The US participates in a variety of multilateral climate change legal regimes. In 1992, the US signed and ratified the United Nations Framework Convention on Climate Change (UNFCCC). In accordance with the national communication reporting requirements under Articles 4.2 and 12 of the UNFCCC and guidelines adopted by the UNFCC, the US submitted four US Climate Action Reports (USCAR). The first report was submitted in 1994 and the fourth report was submitted in 2007.

Although the US signed the Kyoto Protocol, which was in effect the first subsidiary agreement of the UNFCC, the US Congress refused to ratify. As a result, the US is not a party to the Kyoto Protocol. After the Kyoto Protocol was adopted, the US joined the Umbrella Group, an informal coalition dedicated to adopting a unified stance in climate negotiations. The Umbrella Group consists of the US, Australia, Canada, Iceland, Israel, Japan, New Zealand, Kazakhstan, Norway, and Ukraine.

The US is a party to the second subsidiary agreement to the UNFCC, the Paris Agreement. The US first approved the Paris Agreement under the Obama administration in 2016. However, in 2020, under the Trump administration, the US withdrew. In 2021, the Biden administration re-joined the Paris Agreement. Future administrations may choose to withdraw from the Paris agreement as the Trump administration did in 2020.

Under the Biden administration, the US has robust goals for climate change mitigation and adaptation, including, but not limited to, reducing US greenhouse gas emissions 50–52% below 2005 levels by 2030, reaching 100% carbon pollution-free electricity by 2035, and achieving a net-zero emission economy by 2050. Specifically, under the Biden administration, Congress passed the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL). The IRA incentivises investment in renewable energy through Investment Tax Credits, Renewable Energy Production Tax Credits, and Advanced Energy Project Credits. Whereas the BIL invests in climate change resilient infrastructure, clean energy infrastructure, drinking water infrastructure, and wastewater infrastructure, to adapt to and mitigate the threats of climate change.

In recent years, under the Biden administration, US international climate financing has increased substantially. In 2021, President Biden created the first US International Climate Finance Plan with the goal of increasing international public climate financing to over USD11 billion annually by 2024, four times the amount of previous US climate finance efforts. In 2023, the US was on track to exceed USD9.5 billion in climate financing.

The US participates in capacity building efforts such as education, training, and public awareness through the National Greenhouse Gas Inventories programme in which the Environmental Protection Agency (EPA) works with international entities to build capacity for greenhouse gas inventories. Through this programme, the EPA works directly with international inventory compilers while developing tools to address inventory challenges and aims to support international partners’ institutional and technical capacity.

The US also participates in the transfer of climate change mitigation and adaption technologies. The US primarily incentivises investment in environmental technologies to aid the development of climate resilient societies, economies, and ecosystems. The US participates in several technology transfer and financial assistance initiatives, including the USAID Climate Change Program, Asia-Pacific Partnership on Clean Development and Climate, International Partnership for the Hydrogen Economy, Carbon Sequestration Leadership Forum, Global Nuclear Energy Partnership, Clean Energy Technology Export Initiative, US Climate Technology Cooperation Gateway, and the US Clean Energy Initiative.

US Participation in Voluntary Climate Change Legal Initiatives

Overview

The US does not engage in legally mandated climate regimes; instead, it actively participates in various voluntary climate change legal initiatives.

The Paris Agreement

The US is committed to certain goals and Nationally Determined Contributions (NDCs) under the Paris Agreement. However, the implementation and the extent of these commitments are voluntary and subject to each administration’s policies and decisions.

North American Climate, Clean Energy, and Environmental Partnership

As a North American country, the US participates in the North American Climate, Clean Energy, and Environmental Partnership. The Partnership requires that the US, Mexico, and Canada advance clean and secure energy through researching and integrating clean energy resources, decreasing short-lived pollutants, promoting clean transportation, protecting nature, advancing science, and showing global leadership in addressing climate change.

The Organization of American States (OAS) and initiatives

As a country located in the Western Hemisphere, the US is part of the Organization of American States (OAS) and initiatives including, but not limited to, the Energy and Climate Partnerships of the Americas (ECPA). The US, along with 34 other member countries, is a member of the OAS which prioritises democracy, human rights, security, and development. OAS has sustainable development goals with areas of action including sustainable development dialogue, exchange of experiences and best practices, and international co-operation for development. Specifically, OAS has implemented the ECPA, which requires that the US and fellow members support the common goal of sustainable energy development and a net-zero emissions future through the following pillars: cleaner energy sources, universal access to energy, energy efficiency, regional integration, energy resilience, and innovation.

The Arctic Council

In its capacity as an Arctic nation, the US is a member of the Arctic Council. The US and the Arctic Council implement the strategic plan of working towards environmental protection, sustainable social and economic development, and strengthening the Arctic Council. The Arctic Council addresses the changing Arctic climate through climate change and adaptation actions, green energy solutions, community resilience, black carbon reduction, and wildfire mitigation.

NDC Background and Primary Objectives

The US has a Nationally Determined Contribution (NDC) under the Paris Agreement. Under the Biden administration, the US set an economy-wide target of a 50–52% reduction of greenhouse gas emissions below 2005 levels by 2030, covering all sectors and gases. The US aims to decarbonise the energy sector by cutting energy waste; shifting to carbon pollution-free electricity; electrifying and driving efficiency in vehicles, buildings, and industry; scaling up new energy sources and carriers such as carbon-free hydrogen; reducing emissions from forests and agriculture and enhancing carbon sinks through a range of programmes and measures for ecosystems; and reducing non-carbon dioxide greenhouse gases. The US also aims to reduce emissions from agriculture and enhance carbon sinks by supporting smart agricultural practices, reforestation, rational grazing, and nutrient management practices.   

