of offshore wind development.  During the 10-year period following enactment, the DOI’s Bureau of Ocean Energy Management (BOEM) would not be allowed to lease wind development unless the agency held an offshore oil and gas lease sale in the previous year that offered certain defined opportunities for fossil fuel development on the outer continental shelf.

Federal-State Offshore Wind Partnership

On June 23, 2022, the White House announced a new federal-state partnership to grow American-made clean energy and further the Biden administration’s goal of 30 gigawatts of offshore wind by 2030. The eleven states taking part are Connecticut, Rhode Island, Massachusetts, New York, Delaware, Maryland, Maine, New Hampshire, New Jersey, North Carolina, and Pennsylvania. The main components of the partnership, which focus on the supply chain, are outlined in a White House press release, and noted below. 

Mutual Federal-State Commitments

  • Increase U.S. domestic manufacturing, logistics, and workforce to develop a robust U.S. offshore wind industry.
  • Engage underserved communities, ocean users, tribes, and other stakeholders.
  • Support the development of a domestic fleet of offshore wind installation and service vessels.

State Commitments

  • Use opportunities for project solicitations to support domestic commitments in offshore wind procurements.  
  • Explore opportunities to take regional approaches to advance domestic offshore wind manufacturing.

Federal Commitments

  • Facilitate timely and effective permitting and environmental reviews for offshore wind projects.
  • Incentivize investment in the U.S. offshore wind supply chain by utilizing the lease auction process.
  • Develop an offshore wind supply chain roadmap to identify critical gaps in offshore wind development.
  • Leverage federal funding opportunities to promote a U.S.-based offshore wind supply chain.

A commission consisting of the U.S. Department of Energy and the states of New York and Maryland will also continue to develop a national offshore wind supply chain roadmap. The first step in developing the roadmap was a report, released in March 2022, that demonstrated the substantial need to increase the number of domestic vessels to assist in offshore wind development and construction. Currently, only some ten vessels have the capacity to construct large offshore wind turbines, globally.

In an effort to alleviate this vessel shortage in the United States, the Department of Transportation’s Maritime Administration has listed wind turbine installation vessels as “Vessels of National Interest.” This categorization will provide the proposed construction of such vessels with priority federal funding through the Federal Ship Financing Program. A second report further detailing the roadmap is expected to be published by the end of 2022 and will detail scenarios that would increase U.S. manufacturing of major components for the offshore wind supply chain. In Connecticut, the city of New London continues to shine as a focal point of offshore wind development in New England.  Earlier this summer, the State Pier Project attracted national attention as U.S. Secretary of Energy, Jennifer Granholm, visited New London to inspect the progress of the project. In her remarks, Secretary Granholm noted President Biden’s interest in the project and its suitability to serve as a model for other heavy-lift capable ports that will be necessary to create and maintain offshore facilities.

Over the last two years, employers have followed the evolving laws and guidance issued by federal, state, and local governments and public health authorities. On July 12, 2022, the Equal Employment Opportunity Commission (EEOC) made several noteworthy revisions to its guidance to address changing pandemic conditions. Even though the COVID-19 pandemic may have subsided in various areas in the country, it is important for employers to remain up-to-date on such changes as they could have a significant impact on employers’ rights and responsibilities under the law.  

New Parameters for COVID-19 Testing

Most significant, the EEOC has altered its guidelines surrounding workplace COVID-19 testing.  Under the recent guidance, the EEOC will no longer presume that COVID-19 testing is job-related and consistent with business necessity – as required by the Americans with Disabilities Act. Instead, employers will be required to conduct an individualized assessment to determine whether present pandemic circumstances and individual workplace circumstances justify COVID-19 testing of employees. This individualized assessment is not new; the EEOC is simply returning to its pre-pandemic guidance on this issue. In those circumstances requiring an individualized assessment, the EEOC advises employers to consult current guidance from the Centers for Disease Control and Prevention (CDC) and other public health authorities. Furthermore, the EEOC instructs employers to evaluate and consider various factors including, among other considerations:

  • the level of community transmission
  • vaccination data
  • information regarding variants
  • the speed and accuracy of testing
  • the types of contacts between employees and others in the workplace (e.g., whether vulnerable populations are involved)
  • the potential impact on operations if an employee enters the workplace with COVID-19

The EEOC’s revised guidance also reemphasizes that, consistent with current CDC guidelines, antibody tests are not indicative of a current COVID-19 infection and should not be used to determine whether an employee can re-enter the workplace.

