On April 19, 2024, the U.S. Environmental Protection Agency (EPA)announced that it was designating two common per- and polyfluoroalkyl substances (PFAS) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund. As expected, EPA is issuing a final rule to designate perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) as hazardous substances. The pre-publication version of the rule is available here.
Once the rule is effective, entities will be required to report releases of PFOA and PFOS into the environment that meet or exceed the reportable quantity. Reporting past releases is not required if the releases have ceased as of the effective date of the rule. EPA will have the authority to order potentially responsible parties to test, remediate, or pay for the cleanup of sites contaminated with PFOA or PFOS under CERCLA.
Massachusetts established reportable concentrations for six PFAS, including PFOA and PFOS, in 2019. The Massachusetts regulations also contain cleanup standards for PFAS contamination in soil and groundwater.
Under Maine law, these substances also are automatically deemed a Maine hazardous substance regulated under the Maine Uncontrolled Hazardous Substance Sites Law. Maine’s PFAS screening levels are available here.
Solid waste facility operators had expressed serious concerns about the prospect of PFOA and PFOS being listed as hazardous substances under CERCLA and have advocated for a narrow exemption. Landfills can be recipients of PFAS-containing waste without knowing it. Similarly, wastewater treatment plant operators feared liability and increased costs if the rule designating PFOA and PFOS as hazardous substances became final.
EPA’s announcement of the final rule came with a CERCLA enforcement discretion policy [PFAS Enforcement Discretion and Settlement Policy Under CERCLA] that makes clear that EPA will focus enforcement on parties that significantly contributed to the release of PFAS into the environment.
The policy states that the EPA does not intend to pursue certain publicly‑owned facilities such as solid waste landfills, wastewater treatment plants, airports, and local fire departments, as well as farms where biosolids are applied to the land. Firefighting foam (aqueous film-forming foam, or AFFF) is known to contain PFAS, and runoff from the use of AFFF has been known to migrate into soil and groundwater.
On April 4, the SEC issued an order staying the implementation of the recently finalized climate disclosure rules (Final Rules) in response to the consolidated legal challenges in the US Court of Appeals for the Eighth Circuit. The SEC has discretion to stay its rules pending judicial review and the SEC stated that a stay would “allow the court of appeals to focus on deciding the merits [of the cases].” However, this voluntary stay should not be taken as a sign that the SEC intends to abandon the Final Rules, as the SEC said it will “continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation.”
The Final Rules have faced a slew of legal challenges since adoption and the SEC also noted that the stay avoids potential uncertainty if registrants were to become subject to the Final Rules during the pendency of the legal challenges.
WEBINAR – Registration Is Open For “Harmonizing TSCA Consent Orders with OSHA HCS 2012”: Register now to join The Acta Group (Acta®) and Bergeson & Campbell, P.C. (B&C®) for “Harmonizing TSCA Consent Orders with OSHA HCS 2012,” a complimentary webinar covering case studies and practical applications of merging the requirements for consent order language on the Safety Data Sheet (SDS). In this webinar, Karin F. Baron, MSPH, Director of Hazard Communication and International Registration Strategy, Acta, will explore two hypothetical examples and provide guidance on practical approaches to compliance. An industry perspective will be presented by Sara Glazier Frojen, Senior Product Steward, Hexion Inc., who will discuss the realities of managing this process day-to-day.
SAVE THE DATE – “TSCA Reform — 8 Years Later” On June 26, 2024: Save the date to join Acta affiliate B&C, the Environmental Law Institute (ELI), and the George Washington University Milken Institute School of Public Health for a day-long conference reflecting on the challenges and accomplishments since the implementation of the 2016 Lautenberg Amendments and where the Toxic Substances Control Act (TSCA) stands today. This year, the conference will be held in person at the George Washington University Milken Institute School of Public Health (and will be livestreamed via YouTube). Continuing legal education (CLE) credit will be offered in select states for in-person attendees only. Please check ELI’s event page in the coming weeks for more information, including an agenda, CLE information, registration, and more. If you have questions in the meantime, please contact Madison Calhoun (calhoun@eli.org).