NDC Mitigation and Adaptation

The United States NDC mitigation measures include a goal for 100% carbon pollution-free electricity by 2035 and net-zero emissions no later than 2050. The Biden administration promised a subsequent document entitled the National Climate Strategy in conjunction with the Long-Term Strategy the federal government presented to the UNCCC in 2021. The National Climate Change Strategy was expected to incorporate specific, additional measures detailing how the United States would realise its overarching objectives outlined in the NDC. Nevertheless, amid political upheaval, the Biden administration opted not to publish the National Climate Strategy.

Broadly, the US mitigation and adaptation strategies include changes in electricity, transportation, buildings, industry, agriculture, forestry, and land use. Specifically, these strategies include the integration of five technological transformations: decarbonisation of electricity, electrifying end uses and switching to other clean fuels, cutting energy waste, reducing methane and other non-carbon dioxide emissions, and scaling up carbon dioxide removal. The NDC notes the necessity of removing carbon through US land carbon sinks and engineered approaches, such as biomass carbon removal and storage, direct air capture and storage (DACS), enhanced mineralisation, and ocean-based carbon dioxide removal (CDR).

NDC as a Product of National Climate Change Policy Development

The US NDC stems from the national framework for climate change policy resulting from climate change impacts, such as extreme weather events affecting US citizens. Following the release of the US NDC, the Biden administration touted the Inflation Reduction Act (IRA) and its aim to mitigate concerns surrounding climate change’s adverse effects on national security, infrastructure, and public health.

Updated NDC

The US released its first NDC in March of 2015 under the Obama administration. The Obama NDC established a goal of reducing emissions by 26–28% below 2005 levels by 2025. The Biden administration released the second NDC in April of 2021 with the goal of reducing greenhouse gas emissions 50% below 2005 levels by 2030.

The US Approach to Evolving Aspects of Climate Change Science

The IPCC’s Working Group I examines the physical science of past, present, and future climate change by assessing topics including, but not limited to, greenhouse gases and aerosols in the atmosphere, temperature changes, changing precipitation patterns, and extreme weather. The US and 200 other governments in the IPCC approved the Working Group I report for the IPCC’s Sixth Assessment in 2021. This report covered several key areas: the current state of the climate, future climate possibilities, specific climate details for regions and sectors, and reduction of human-caused climate change. To assess the current climate, Working Group I used data from observations and historical climate records, along with new simulations and analyses to consider factors like temperature, weather patterns, and other climate indicators. Working Group I also examined various ways to reduce future climate change, such as controlling air pollution and greenhouse gas emissions. In effect, the report reflects a consensus among all participating countries that it presents the most accurate and up-to-date understanding of climate change, fostering a globally unified perspective on climate change impacts.

US Clarification of the Paris Agreement Legal Regime

Transparency Framework

The Enhanced Transparency Framework (ETF) under the Paris Agreement enhances current reporting standards with greenhouse gas inventories and the International Assessment and Review (IAR) process. Under ETF, Paris Agreement parties are required to submit a National Inventory Document (NID) by 31 December 2024. The US submitted its NID in April 2024. In the NID, the US reported an inventory of US anthropogenic greenhouse gas emissions and sinks from 1990–2022. The emissions and removals within the report were calculated according to internationally accepted methodologies listed in the 2006 IPCC Guidelines for National Greenhouse Gas Inventories.

Losses and damages

Nationally, through its Justice40 initiative, the Biden administration has placed environmental justice at the forefront of climate change adaptation and mitigation strategies. The Justice40 initiative sets a goal to allocate 40% of the benefits from specific federal climate, clean energy, and affordable housing policy initiatives to marginalised communities disproportionately impacted by climate change. President Biden has signed two executive orders, Executive Order 14008 – Tackling the Climate Crisis at Home and Abroad and Executive Order 14096 – Revitalizing Our Nation’s Commitment to Environmental Justice for All, detailing the administration’s commitment to environmental justice. The US uses legislation like the Inflation Reduction Act (IRA), Bipartisan Infrastructure Law (BIL), and the American Rescue Plan, to fund environmental justice programmes. The Justice40 Initiative directs programme funding towards clean energy, efficient transit, affordable and sustainable housing, and the development of clean water and wastewater infrastructure.

Internationally, the US pledged USD17.5 million to the loss and damages fund as part of the UN Climate Change Conference of the Parties (COP28), providing monetary support for climate-vulnerable countries.

Internationally Transferrable Mitigation Outcomes (ITMOs)

As of June 2024, the US does not participate in Internationally Transferrable Mitigation Outcomes (ITMOs). Several factors contributed to the US decision not to participate in ITMOs. Firstly, the process of forming bilateral agreements under Article 6.2 is lengthy. Additionally, with the absence of a national carbon market, the US is committed to prioritising domestic emissions reductions. Further, the US government aims to maintain direct oversight of its climate policies.

US Technology Transfer

One of the United States’ central climate change policies is the commercialisation of climate change mitigation technologies that reduce greenhouse gas emissions and enhance energy security. Currently, according to US policy, climate goals must be implemented in intersectional areas of growth for developing countries, including economic growth, access to sanitation, access to clean water, energy security, and reduction in air pollution. The US hopes to embed climate goals in its development assistance strategies to aid in the development of climate resilient societies, economies, and ecosystems. To promote technology transfer, the US employs export credits, project financing, risk guarantees, US insurance, and credit enhancements. The US has also instituted major technology transfer initiatives such as the USAID Climate Change Program.