Other COVID-19 Screening Still Permissible

Notwithstanding the EEOC’s new guidelines surrounding COVID-19 testing, the EEOC reiterates that employers may continue screening employees who are physically entering a worksite with regard to COVID-19 symptoms or diagnoses, but should not screen employees who are working remotely or not physically interacting with coworkers or others.

In addition, the EEOC clarifies that employers may screen job applicants for COVID-19 symptoms after making a conditional job offer, as long as it does so for all employees entering the same type of job. However, an employer may only withdraw a conditional job offer because an applicant tests positive for COVID-19, has symptoms of COVID-19, or has been recently exposed, if three conditions are met:

  1. the job requires an immediate start date;
  2. CDC guidance recommends the person not be in proximity to others; and
  3. the job requires such proximity to others, whether at the workplace or elsewhere.

According to the EEOC, employers may also screen applicants for COVID-19 during the pre-offer stage, but only if the employer screens everyone (including visitors) for symptoms of COVID-19 before entering the workplace, the applicant needs to be in the workplace as part of the application process, and the screening is limited to the same screening that everyone else undergoes.

Lastly, according to the EEOC’s guidance, employers may require employees to provide a doctor’s note clearing them to return to work after having COVID-19. Employers are reminded that they may also rely on other alternatives to determine whether it is safe for an employee to return to work (e.g., following current CDC guidance).


The EEOC’s updated guidance might signal a return to the pre-pandemic guidelines, standards, and enforcement of the agency. Over the last two years, the guidelines and rules changed rapidly in the face of a global health crisis, and many of the restrictions around the collection of medical information and medical testing and exams were significantly relaxed. Over the next few months, these guidelines and rules may change, and if they do, employers should ensure they are up-to-date with the guidelines and rules and that all policies and protocols, especially screening and testing protocols, are consistent with the most recent guidelines and rules.

The EPA intends to increase its review of voluntary self-disclosures of violations submitted electronically under EPA’s Audit Policy. The EPA Office of Inspector General (OIG) recently issued a report detailing the results of an evaluation of EPA’s process for screening self-reported environmental violations made through its eDisclosure system. The OIG’s report concluded that EPA currently lacks the necessary internal controls to ensure that violations disclosed through the eDisclosure system are screened for significant concerns, such as criminal conduct and potential imminent hazards.

The Audit Policy provides reduced penalties and mitigation incentives to a regulated company if the company conducts voluntary audits, promptly discloses violations discovered to the EPA, and takes timely corrective action. The company must comply with additional criteria to get the full benefit of the Audit Policy. The Audit Policy was updated in 2015 to require electronic reporting using the newly established eDisclosure portal. The eDisclosure portal receives and processes submissions under the Audit Policy into two categories:

Category 1: EPCRA violations that meet all nine of the Audit Policy’s conditions.

Category 2: Non-EPCRA violations and violations of EPCRA that do not meet the criteria for category 1.

The findings of the OIG’s report were primarily focused on Category 2. EPA previously stated that it would screen Category 2 disclosures for significant concerns. The OIG’s report calls into question EPA’s current ability to conduct such screenings effectively. For starters, EPA lacks any national guidance directly personnel on how to screen submissions or any training specific to the eDisclosure system. As a result, the OIG found that screening efforts were inconsistent across EPA regions. According to the OIG’s report, some EPA regions believed that the Office of Enforcement and Compliance Assurance (OECA) was responsible for screening, some did not have access to the eDisclosure system, and others just did not have the resources for adequate screening.