AUSTRALIA
Changes To Categorization, Reporting, And Recordkeeping Requirements For Industrial Chemicals Will Take Effect April 24, 2024: The Australian Industrial Chemicals Introduction Scheme (AICIS) announced regulatory changes to categorization, reporting, and recordkeeping requirements will start April 24, 2024. For the changes to take effect, the Industrial Chemicals (General) Rules 2019 (Rules) and Industrial Chemicals Categorisation Guidelines will be amended. According to AICIS, key changes to the Rules include:
Written undertakings replaced with records that will make compliance easier;
Greater acceptance of International Nomenclature of Cosmetic Ingredients (INCI) names for reporting and recordkeeping;
Changes to the categorization criteria to benefit:
Local soap makers;
Introducers of chemicals in flavor and fragrance blends; and
Introducers of hazardous chemicals where introduction and use are controlled; and
Strengthening criteria and/or reporting requirements for health and environmental protection.
AICIS announced final changes to the Industrial Chemicals Categorisation Guidelines that will take effect April 24, 2024. According to AICIS, the changes include:
Refinement of the requirement to check for hazardous esters and salts of chemicals on the “List of chemicals with high hazards for categorisation” (the List);
Provision to include highly hazardous chemicals to the List based on an AICIS assessment or evaluation;
Expanded options for introducers to demonstrate the absence of skin irritation and skin sensitization; and
More models for in silico predictions and an added test guideline for ready biodegradability.
AICIS states that it will publish a second update to the Guidelines in September 2024 due to industry stakeholders’ feedback that they need more time to prepare for some of the changes. It will include:
For the List: add chemicals based on current sources and add the European Commission (EC) Endocrine Disruptor List (List I) as a source; and
Refined requirements for introducers to show the absence of specific target organ toxicity after repeated exposure and bioaccumulation potential.
CANADA
Canada Provides Updates On Its Implementation Of The Modernized CEPA: As reported in our June 23, 2023, memorandum, Bill S-5, Strengthening Environmental Protection for a Healthier Canada Act, received Royal Assent on June 13, 2023. Canada is working to implement the bill through initiatives that include the development of various instruments, policies, strategies, regulations, and processes. In April 2024, Canada updated its list of public consultation opportunities:
Discussion document on the implementation framework for a right to a healthy environment under the Canadian Environmental Protection Act, 1999 (CEPA) (winter 2024);
Proposed Watch List approach (spring/summer 2024);
Proposed plan of chemicals management priorities (summer 2024);
Draft strategy to replace, reduce or refine vertebrate animal testing (summer/fall 2024);
Draft implementation framework for a right to a healthy environment under CEPA (summer/fall 2024);
Discussion document for toxic substances of highest risk regulations (winter 2025); and
Discussion document on the restriction and authorization of certain toxic substances regulations (winter/spring 2025).
EUROPEAN UNION (EU)
ECHA Checks More Than 20 Percent Of REACH Registration Dossiers For Compliance: The European Chemicals Agency (ECHA) announced on February 27, 2024, that between 2009 and 2023, it performed compliance checks of approximately 15,000 Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) registrations, representing 21 percent of full registrations. ECHA states that it met its legal target for dossier evaluation, which increased from five percent to 20 percent in 2019. ECHA notes that for substances registered at quantities of 100 metric tons or more per year, it has checked compliance for around 30 percent of the dossiers.
According to ECHA, in 2023, it conducted 301 compliance checks, covering more than 1,750 registrations and addressing 274 individual substances. ECHA “focused on registration dossiers that may have data gaps and aim to enhance the safety data of these substances.” ECHA sent 251 adopted decisions to companies, “requesting additional data to clarify long-term effects of chemicals on human health or the environment.” ECHA states that during the follow-up evaluation process, it will assess the incoming information for compliance. ECHA will share the outcome of the incoming data with the EU member states and the EC to enable prioritization of substances. ECHA will work closely with the member states for enforcement of non-compliant dossiers. Compliance of registration dossiers will remain a priority for ECHA. In 2024, ECHA will review the impact of the Joint Evaluation Action Plan, aimed at improving REACH registration compliance, and, together with stakeholders, develop new priority areas on which to focus. More information is available in our March 29, 2024, blog item.
Council Of The EU And EP Reach Provisional Agreement On Proposed Regulation On Packaging And Packaging Waste: The Council of the EU announced on March 4, 2024, that its presidency and the European Parliament’s (EP) representatives reached a provisional political agreement on a proposal for a regulation on packaging and packaging waste. The press release states that the proposal considers the full life-cycle of packaging and establishes requirements to ensure that packaging is safe and sustainable by requiring that all packaging is recyclable and that the presence of substances of concern is minimized. It also includes labeling harmonization requirements to improve consumer information. In line with the waste hierarchy, the proposal aims to reduce significantly the generation of packaging waste by setting binding re-use targets, restricting certain types of single-use packaging, and requiring economic operators to minimize the packaging used. The proposal would introduce a restriction on the placing on the market of food contact packaging containing per- and polyfluoroalkyl substances (PFAS) above certain thresholds. The press release notes that to avoid any overlap with other pieces of legislation, the co-legislators tasked the EC to assess the need to amend that restriction within four years of the date of application of the regulation.