US Climate Finance

To aid in the implementation and objectives of the Paris Agreement, the US provides financial support to its developing country partners. In 2022, the US allocated USD5.8 billion, with USD2.3 billion specifically earmarked for foreign climate adaptation funding, to its developing country partners. In 2023, US expenditures on climate finance exceeded USD9.5 billion. 

US Carbon Markets

In May 2024, the Biden administration announced new principles for high-integrity voluntary carbon markets to amplify climate change action domestically and internationally. The administration’s principles include: carbon credit activities must  adhere to credible standards and represent real decarbonisation; carbon credit activities must avoid both environmental and social harm and promote benefit-sharing; corporate buyers should prioritise measurable value chain emission reductions; credit users should publicly disclose credits; credit user public claims should be accurate and meet high integrity standards; market participants should aim to improve market integrity; and policymakers and market participants should create efficient market participation while lowering transaction costs. On the state level, California boasts a robust cap-and-trade programme, while Washington has recently initiated the development of a cap-and-investment programme.

Federal Climate Change Regulations

The US Constitution does not address climate change. However, there are multiple US climate regulations enforced by the Environmental Protection Agency (EPA). The EPA regulates greenhouse gas emissions from power plants, stationary sources, municipal solid waste landfills, vehicles, and aircrafts. The EPA also oversees hydrofluorocarbons (HFCs), which are highly potent greenhouse gases utilised in air conditioning, refrigeration, fire suppression systems, solvents, foam blowing agents, and aerosols.

EPA Label Program for Low Embodied Carbon Construction Materials

The EPA is currently in the process of developing a label programme for construction materials characterised by low embodied carbon. This initiative sets forth defined thresholds for embodied carbon content that products must satisfy to attain the label. Additionally, it includes provisions for creating a centralised registry of certified products, complete with a tiered rating system. Because the construction sector accounts for 35% of the total greenhouse gas emissions in the US, the label programme would support the federal goal of reducing greenhouse gas emissions and enhancing climate resilience.

SEC Rules to Enhance and Standardise Climate-Related Disclosures for Investors

In March 2024, the SEC adopted rules to standardise climate-related disclosures by public companies and offerings. The rules require company SEC filings, such as annual reports and registration statements, to include climate risk disclosures. Under the SEC rules, organisations must disclose information including, but not limited to: climate-related risks that have or will reasonably have a material impact on the organisation’s strategy, operations, or finances; actual and potential impacts of climate-related risks on the organisation’s strategy, business model, and outlook; oversight by the board of directors of climate risks; the costs and losses of severe weather and other natural disasters; and the capitalised costs, expenditures, and losses in relation to carbon offsets and renewable energy credits. The SEC disclosure requirements would provide investors with reliable and comparable information about the effects of climate risks and climate risk mitigation strategies on public organisations and offerings. However, in April 2024, the SEC voluntarily stayed their climate disclosure rules in response to pending litigation.

Federal Court Climate Litigation

Several landmark climate change cases are currently being litigated in the US. In federal court, the Obama, Trump, and Biden administrations have all opposed Juliana v United States on procedural grounds. In Juliana v United States, youth plaintiffs argued that the government violated their rights to a stable climate system by promoting the exportation and production of fossil fuels and failing to mitigate climate change. In May 2024, the Ninth Circuit Court of Appeals instructed the federal district court for the District of Oregon to dismiss Juliana v United States because the plaintiffs lacked standing.

The same group that filed Juliana v United States, Our Children’s Trust, also filed suits in several other states. In Genesis v EPA, youth plaintiffs claimed to suffer life-threatening injuries due to climate change. The youth plaintiffs sought declaratory judgment from the federal court, alleging that the EPA violated their constitutional equal protection rights and their right to life. Additionally, the plaintiffs requested that the federal court clarify the standard of judicial review to protect the rights of children as a separate class from adults. On 8 May 2024, the federal court granted the defendants motion to dismiss the case and granted the youth plaintiff’s request for leave to amend their complaint. The youth plaintiffs have since filed their amended complaint.

State Court Climate Litigation

Climate activists have had more success in pursuing climate-change claims through state courts. For instance, in Held v State of Montana, youth plaintiffs from Montana argued that the state violated their constitutional right to a clean and healthful environment by implementing unconstitutional anti-climate policies. The lawsuit focused on a provision in the Montana Environmental Policy Act (MEPA) that prohibited state agencies from considering greenhouse gas emissions and climate change impacts. In August of 2023, a Montana state district court ruled in favour of the youth plaintiffs and declared that government actions promoting fossil fuels endangered the well-being of young people. In effect, the court’s order allowed Montana decision-makers to evaluate the greenhouse gas emissions and climate impacts of proposed projects. However, agencies will not be legally obligated to withhold approvals. Recently, the Montana Supreme Court denied the state’s motion to stay and scheduled oral arguments for 20 May 2024, with a ruling expected in late 2024.

Similarly, in May 2024, youth plaintiffs in Alaska initiated a lawsuit against the state in Sagoonick v State of Alaska II. The youth plaintiffs contended that state policies aimed at advancing the Alaska LNJ Project – a natural gas initiative projected to triple the state’s greenhouse gas emissions – violated their rights under the Alaska constitution. These rights include the right to a climate that sustains human life and to equitable, sustainable access to public trust resources. The youth plaintiffs filed suit on 22 May 2024, in the Superior Court for the State of Alaska, and the state must respond to the complaint within 40 days. It is anticipated that youth climate challenges will continue to be filed.