The OIG’s report recommended that OECA take several steps to more effectively screen Category 2 disclosures, including:

  1. Developing national guidance detailing a process for screening the eDisclosure submissions for significant concerns.
  2. Providing eDisclosure-specific training to EPA headquarters and EPA regions on eDisclosure.
  3. Developing performance measures for the eDisclosure system.
  4. Assessing eDisclosure’s functionality to identify and implement improvements.

The OECA already released a statement that it agreed with all of the OIG’s recommendations and proposed September 30, 2022, for completion of recommendation 2 and September 30, 2023, for the other three recommendations.

These changes will likely cause an increase in the amount and thoroughness of Category 2 disclosure screenings. As a result, going forward, companies seeking to utilize the Audit Policy and submit a Category 2 voluntary self-disclosure will be subject to closer scrutiny as to whether they qualify under the Audit Policy and more frequent follow-up inspections.

Below is an excerpt of an article co-authored with Jon Schaefer and published in Industry Week on July 8, 2022.  Jon focuses his practice on environmental compliance counseling, occupational health and safety, permitting, site remediation, and litigation related to federal and state regulatory programs.

Last week, the U.S. Supreme Court issued its decision that the Environmental Protection Agency exceeded its authority under the Clean Air Act in its attempt to regulate greenhouse gas emissions from power plants.

While the immediate impact of the decision in West Virginia v. Environmental Protection Agency is fairly limited, the court’s rationale has the potential to impact federal agency authority across a broad range of sectors.  

The West Virginia case involved a challenge to the Obama administration’s Clean Power Plan and its successor, the Affordable Clean Energy rule. Under those policies, the EPA sought to regulate carbon dioxide emissions from power plants.

The Clean Air Act allows EPA to set certain emissions limits based on what is achievable through the “best system of emission reduction.” The limits in that best system” were based in part on transition of energy production to cleaner energy sources—including “cap and trade” economic incentives for reducing emissions—and would have had a direct impact on the ability of legacy coal-fired power plants to meet requirements and continue operating.

The Supreme Court ruled that the EPA exceeded its authority to enact an emissions reduction program based on a shift in power generation from one source to another. The ruling does not necessarily limit the EPA’s authority to regulate greenhouse gases; it just limits its ability to regulate greenhouse gases using a “system” that calls for a shift in how the power is produced. Read the full article.

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Earlier this month, EPA set new lifetime health advisories for four per- and poly-fluoroalkyl substances (PFAS) – in some instances at levels lower than those that can be detected through laboratory testing. The new health advisories are listed below:

PFASHealth Advisory (in parts per trillion)
PFOA (perflurooctanoic acid)0.004 ppt
PFOS (perfluorooctane sulfonic acid)0.02 ppt
GenX (hexafluoropropylene oxide (HFPO) dimer acid and its ammonium salt)10 ppt  
PFBS (perfluorobutane sulfonic acid and its potassium salt)2,000 ppt

EPA’s previous health advisories for PFOA and PFOS were 70 ppt (individually or combined), so these new, interim advisories are significantly lower. The advisories for GenX and PFBS are completely new. And all are getting attention.

The health advisories are not enforceable standards; however, in EPA’s own words, they “provide technical information that federal, state, and local agencies can use to inform actions to address PFAS in drinking water, including water quality monitoring, optimization of existing technologies that reduce PFAS, and strategies to reduce exposure to these substances.” Indeed, some states adopted drinking water regulations based on EPA’s now outdated 70 ppt health advisory for PFOA and PFOS.

According to EPA, it reviewed over 400 human epidemiological and animal toxicity studies in determining the health advisories for PFOA and PFOS. GenX and PFBS have not been as extensively studied to date, and those advisories appear to be based only on animal toxicity studies. EPA acknowledged that, for PFOA and PFOS, the levels are set at “near zero” and “below EPA’s ability to detect at this time.” However, it claims that new science and a consideration of lifetime exposure (including PFAS exposure from sources other than drinking water) support “aggressive” action.