EP Adopts Position On Establishing System To Verify And Pre-Approve Environmental Marketing Claims: The EP announced on March 12, 2024, that it adopted its first reading position on establishing a verification and pre-approval system for environmental marketing claims to protect citizens from misleading ads. According to the EP’s press release, the green claims directive would require companies to submit evidence about their environmental marketing claims before advertising products as “biodegradable,” “less polluting,” “water saving,” or having “biobased content.” Micro enterprises would be exempt from the new rules, and small and medium-sized enterprises (SME) would have an extra year to comply compared to larger businesses. The press release notes that the EP also decided that green claims about products containing hazardous substances should remain possible for now, but that the EC “should assess in the near future whether they should be banned entirely.” The new EP will follow up on the file after the European elections that will take place in June 2024.
On April 3, 2024, a coalition of industry associations issued a “Joint statement in reference to ‘the ban of green claims for products containing hazardous substances’ in the Green Claims Substantiation Directive (GCD).” The associations “fully support the principle that consumers should not be misled by false or unsubstantiated environmental claims and share the EU’s objective to establish a clear, robust and credible framework to enable consumers to make an informed choice.” The associations express concern that the proposed prohibition of environmental claims for products containing certain hazardous substances “will run contrary to the objective of the Directive to enable consumers to make sustainable purchase decisions and ensure proper substantiation of claims.” According to the associations, for a number of consumer products, “the reference to ‘products containing’ would encompass substances that would have intrinsic hazardous properties,” implying that there would be a ban of making any environmental claim(s), “even if such trace amounts of unavoidable and unintentional impurities and contaminants are present in these products.” The signatories include the International Association for Soaps, Detergents and Maintenance Products; the European Brands Association; APPLiA; the Association of Manufacturers and Formulators of Enzyme Products; CosmeticsEurope; the European Power Tool Association; the Federation of the European Sporting Goods Industry; the International Fragrance Association; LightingEurope; the International Natural and Organic Cosmetics Association; Toy Industries of Europe; Verband der Elektro- und Digitalindustrie; and the World Federation of Advertisers.
ECHA Clarifies Next Steps For PFAS Restriction Proposal: ECHA issued a press release on March 13, 2024, to outline how the Scientific Committees for Risk Assessment (RAC) and for Socio-Economic Analysis (SEAC) will progress in evaluating the proposal to restrict PFAS in Europe. As reported in our February 13, 2023, memorandum, the national authorities of Denmark, Germany, the Netherlands, Norway, and Sweden submitted a proposal to restrict more than 10,000 PFAS under REACH. The proposal suggests two restriction options — a full ban and a ban with use-specific derogations — to address the identified risks. Following the screening of thousands of comments received during the consultation, ECHA states that it is clarifying the next steps for the proposal. According to ECHA, RAC and SEAC will evaluate the proposed restriction together with the comments from the consultation in batches, focusing on the different sectors that may be affected.
In tandem, the five national authorities who prepared the proposal are updating their initial report to address the consultation comments. This updated report will be assessed by the committees and will serve as the foundation for their opinions. The sectors and elements that will be discussed in the next three committee meetings are:
March 2024 Meetings
Consumer mixtures, cosmetics, and ski wax;
Hazards of PFAS (only by RAC); and
General approach (only by SEAC).
June 2024 Meetings
Metal plating and manufacture of metal products; and
More information is available in our March 18, 2024, blog item.
ECHA Adopts And Publishes CoRAP For 2024-2026: On March 19, 2024, ECHA adopted and published the Community rolling action plan (CoRAP) for 2024-2026. The CoRAP lists 28 substances suspected of posing a risk to human health or the environment for evaluation by 11 Member State Competent Authorities. The CoRAP includes 11 newly allocated substances and 17 substances already included in the previous CoRAP 2023-2025 update, published on March 21, 2023. For 11 out of these 17 substances, ECHA notes that the evaluation year has been postponed, mainly to await submission of new information requested under dossier evaluation. Of the 28 substances to be evaluated, ten are to be evaluated in 2024, 13 in 2025, and five in 2026. The remaining substance of the 24 substances listed in the previous CoRAP was withdrawn as its evaluation is currently considered to be a low priority. According to ECHA, for this substance, a compliance check is needed first. ECHA states that the substance can be placed in the CoRAP list again, if after the conclusion of the dossier evaluation process, concerns remain beyond what can be clarified through dossier evaluation. ECHA has posted a guide for registrants that need to update their dossiers with new relevant information such as hazard, tonnages, use, and exposure.