The US participation in the Paris Agreement is contingent upon the administration in power. During the Obama administration, the US actively negotiated the Paris Agreement, including Article 6.2, to strengthen global efforts against climate change. Conversely, the Trump administration’s withdrawal from the Agreement significantly reduced US engagement in global climate initiatives. Presently, under the Biden administration, the US has re-entered the Paris Agreement, reaffirming its commitment to international climate action.

The US is co-operating with other Paris Agreement parties in the implementation of climate change policy outside of Article 6.2 of the Paris Agreement. In November 2023, the US and China reaffirmed their joint commitment to work with countries to address the threat of climate change. The US also participated in the UN Climate Conference (COP28) in December of 2023 alongside other international partners. During COP28, the US delegation negotiated and endorsed the historical call for all parties to achieve net-zero by 2025 by transitioning away from fossil fuels in energy systems.

The US has yet to establish a framework for action under Article 6 of the Paris Agreement. The new SEC climate-risk disclosure rules represent a crucial initial step towards implementing reporting standards that could pave the way for future incorporation of Article 6. However, in April, the SEC voluntarily stayed the climate disclosure requirement rule pending judicial review in the Eighth Circuit Court of Appeals. Additionally, the US also does not have a Designated National Authority (DNA) responsible for Article 6.4 implementation and has not concluded formal bilateral agreements pursuant to Article 6.2 of the Paris Agreement.

Environmental Protection Agency (EPA)

The EPA has historically led environmental policy and regulatory rulemaking in the US. Under the Biden administration, Executive Order 13990, titled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis”, directed the EPA to explore rulemaking proposals aimed at addressing pollution that harms public health and contributes to climate change. The EPA tracks and reports greenhouse gas emissions, provides current and accurate information, and prioritises investing in America, through regulations like the Inflation Reduction Act (IRA).

National Climate Task Force

President Biden established the National Climate Task Force (NCTF) to oversee the reduction of US greenhouse gas emissions 50–52% below 2005 levels by 2030, to reach 100% carbon pollution-free electricity by 2035, to achieve a net-zero economy by 2050, and to deliver 40% of the federal investment benefits for climate and clean energy to disadvantaged communities. The NCTF consists of cabinet secretaries and over 20 acting heads of federal agencies but is not itself a federal regulatory agency. The NCTF meets regularly to report progress of Biden administration climate goals and aims to redefine government operations during climate crises through multisector collaboration.

Security and Exchange Commission (SEC)

The SEC’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. As climate change threatens organisations’ finances, operations, and strategy, the SEC has implemented new rules to ensure that organisations remain transparent with investors. The new SEC climate disclosure rules mandate that public companies report the financial effects of climate risks on organisation operations and detail how the organisation manages climate risks while balancing mitigating costs. However, as of April 2024, the SEC voluntarily stayed the climate-risk disclosure requirement rules in response to pending litigation in the Eighth Circuit US Court of Appeals.

Command-and-Control Measures for Greenhouse Gas Emissions

The Clean Air Act (CAA) is a comprehensive federal statute that regulates greenhouse gas emissions. The CAA authorised the EPA to enact National Ambient Air Quality Standards (NAAQS). NAAQS address public health risks associated with air pollutants. Although the CAA was not initially developed to address greenhouse gas issues, the EPA established the Endangerment Finding and Cause or Contribute Finding in 2009 which recognised the threat of greenhouse gases and initiated limitation requirements for emissions.

The Endangerment Finding established that mixtures of concentrated greenhouse gases threaten the public health and welfare of both current and future generations, whereas the Cause or Contribute Finding determined that combined greenhouse gas emissions from motor vehicles and motor vehicle engines threaten the public health and welfare of current and future generations. In response to these findings, the EPA enacted several provisions which address greenhouse gas emissions, including, but not limited to, vehicle greenhouse gas emissions standards, the Affordable Clean Energy (ACE) rule, New Source Performance Standards (NSPS), and the Tailoring Rule.

Requirement to Report Greenhouse Gas Emissions

Overview

The EPA’s Greenhouse Gas Reporting Program (GHGRP) requires that large greenhouse gas emission sources, fuel and industrial gas suppliers, and carbon dioxide injection sites report emissions data. Greenhouse gas emission reporters choose from several EPA methodologies to compute total greenhouse gas emissions and all reports are evaluated by electronic verification. The GHGRP releases emissions data annually along with an Inventory of US Greenhouse Gas Emissions and Sinks document that estimates the total emissions of each economic sector.

Carbon pricing mechanisms

Carbon pricing, a market-based system that financially incentivises organisations to reduce greenhouse gases, is used in California, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Washington, and Vermont. The California and Washington programmes are outlined in detail below. The northeastern states are members of the Regional Greenhouse Gas Initiative (RGGI). The RGGI is a regional power plant carbon dioxide emissions reduction programme in which the involved states set an annually reduced cap for carbon dioxide emissions. The RGGI aims to reduce pollution, improve air quality, improve public health, invest in communities, lower electricity bills, and create jobs. The states that participate in RGGI require certain power plants to acquire an RGGI carbon dioxide allowance at quarterly auctions for every short ton of carbon dioxide the power plant emits. Each RGGI state creates allowances proportional to the state’s share of the regional cap.

Spheres of government and sectors impacted by policies and regulations

GHGRP regulations affect various sectors, including power plants, petroleum and natural gas systems, refineries, chemicals, waste management, metals, minerals, pulp and paper, other combustion processes, underground coal mines, electronics manufacturing, electrical equipment manufacturing, fuel suppliers, industrial gas suppliers, and carbon dioxide capture, supply, and underground injection activities. 