EPA plans to develop a proposed National Drinking Water Regulation for PFOA and PFOS by the end of 2022. This proposed regulation will include a Maximum Contaminant Level (MCL), which is almost certain to be well above the health advisories EPA just established for these compounds. If adopted, the MCL for PFOA and PFOS would become an enforceable standard for drinking water. EPA also indicated that it is considering actions to address other PFAS, or groups of PFAS, beyond PFOA and PFOS.

U.S. Customs and Border Protection (CBP) has issued a ruling stating that the Jones Act does not apply to several specific offshore wind activities, which permits those activities to be performed by foreign vessels.

One of the complicating factors to offshore wind development in the United States is the applicability of the Jones Act, and whether the Jones Act allows related development activities to be performed by foreign vessels.  The Jones Act limits the transportation of “merchandise” between U.S. coastwise points to vessels that are built and registered in the United States and are owned by a U.S. citizen.  CBP had previously determined that the Jones Act applies, generally, to the transportation of merchandise from a U.S. port and other coastwise points to wind turbine generator foundations.  As such, the Jones Act, and its prohibition against the use of more readily available foreign wind turbine installation vessels (WTIVs), has complicated and, in some instances, added substantial cost to the installation of offshore turbines.  A recent CBP ruling provides companies involved in offshore wind projects clearer guidance on the applicability of the Jones Act to certain specific windfarm installation activities. 

In its April 2022 ruling, the CBP analyzed the applicability of the Jones Act to several specific offshore wind activities and in several instances determined the Act does not apply, which permits those activities to be performed by foreign vessels.  For example, the CBP confirmed that a foreign WTIV can move crew members and materials to the work site because crew members are not “passengers” and work materials are not “merchandise,” as those terms are defined in the Jones Act.  Similarly, a foreign WTIV may arrive in U.S. waters and install foundations and other project components it has transported from a foreign port. 

The ruling also addresses the use of foreign vessels in installing underwater cables, confirming that the Jones Act does not apply to vessels laying electrical cables in U.S. waters between two U.S. points, or to vessels loading that cable at a U.S. port.  Similarly, the use of foreign cable lay vessels (which create, lay and bury cables on the sea floor), is permitted, as that activity is not considered “dredging,” a function historically reserved for Jones Act-compliant vessels.  The ruling also confirms prior CBP guidance with respect to the installation of scour protection, which is used to prevent loss of seabed sediment around the base of an offshore structure.  Foreign vessels are permitted to pick up rocks in a U.S. port, transport them offshore, and place them at a work site – provided the rocks are the first thing being added to the pristine sea floor.

In one instance, the CPB’s April ruling reverses an earlier position regarding the installation of cable protection in favor of Jones Act compliance.  Previously, foreign vessels were permitted to load concrete mats and place them on top of laid piping, as the existing pipe was not considered a U.S. point.  Based on an interpretation of the Outer Continental Shelf Lands Act, however, the CBP determined that the laying of an electrical cable on the seabed was intended to be made a U.S. point, as it is a means of transporting resources.  As a result, installation of concrete mats to protect the piping running from the offshore structure requires the use of a Jones Act-compliant vessel.

While the applicability of the Jones Act to specific offshore wind development activities will continue to require careful analysis, the CBP’s April ruling provides offshore wind developers some clarity moving forward.

On May 15, 2022, the latest revision of the Massachusetts Department of Energy Resources (DOER)  Guideline Regarding the Definition of Agricultural Solar Tariff Generation Units (Guideline) for the Solar Massachusetts Renewable Target (SMART) Program took effect. The Guideline supplements the SMART Program regulations (225 CMR 20.000), provides guidance on how a Solar Tariff Generation Unit (STGU) may qualify as an Agricultural Solar Tariff Generation Unit (ASTGU) under the SMART Program, and establishes compliance requirements for ASTGUs.

