3 minute read 28 Apr 2023
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Proposed regulation on greenhouse gases and climate change

Authors
Sajeev Malaveetil

EY Americas Government Contract Services Leader

Enabling businesses and communities to serve our government and the people they represent — ethically, honestly and with integrity.

Courtney Black

Principal, Government Contract Services, Ernst & Young LLP

Collaborating with government contractors to enhance compliance, strategy, operations and financials.

3 minute read 28 Apr 2023
Related topics Forensic & Integrity Services
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A proposed FAR rule requires federal contractors to disclose greenhouse gas emission levels and set science-based reduction targets.

Following the comment period, which ended on February 13, 2023, final rule making began for Federal Acquisition Regulation (FAR) Case 2021-015 Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risks, a new proposed rule by the FAR Council. The proposed rule, which was introduced on November 22, 2022, requires federal contractors to publicly disclose their greenhouse gas (GHG) emission levels and set science-based reduction targets. The proposed rule will implement Executive Order (EO) 14030, Climate-Related Financial Risk Section 5(b)(i), addressing the intensifying physical impacts of climate change (CC) and operational impacts on the US government, its major contractors and their respective subcontractors.

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The FAR Council will leverage third-party standards and systems, such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the GHG Protocol, the CDP (formerly Carbon Disclosure Project) reporting system and Science Based Targets initiative (SBTi) criteria to develop regulatory amendments and baseline compliance requirements with the new rule. In accordance with the Environmental Protection Agency, scope requirements will be bracketed into three reporting tiers.

Annual System for Award Management (SAM) representations and certifications will require major and significant contractors to provide their specified tier ranking and evidence of Scope 1 and 2 inventories and emissions. Major contractors, under Scope 3 reporting, must publicly submit their CDP Climate Change Questionnaire and provide online public access to their SBTi validated science-based targets.

How EY can help

Government Contract Services

The U.S. Government is the world’s largest buyer of goods and services. Keys to a successful business relationship with the U.S. Government include knowledge of applicable regulations, operational capability and innovation that you bring to the table to achieve, maintain and demonstrate economic viability, security, efficiency and compliance.

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EPA scope requirement levels Scope applicability
Scope 1 Direct – Company facilities and vehicles
Scope 2 Indirect – Upstream activities
Scope 3 Indirect – Downstream activities

Key short-term compliance considerations include assessing the reliability of existing data on GHG, establishing targets when needed and determining the ability to meet targets if a significant portion of the supply chain are Tier One contractors or small businesses, as these categories are exempted from disclosure requirements.

The level of reporting required (tier) will be dependent on the amount of annual federal funding (e.g., contracts, cooperative agreements, grants) contractors receive:

Tier ranking Contractor applicability Compliance requirements
Tier One Annual federal funding valued at $7.5m or less Will not incur new reporting requirements
Tier Two (significant) Annual federal funding valued higher than $7.5m but less than $50m GHG inventory, Scope 1 and 2 annual disclosure requirements
Tier Three (major) Annual federal funding exceeding $50m GHG inventory, Scope 1, 2 and 3 annual disclosure requirements, and science-based target requirements

What are the risks of noncompliance?

Federal contractors failing to disclose the requisite information contained in the proposed rule may be noncompliant with the requirements of FAR Part 9, Contractor Qualifications and face False Claims Act compliance risks. Contractors that knowingly falsify their GHG emissions reporting could be subject to fines, contract cancellation, termination, possible suspension or debarment.

Compliance timelines from final rule effective date

Requirement Significant contractors Major contractors
Inventory GHG 1 year 1 year
Scope 1 & 2 Disclosure 1 year 1 year
Scope 3 Disclosure N/A 2 years
Conduct climate risk assessment N/A 2 years
Complete the CDP Climate Change Questionnaire N/A 2 years
Commit to, develop, and obtain SBTi validation of a science-based target N/A 2 years

What critical activities should suppliers undertake in establishing and maturing a GHG emissions and CC compliance program?

Critical activities Key compliance considerations
Compliance program review, reporting and target setting Establish and/or update GHG reporting mechanisms and emission targets that are commensurate with the applicable tier ranking.
Subcontract management Flow down and require certification of GHG disclosure reporting and target requirements.
Compliance monitoring Establish monitoring activities to verify the accuracy of GHG reporting and feasibility of emission targets.

What federal contractors can do

Now

Familiarize yourself with the requirements of frameworks inherent in the proposed rule and what your organization may be doing to address them.
Determine the availability and reliability of data needed for reporting.
Identify current GHG emissions reporting and disclosure capabilities.

Next

Assess if SBTi’s are being established and begin implementation of processes, controls and reporting capabilities in preparation for public disclosures.
Determine if investment is needed to meet SBTi’s.

Beyond

Periodically assess GHG targets for feasibility and update as required.

Eric Tracz also contributed to this article.

Summary

A proposed rule by the FAR Council will address the physical impacts of climate change and operational impacts on the US government, its major contractors and their respective subcontractors.

About this article

Authors
Sajeev Malaveetil

EY Americas Government Contract Services Leader

Enabling businesses and communities to serve our government and the people they represent — ethically, honestly and with integrity.

Courtney Black

Principal, Government Contract Services, Ernst & Young LLP

Collaborating with government contractors to enhance compliance, strategy, operations and financials.

Related topics Forensic & Integrity Services
Upvote

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