NDC mitigation objective support

In the re-signing of the Paris Agreement, the Biden administration set an economy-wide greenhouse gas emission reduction target of 50–52% below 2005 levels by 2030. The enactment of the Inflation Reduction Act (IRA) alone is estimated to drive greenhouse gas emissions 40% below 2005 levels by 2030. The adoption of other statutes, such as the CHIPS and Science Act, and state efforts to reduce greenhouse gas emissions, are expected to help the US reach its total NDC goal by 2030.

Climate Change Mitigation as an Issue for Consideration in Granting Environmental Permits/Authorisations

Major federal actions permitting

Under the National Environmental Policy Act (NEPA) and the Council on Environmental Quality (CEQ) regulations, federal agencies must consider greenhouse gas emissions and the climate change effects of proposed major federal actions. According to NEPA, agencies must consider two key elements when conducting a climate change analysis. First, agencies must consider the potential effects of a proposed action on climate change, including assessing greenhouse gas emissions and reductions from the proposed action. Additionally, agencies must consider the effects of climate change on a proposed action and its environmental impacts. CEQ issues NEPA guidance in order to ensure consistency amongst agency consideration of climate change in NEPA reviews.

However, in April 2024, in Alabama Municipal Distributors Groups v Federal Energy Regulatory Commission (FERC), a DC Circuit Court of Appeals found that NEPA does not mandate the consideration of indirect environmental impacts, such as climate change resulting from greenhouse gas transportation via pipelines. The court noted that FERC did not have to consider indirect effects of actions beyond its delegated power. As of July 2024, the broader implications of this decision on NEPA guidance across jurisdictions remain uncertain.

Hazardous waste permitting

In June 2024, the Office of Resources Conservation and Recovery (ORCR), published an informative memorandum to provide guidance to EPA regions, states, and territories regarding adverse climate change impacts on Resource Conservation and Recovery Act (RCRA) hazardous waste permitting. Climate change-induced extreme weather events threaten the resilience of engineering, controls, and operations of TSDFs. The ORCR directed treatment, storage, and disposal facilities (TSDFs) to conduct vulnerability screenings and assessments. The ORCR further provided a list of regulatory authorities that should include consideration of adverse climate change impacts on permitted activities and permit conditions. These regulations include, but are not limited to, facility design and operation, facility location standards, contingency plans, omnibus permit authority, state permit review, agency-initiated permit modifications, and Part B permit applications. 

Greenhouse gas emissions caps

California

In 2012, California established a cap-and-trade programme that regulates approximately 80% of California’s greenhouse gas emissions. California’s cap-and-trade programme is one of the largest, multi-sector cap-and-trade programmes in the world. California aims to achieve 100% carbon-free electricity by 2045 and carbon neutrality by 2045. The California Air Resources Board (CARB) administers the California cap-and-trade programme by allocating emissions allowances, each equivalent to one metric ton of carbon dioxide emissions. Annually, CARB decreases the number of these allowances, thereby lowering the cap. This reduction drives up the price of allowances, encouraging organisations to mitigate their greenhouse gas emissions.

Under the California cap-and-trade programme, organisations must submit allowances and offsets for 30% of the previous year’s emissions. CARB co-ordinates with state and federal agencies through a market monitoring group to ensure market oversight and avoid market manipulation. Under the cap-and-trade programme, annual emissions data is verified by third parties to ensure compliance.

The cap-and-trade programme allows trading and banking of allowances and offsetting of up to 8% of a specific facility’s compliance requirements. However, offsetting is limited to projects in forestry, urban forestry, dairy digesters, destruction of ozone-depleting substances, and mine methane capture.

The cap-and-trade programme also prioritises environmental justice. 35% of cap-and-trade revenue funds are legally required to be apportioned to low-income communities who face environmental injustices. Overall, the California cap-and-trade programme has been a resounding success, generating over USD27 billion in revenue while driving tangible reductions in carbon emissions. As a model of effective environmental policy, it serves as an inspiration for other states to follow suit in the fight against climate change.

Washington

Washington began to implement its cap-and-investment programme in 2023, aiming to encompass approximately 75% of statewide emissions. The programme will primarily regulate organisations with emissions of over 25,000 metric tons of carbon dioxide equivalent gases per year, including, but not limited to, fuel suppliers, natural gas and electric utilities, waste-to-energy facilities, and railroads. Yearly allowances for greenhouse gas emissions will be allocated by the Washington Department of Ecology. These allowances will enable organisations to fulfil annual obligations, offset future emissions, or participate in emissions trading.

Washington hopes to align its new cap-and-investment programme with the joint California-Quebec programme (the Western Climate Initiative). However, the implementation and the future of the cap-and-investment programme are uncertain. Although Washington held its first carbon allowance auctions this year, the cap-and-investment programme will be contested on the November 2024 ballot by Initiative 2117. Initiative 2117 would repeal Washington’s Climate Commitment Act and prohibit any other cap-and-trade programmes.

EPA Adaptation Funding

The EPA integrates climate change adaptation into financial assistance programmes such as the Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA). In an updated climate adaptation plan released in June 2024, the Biden administration expanded upon an initial strategy from October 2021, mandating the EPA to address adverse climate change impacts in its rulemaking, enforcement, programmes, and policies.

The EPA also established the Resilient Infrastructure Subgroup on Climate. This subgroup identifies climate adaptation projects eligible for EPA funding. It is advancing climate funding through two key initiatives. First, the subgroup has developed an internal clearinghouse that equips EPA staff with climate adaptation and resiliency strategies across programme processes. Additionally, the subgroup is creating an external tool to assist applicants and funding recipients in investing in climate resilience projects.