In general, ASTGUs are STGUs located either on land that is currently being used for agriculture or land that has been classified as Important Agricultural Farmland under 225 CMR 20.02 that allows the continued use of the land for agriculture. The SMART Program has a goal of reaching 80 megawatts (MW)AC capacity of ASTGU systems. ASTGUs receive adder value under the SMART Program.

The revised Guideline significantly increases the maximum AC rated capacity of an ASTGU to 5 MW from 2 MW. Further, the Guideline sets a DC to AC capacity ratio of 2:1 and caps projects to a DC capacity of 7.5 MW. 

The Guideline also establishes criteria for newly created farmland to be deemed eligible farmland on which an ASTGU could be located. Specifically, newly created farmland is eligible if it has established agricultural production before the date of the associated application to the SMART Program. However, newly created farmland that is the result of clearing or conversion of forest land is not eligible.

The Guideline also establishes a requirement for ASTGUs to submit annual agricultural productivity reports. These reports are required to show that the ASTGU continues to engage in commercial agriculture to retain and use the land primarily and directly for agricultural purposes.  In the event of reduced crop yields, waivers may be granted for good cause. If an ASTGU fails to comply with the reporting requirement, then it may lose its eligibility for the ASTGU adder for one or more years.

On April 6, 2022, by a 5-4 vote in the case of Louisiana, et. al. v. American Rivers, et. al., the Supreme Court temporarily resurrected a Trump-era rule that sought to stop the practice of many states and tribes from withholding or unduly conditioning their certifications that are required under the Clean Water Act before certain federally-permitted activities can proceed (the 2020 Rule). Delays and demands imposed on gas pipeline and other energy infrastructure projects through these tactics have drawn particular criticism.

The 2020 Rule was challenged by environmental groups and several states and vacated by the District Court for the Northern District of California in October 2021 – notably without an accompanying review of the merits and a finding that the rule was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Supporters of the 2020 Rule sought an emergency stay with the Supreme Court pending their appeal to the Ninth Circuit. In agreeing to stay the District Court’s ruling and effectively reinstate the rule, the Supreme Court used its so-called “shadow docket,” a procedure typically reserved for emergency situations involving an immediate threat of harm if the Supreme Court does not act.

The case centers around the EPA’s July 2020 Section 401 Certification Rule, which limits the ability of states and tribes to withhold approval, or “certification,” of applications for a federal license or permit under the Clean Water Act. The 2020 Rule prevents states from blocking projects for any reason other than threat of direct pollution into the state’s waterways and strictly imposes the one-year statutory deadline for a state to act on a request for certification.

The 2020 Rule was among the Trump-era regulations that the Biden administration directed federal agencies to review in the early days of the new administration. In June 2021, the EPA announced a new rulemaking to propose revisions to the 2020 Rule. A final revised rule is expected in 2023. The Supreme Court’s decision does not prevent the EPA from continuing with its rulemaking but does ensure that until that process produces a final replacement regulation or further judicial review invalidates the 2020 Rule, it will remain in effect.

Notably, the Supreme Court’s majority opinion imposing the stay is contained in a single short paragraph. In a lengthier discussion, Justices Kagan, Breyer, Sotomayor, and Chief Justice Roberts dissented, citing the lack of evidence that the applicants would suffer irreparable harm if the Supreme Court failed to act. Specifically, Justice Kagan pointed out that the states and energy interests appealing the decision did not cite any projects that would be threatened by the ruling in question or that had been blocked in the months since it was issued last October.

Supreme Court watchers will need to consider whether the decision signals how the Court would rule on the merits of a challenge to the 2020 Rule, or whether a majority of the Court simply could not countenance a district court vacating a duly promulgated rule absent a full merits determination.

True to its word, the SEC released its proposed rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, last week. The rule would require companies to disclose a wide variety of climate-related information, including information about climate-related risks that are reasonably likely to have material impacts on its business and/or its consolidated financial statements, and greenhouse gas (GHG) emissions metrics that could help investors assess those risks.