Comments On Proposals To Identify New SVHCs Due April 15, 2025: A public consultation on proposals to identify two new substances of very high concern (SVHC) will close on April 15, 2024. The substances and examples of their uses are:
Bis(α,α-dimethylbenzyl) peroxide: This substance is used in products such as pH-regulators, flocculants, precipitants, and neutralization agents; and
Triphenyl phosphate: This substance is used as a flame retardant and plasticizer in polymer formulations, adhesives, and sealants.
UNITED KINGDOM (UK)
HSE Publishes UK REACH Work Programme For 2023/24: In February 2024, the Health and Safety Executive (HSE) published its UK REACH Work Programme 2023/24. The Work Programme sets out how HSE, with the support of the Environment Agency, will deliver its regulatory activities to meet the objectives and timescales set out in UK REACH. Alongside these activities, HSE and the Environment Agency will engage with stakeholders. The Work Programme includes the following deliverables and target deadlines:
Topic
Deliverable
Target
Substance evaluation
Evaluate substances in the Rolling Action Plan (RAP)
Evaluate one
Authorization
Complete the processing of received applications within the statutory deadline (this includes comments from public consultation and REACH Independent Scientific Expert Pool (RISEP) input)
100 percent
SVHC identification
Undertake an initial assessment of substances submitted for SVHC identification under EU REACH during 2022/23 and consider if they are appropriate for SVHC identification under UK REACH
Assess up to five
Regulatory management options analysis (RMOA)
Complete RMOAs initiated in 22/23
Initiate RMOAs for substances identified as priorities
Up to ten
Up to five
Restriction
Complete ongoing restriction opinions
Begin Annex 15 restriction dossiers
Initiate scoping work for restrictions
Two
One
Two
HSE Opens Call For Evidence On PFAS In FFFs: HSE is working with the Environment Agency to prepare a restriction dossier that will assess the risks of PFAS in firefighting foams (FFF). HSE will propose restrictions, if necessary, to manage any significant risks identified. To help compile the dossier, HSE opened a call for evidence. HSE states that it would like stakeholders to identify themselves as willing to engage in further dialogue throughout the restrictions process. In particular, it would like to hear from stakeholders with relevant information on PFAS (or alternatives) in FFFs, especially information specific to Great Britain (GB). Regarding relevant information, HSE is interested in all aspects of FFFs, including:
Manufacture of FFFs: Substances used, process, quantities;
Import of FFF products of all types: Quantities, suppliers;
Use: Quantities, sector of use, frequency, storage on site, products used;
Alternatives to PFAS in FFF: Availability, cost, performance in comparison to PFAS-containing foams, barriers to switching;
Hazardous properties: SDSs, new studies on intrinsic properties and exposure, recommended risk management measures;
Environmental fate: What happens to the FFF after it is used, where does it go;
Waste: Disposal requirements, recycling opportunities, remediation; and
Standards: Including product-specific legislation, performance, certification.
HSE states that the call for evidence targets companies (manufacturers, importers, distributors, and retailers) and professional users of FFFs, trade associations, environmental organizations, consumer organizations, and any other organizations and members of the public holding relevant information. HSE intends to publish the final dossier, including any restriction proposals, on its website in March 2025. Interested parties will also then be able to submit comments on any proposed restriction.
New GB BPR Data Requirements Will Apply To Applications Submitted In October 2025:The Biocidal Products (Health and Safety) (Amendment and Transitional Provision etc.) Regulations 2024, which update the data requirements in Annexes II and III of the GB Biocidal Products Regulation (BPR), were laid in Parliament on March 13, 2024, and came into force on April 6, 2024. The legislation updates some of the data requirements to reflect developments in science and technology. These include the use of alternative testing approaches to determine some hazardous properties that previously relied on animal testing. HSE held a public consultation on the proposed changes in 2023 and has posted a report on the outcome of the consultation. The new data requirements will apply to applications received 18 months after the legislation came into force (October 6, 2025) and do not apply to existing applications. HSE will provide further guidance on the changes in the future.