The US has a voluntary green power market which is overseen by the Environmental Protection Agency (EPA). The green power market is a portion of the broader US electricity market. Energy customers, including residential customers and organisations, can choose to buy renewable energy-sourced electricity. The green power market provides resources, technical assistance, and recognition to customers that choose to purchase or generate renewable energy.

Policies, such as the Inflation Reduction Act (IRA), increase demand for renewable energy sources and drive renewable energy growth. The low cost of renewable energy has also led to an increase in renewable energy demand.

The US is not currently participating in the carbon markets anticipated under Article 6.4 of the Paris Agreement. The enactment of the IRA may foster growth in the green power market and support the US in achieving its Nationally Determined Contribution (NDC) goals, but the US does not have a Designated National Authority (DNC) to enforce Article 6.4.

Impact of EU Carbon Border Adjustment Mechanism (CBAM) on the US

The Carbon Border Adjustment Mechanism will impact US corporations. First, US organisations will be required to submit carbon emissions data to the EU in accordance with EU standards. Additionally, US organisations will also likely have to adjust prices to account for increased costs passed to consumers. Further, US producers may need to adjust to produce lower emissions as importers seek less expensive, lower emissions goods. In the short term, US businesses that export goods to the EU and are subject to CBAM must assess their carbon emissions, consider reducing their carbon footprint, review their global supply chain for embedded carbon, and assess market impacts on environmental, science, and governance (ESG) strategies.

US Response to CBAM

In 2023, four bills were introduced in the US Congress in response to the EU CBAM. The Prove It Act, which was introduced with bipartisan support in June 2023, would require the Department of Energy (DOE) and other federal agencies to create a report on the emissions intensity of domestically produced and foreign produced goods. The Foreign Pollution Fee Act, introduced with Republican support in November of 2023, would apply a fee to energy and industrial imports to the US based on the foreign country’s average emissions intensity of the product. Whereas the Clean Competition Act, introduced with Democratic support in December of 2023, would apply a fee to both domestic and international goods with emissions that exceed benchmark emissions rates. The Market Choice Act, a bipartisan bill that was introduced in December of 2023, would implement a tax on fossil fuel combustion and high emitting industrial facilities and products.

As of June 2024, despite being introduced, none of the bills have been enacted. If these bills were enacted, placing a fee on imports could negatively impact US international trade relations. However, they would also position the US as a leader in establishing global trade norms that effectively curb carbon emissions and address climate change.

The Task Force on Climate-Related Financial Disclosures (TCFD) has shaped national policy in the US, as demonstrated by the new SEC rule released in March 2024. Climate disclosures have become more popular as investors and markets realise the adverse impacts climate risks can have on an organisation’s financial success. The SEC’s Enhancement and Standardization of Climate-Related Disclosures for Investors rules require organisations to disclose climate risks, greenhouse gas emissions, and climate strategy targets and goals. 

The new SEC rules respond to investors’ demands for more consistent, reliable, and comparable information regarding climate risks and organisational management of risks. Organisations face inherent risks to their infrastructure, property, operations, supply chains, resource costs, and insurance premiums as extreme weather events increase in frequency and impact. These rules are advertised as providing investors with the information needed to make informed decisions amidst the organisational challenges posed by climate change. However, in April 2024, the SEC stayed the rules due to impending litigation in the Eighth Circuit and significant pushback from the regulated community.

Potential Director Liability

There are currently no federal statutory provisions that directly hold directors liable for potential climate change impacts of or on an organisation. However, directors may be held liable for breach of their fiduciary duties for not addressing climate risk. The impacts of climate change, such as wildfires and extreme storm events, pose risks to organisation operations, finances, and systems, and likely require director attention.

Because climate change innately increases both the risks corporations face and the regulatory obligations required for corporations, directors can be potentially liable for breach of the duty of oversight in several situations. First, directors and officers could potentially be liable when they fail to consider or oversee implementation of climate risk controls. Additionally, directors and officers could potentially be liable if they fail to monitor mission-critical climate regulations. Further, directors and officers could potentially be liable for failing to monitor climate-related mission-critical operation and business risks.

The duty of loyalty, which encompasses the duty of oversight, cannot be exculpated by by-law provisions or corporate policies. Directors and officers have a duty to implement reporting systems that are reasonably designed to provide both accurate and sufficient information for an organisation’s board of directors and management to make informed decisions regarding organisation operations, compliance, and legal financing. Stockholders may bring Caremark claims alleging that directors and officers have failed to establish or monitor reporting systems.

The duty of care requires directors to make reasonably informed and lawful decisions. For example, under Delaware state law, directors may be held liable for a breach of their duty of care if they commit gross negligence, defined as an extreme departure from the ordinary standard of care. As the legal, financial, and operational risks of climate change become clear, directors could be held liable for failing to make a good faith effort to inform themselves of climate risks and impacts on their organisation. However, the gross negligence standard is a relatively high standard of proof, and directors may be protected through exculpation clauses. 

Regulatory Attention to Infrastructural Investments and Financing Arrangements with Negative Climate Impacts

The current regulatory framework in the US is centred around protecting public health and the environment through major statutes like the Clean Air Act, rather than being explicitly structured to address climate change. The Clean Air Act (CAA) is a federal statute that regulates greenhouse gas emissions and other hazardous air pollutants (HAPs). The CAA aims to control stationary source air pollution through the implementation of industry control technologies. Section 112 of the CAA requires major sources, stationary sources that emit or have the potential to emit ten tons per year or more of a HAP or 25 tons per year or more of a combination of HAPs, to comply with technology-based standards that regulate emissions. For major sources, the EPA establishes emissions standards every eight years that require polluters to adopt maximum achievable control technology (MACT) standards.