Much has been made of the proposed requirements for GHG emissions reporting—not just for Scope 1 and 2 emissions (emissions from company operations and from the generation of electricity purchased and consumed by the company)—but also for Scope 3 emissions, or emissions from upstream and downstream activities in a company’s value chain. In this post, we will focus on the Scope 3 emissions requirements in the proposed rule.

First, not all companies would be required to report Scope 3 emissions. The proposed rules would require disclosure of Scope 3 emissions only if:

  • The emissions are material, or if there is a substantial likelihood that a reasonable investor would consider them important when making an investment or voting decision; or
  • The company has set a GHG emissions reduction target or goal that includes its Scope 3 emissions.

In limiting the reporting requirement, the SEC sought “[t]o balance the importance of Scope 3 emissions with the potential relative difficulty in data collection and measurement . . . .”

The SEC declined to propose a quantitative metric for the determination of materiality of Scope 3 emissions (although the proposed rule notes that some companies rely on such a metric, and it also seeks additional comment on whether such a metric should be included). Instead, it proposed to use its commonly known materiality standard, explaining that a “one-size-fits-all” approach would not capture the variability of regulatory, policy, and market conditions across companies, nor would it adequately capture the transition risk that is tied to GHG emissions and the choices that a company can make about its value chain because of them.

For companies that have set a GHG emissions reduction target or goal, the proposed rule states that disclosure is needed to help investors understand the potential costs associated with meeting such a goal and track the company’s progress along the way.

So what are Scope 3 emissions? As explained above, Scope 3 emissions are those from upstream and downstream activities in a company’s value chain. Some examples of these upstream and downstream activities include:

  • Purchased goods and services;
  • Transportation and distribution of purchased goods, raw materials, and other inputs;
  • Waste generated in operations;
  • Business travel and commuting by employees;
  • Transportation and distribution of sold products, goods, or other outputs; and
  • End-of-life treatment of a company’s sold products.

Scope 3 emissions data is difficult to gather and quantify, but the SEC is hoping that companies required to report will be able to influence the activities in their value chain and gather emissions data in the process:

“Although a registrant may not own or control the operational activities in its value chain that produce Scope 3 emissions, it nevertheless may influence those activities, for example, by working with its suppliers and downstream distributors to take steps to reduce those entities’ Scopes 1 and 2 emissions (and thus help reduce the registrant’s Scope 3 emissions) and any attendant risks. As such, a registrant may be able to mitigate the challenges of collecting the data required for Scope 3 disclosure.”

The proposed rule suggests that Scope 3 emissions data can be found in the following sources:

  • Emissions reported by parties in the registrant’s value chain, and whether such reports were verified by the registrant or a third party, or unverified;
  • Data concerning specific activities, as reported by parties in the registrant’s value chain; and
  • Data derived from economic studies, published databases, government statistics, industry associations, or other third-party sources outside of a registrant’s value chain, including industry averages of emissions, activities, or economic data.

Companies required to report Scope 3 emissions must do so individually (i.e., listing the emissions from each GHG), and also in the aggregate (carbon dioxide equivalent). They must also report GHG intensity, or the ratio of the impact of GHG emissions per unit of total revenue and per unit of production. The risks associated with climate change must also show up in a company’s financial statement metrics, with certain metrics (for Scope 3 emissions, think transition risk) required to be included in a note to a registrant’s audited financial statements. Lastly, if a company is required to report historic data on its income statement and cash flow statement, it should be prepared to do the same for emissions data (to the extent such emissions data is reasonably available).

The proposed rule would phase in the reporting of Scope 3 emissions, with the first reporting required for large accelerated filers in fiscal year 2024 (filed in 2025). Smaller reporting companies would be exempt from the Scope 3 emissions reporting requirements.

The SEC is seeking comment on the proposed rule. The comment period will remain open until at least May 20, 2022.