Societal Attention to Infrastructural Investments and Financing Arrangements with Negative Climate Impacts

Activists are challenging investments in infrastructure that would exacerbate climate change. In April 2024, the Southern Environmental Law Center filed a lawsuit against the Federal Energy Regulatory Commission (FERC) for approving the Cumberland Pipeline. This methane gas pipeline traverses three counties in Middle Tennessee and would contribute to climate change by supplying the proposed Cumberland Gas Plant and potentially leaking methane into the atmosphere.

Similarly, in May 2024, Alaska youth plaintiffs sued the state of Alaska claiming that the construction of the North Slope natural gas project would violate their constitutional rights. The youth plaintiffs alleged that they were experiencing breathing issues caused by climate change-induced wildfires and that they were unable to practice culturally significant subsidence fishing and hunting.

Furthermore, in the case of City & County of Honolulu v Sunoco LP, the City of Honolulu and several other municipalities and states brought a lawsuit against major oil companies. They alleged that these companies had deceptively concealed the risks associated with their products from the public and consumers. In October 2023, the Hawaii Supreme Court agreed to hear the case. However, the oil company defendants sought review of this decision by the US Supreme Court, arguing that issues related to greenhouse gas emissions are matters of federal jurisdiction and should not be adjudicated in state courts. Most recently, in June 2024, the US Supreme Court invited the US Solicitor General to submit a brief presenting the federal government’s perspective.

Activist shareholders are also attempting to impact corporation decision-making through shareholder proposals. For example, two activist investors, Arjuna Capital and Follow This filed a shareholder proposal in December of 2023 for a non-binding resolution which urged ExxonMobil (“Exxon”) to expedite its carbon emission reduction plan and to expand its emissions measures to suppliers and customers. In January 2024, Exxon filed a complaint against the activist investors alleging that the activists were constraining and micro-managing the organisation rather than seeking to improve Exxon’s economic performance or creating shareholder value.

Shareholders

In the US, shareholders are not directly liable for climate change damages or breaches of climate change law. However, shareholders could indirectly bear the costs of climate change liability through derivative lawsuits or securities law violations that result in declines in company stocks. Furthermore, if shareholders are also directors, they could be liable for gross negligence if they fail to adequately inform themselves of material climate change risks.

Parent Companies

US parent companies typically are not liable for the actions of their subsidiaries because they are considered legally distinct entities. However, if a parent company exercises substantial control or direction over a subsidiary’s actions, the parent company could potentially be held liable.

Securities and Exchange Commission (SEC)

In March 2024, the SEC adopted rules to standardise climate change risk disclosures by public companies and offerings. The new rules attempt to allow investors to make informed decisions by promoting complete and material disclosure of risks that corporations face due to climate change. The rules, in effect, mandate material climate risk disclosures in SEC filings and provide investors with access to consistent and comparable climate risk information. However, in April 2024, the SEC stayed the rules in response to pending litigation and significant pushback from the regulated community.

International Sustainability Standard Board (ISSB) Impact on ESG Reporting

The ISSB does not have a direct impact on ESG reporting. Although the ISSB provided a framework for the SEC, the SEC focused on the unique needs of US markets when forming the climate change risk disclosure rules.

Science Based Targets Initiative (SBTi) Impact on ESG Reporting

The SEC’s adopted rules reference the SBTi and the SBTi explicitly approved of the SEC’s proposed rules. The SBTi recommended that the SEC Proposed Rules align with the GHG Protocol and ISSB to provide a coherent international climate disclosure standard.

Although there are no standardised systems or procedures for conducting climate change due diligence in the US, many companies do participate in climate change due diligence to avoid the physical, compliance, and litigation risks of transactions. In M&A transactions, 43% of US investors will perform sustainability due diligence on their M&A deals in the future and 74% of US global investors integrate sustainability in their M&A strategy. In property transactions, particularly for coastal properties, the physical risk of damage to real property and retrofitting requirements for conformance to climate-adaptation codes, makes climate change due diligence a rising industry custom.

Assets that have a larger carbon footprint are also likely to be less valuable in a financial transaction. For example, in the steel manufacturing industry, the integrated method has been replaced by the more sustainable electric arc furnace (EAF) method. EAF emits fewer greenhouse gases and pollutants in comparison to the integrated method when powered by clean electricity and uses scrap steel instead of iron ore. Those manufacturers in the steel industry who use the integrated method have also begun utilising natural gas as a partial replacement for coke in the blast furnace process. Transitioning to sustainable practices like the EAF method not only reduces environmental impact but also enhances asset value in the steel manufacturing industry.

The US provides several policies and regulations that support the uptake of renewable energy technologies.

The Inflation Reduction Act (IRA)

IRA overview

The primary vehicle that supports the development and adoption of renewable energy technologies is the Inflation Reduction Act (IRA). The IRA incentivises investment in renewable energy through Investment Tax Credits, Renewable Energy Production Tax Credits, and Advanced Energy Project Credits.

The IRA Investment Tax Credit provides up to 30% credit for investments in renewable energy projects, such as wind, solar, and energy storage, so long as the project pays prevailing wages and employs an adequate number of qualified apprentices. The IRA also offers a bonus credit of up to 10% for clean energy investments in energy communities.

In 2022, the IRA extended and amended the Renewable Energy Production Tax Credit to provide a maximum credit of 2.75 cents per kilowatt-hour (kWh) of qualified sources that meet wage standards and employ trained and registered apprentices. The IRA further provides USD4 billion in funding through the Advanced Energy Project Credit which provides up to 30% credit to projects in areas that have closed a coal mine or coal-fired electric generating unit.

The IRA also includes an electric vehicle (EV) tax credit that offers USD4,000 in tax credits for drivers who are low and middle income to purchase used EVs and up to USD7,500 for low and middle income drivers to buy new EVs. The IRA also extended the Residential Clean Energy Credit, ensuring that households continue to receive up to a 30% cost covering tax credit for the installation of rooftop solar and battery storage until 2034.

The IRA further expanded the Energy Efficient Commercial Buildings Deduction which increases a building owner’s deduction as cost savings from energy efficient investments increase. In effect, this programme rewards energy efficiency.

Renewable Portfolio Standards (RPS)

States also implement renewable portfolio standards (RPS) which vary state to state, but overall, mandate an increase in energy production from renewable energy sources. By November 2022, 36 states and the District of Columbia had established RPS or renewable energy goals. States often incentivise investment in particular renewable technology through “carve out” provisions which mandate that a certain percentage of total energy production comes from a particular type of renewable technologies.

Renewable Energy Certificates/Credits (RECs)

Renewable energy certificates/credits (RECs) are non-tangible, tradeable commodities that each represent 1 MWh of a specific type of renewable energy. RECs allow organisations to use renewable energy sources and reduce their carbon footprints. Organisations can purchase bundled or unbundled RECs. Unbundled RECs give organisations that cannot otherwise generate or be supplied with renewable energy sources the opportunity to invest in them. In effect, the buying and selling of REC’s promotes renewable energy demand and aids in the fight against climate change. 

Net metering

Many states also have net metering programmes, which allow electric utility customers to install renewable energy systems on their property, such as solar photovoltaic (PV) systems, that can connect to the grid. Net metering allows residential and commercial customers who generate electricity to sell the electricity they have not used to the grid. In other words, the energy that property owners do not use is credited back to them. As of 2022, 44 states and the District of Colombia implemented net metering policies.

Feed-in tariffs (FITs)

Some states also implement feed-in tariffs (FITs) to promote the development of renewable energy technologies. FITs increase deployment of renewable energy technologies through long-term purchase agreements of renewable energy generation at a specific kilowatt-hour (kWh) price. Because FIT rates are higher than average electricity rates, generators are incentivised to invest in renewable technologies.

Grants and funding of renewable energy technology research

The federal government also promotes innovation of renewable energy technologies through grants and research funding. The Department of Energy (DOE) provides several billion dollars per year to promote clean energy innovation along with nuclear security and environmental clean ups. The Office of Energy Efficiency and Renewable Energy (EERE), Bioenergy Technology Office (BETO), Office of Electricity Delivery and Energy Reliability (OE), Office of Science (OS), Office of Fossil Energy (FE), and Advanced Research Projects, all offer grants to promote energy innovation, research, and development.

Bipartisan Infrastructure Law

Overview

The Bipartisan Infrastructure Law (BIL), enacted in 2021, allocates approximately USD1.2 trillion to improve American infrastructure. The law prioritises upgrading traditional infrastructure, such as roads and bridges, broadband, clean water systems, and electric grids. The BIL aims to create job opportunities across the nation while also mitigating climate change, improving public health, and promoting environmental justice.

Funding for renewable energy infrastructure

The BIL is the largest investment in clean energy infrastructure in US history. The BIL includes funding to modernise the power grid, weatherise and upgrade homes, schools, businesses and communities, and fund new programmes to support development, demonstration, and deployment of clean energy technologies. The BIL also funds new programmes to support the research, development, and deployment of clean-energy technologies. With the implementation of the BIL, the DOE created the Office of Clean Energy Demonstration which is responsible for the USD21.5 billion of BIL funding allocated for clean energy projects like clean hydrogen, carbon capture, energy storage, and nuclear reactors.

Electric vehicle and charging infrastructure

The BIL allocates USD7.5 billion to electric vehicle charging infrastructure with a goal of building a national network of 500,000 electric vehicle chargers primarily located on highway corridors to encourage long-distance car travel. The BIL allocates a percentage of funds to transition vehicles like school buses, transit buses, and passenger ferries to electric to reduce greenhouse gas emissions.

Climate resilient infrastructure

The BIL is the largest investment in resilient systems in American history. The BIL allocates USD50 billion to climate-related hazards, including, but not limited to, wildfires, flooding, and power outages. Approximately USD7.3 billion will be allocated to states through the Promoting Resilient Operations for Transformative, Efficient, and Cost-saving Transportation (PROTECT) Program, to help states improve local infrastructure resilience.

Hydrogen hubs

Under the BIL, USD8 billion was allocated to the hydrogen hub programme. In 2023, the DOE selected seven locations for these hubs with the goal of producing 10 million metric tons of clean hydrogen annually by 2030. Two-thirds of this investment is dedicated to green, electrolysis-based production within the hubs. The Biden administration anticipates that the hydrogen hubs will collectively eliminate 25 million metric tons of carbon dioxide emissions annually.

Implementation of Non-Market Strategies

The Inflation Reduction Act (IRA) fabricated the first regulatory implementation of green banks in the US. In April 2024, the Biden administration announced the establishment of the nation’s first green bank, committing USD20 billion to enhance the affordability of clean energy in low-income and rural areas. The Environmental Protection Agency has been entrusted with overseeing the Greenhouse Gas Reduction Fund, through which eight community development banks and non-profit organisations will receive funding to implement projects aimed at reducing greenhouse gas emissions. This initiative complements existing clean energy programmes by targeting gaps in the market and addressing barriers that hinder underserved communities from accessing clean energy resources. Managed by local or state agencies and non-profit organisations, these green banks have the potential to drive significant positive impacts at both regional and national levels.