EPA Issues Final Rule to Reduce Toxic Air Pollution from the Synthetic Organic Chemical Manufacturing Industry and the Polymers and Resins Industries
On April 9, 2024, the U.S. Environmental Protection Agency (EPA) announced its final rule that is touted to provide critical health protections to hundreds of thousands of people living near chemical plants. The final rule, signed March 28, 2024, will reduce emissions of hazardous air pollutants, including the toxic chemicals chloroprene and ethylene oxide (EtO). The rule implements sections 111 and 112 of the Clean Air Act.
When fully implemented, the final rule will reduce more than 6,200 tons a year of over 100 air toxics – including EtO and chloroprene – from covered equipment and processes at plants in Texas and Louisiana, along with plants in other parts of the country including Delaware, New Jersey, and the Ohio River Valley.
As part of the final rule, the EPA is also issuing new emissions limits for dioxins and furans. This will reduce more than 23,000 tons of smog-forming volatile organic compounds (VOCs) each year.
EPA’s final rule will also require plants to conduct fenceline monitoring if any of the equipment or processes covered by the rule use, produce, store, or emit EtO, chloroprene, benzene, 1,3- butadiene, ethylene dichloride or vinyl chloride. Fenceline monitoring is used to measure levels of pollution in the air around the perimeter of a facility. The fenceline monitoring provisions of the rule require owners and operators to ensure that levels of these six pollutants remain below a specified “action level.” Fenceline monitoring provides owners and operators the flexibility to determine what measures to take to remain below the action level, while ensuring that they are effectively controlling toxic air pollution.
The final rule will significantly reduce emissions of air toxins, especially those that are potentially harmful for surrounding communities. According to the EPA, these emission reductions will yield significant reductions in lifetime cancer risk attributable to these air pollutants, in addition to other health benefits.
Oak Flat, a piece of land that the Ninth Circuit acknowledges is “a site of great spiritual value to the Western Apache Indians,” has been at the center of the dispute largely due to the significant copper ore deposits it sits on. Through the Land Transfer Act, Congress directed the federal government to transfer the land to Resolution Copper, which would then mine the ore. Apache Stronghold sued the government, seeking an injunction against the land transfer on the ground that the transfer would violate its members’ rights under the Free Exercise Clause of the First Amendment, the Religious Freedom Restoration Act (“RFRA”), and an 1852 treaty between the United States and the Apaches. The Ninth Circuit disagreed, holding that Apache Stronghold was unlikely to succeed on the merits on any of its three claims before the court.
First, the Ninth Circuit found that under the Supreme Court’s controlling decision in Lyng. There, the Supreme Court held that while the government’s actions with respect to “publicly owned land” would “interfere significantly with private persons’ ability to pursue spiritual fulfillment according to their religious beliefs,” it would also have no “tendency to coerce” them “into acting contrary to their religious beliefs.” The Ninth Circuit also found that the transfer of Oak Flat for mining operations did not discriminate against nor penalize Apache Stronghold’s members, nor deny them an “equal share of the rights, benefits, and privileges enjoyed by other citizens.”
Second, Apache Stronghold’s claim that the transfer of Oak Flat to Resolution Copper would violate RFRA failed for the same reasons because “what counts as ‘substantially burden[ing] a person’s exercise of religion’ must be understood as subsuming, rather than abrogating, the holding of Lyng.”
Finally, the court ruled that Apache Stronghold’s claim that the transfer of Oak Flat would violate an enforceable trust obligation created by the 1852 Treaty of Sante Fe because the government’s statutory obligation to transfer Oak Flat abrogated any treaty obligation.
The case demonstrates the difficulty Tribes have in stopping major development projects on federal land on religious grounds.
The Inflation Reduction Act of 2022 (IRA) includes several tax credits to encourage investment in renewable energy projects, including an Investment Tax Credit (ITC) that is worth up to 30% of the overall project cost. The developer of a renewable energy project can receive a bonus of up to 10% on top of the ITC for a qualified facility that is located or placed in service in an “energy community.” One type of area that can qualify as an energy community under the IRA — the one most relevant to offshore wind projects — is an area that has significant employment or local tax revenues from fossil fuels and a higher-than-average unemployment rate.
In order to apply the criteria to offshore wind facilities, the US Department of Treasury initially proposed that an offshore wind project would be deemed to be located or placed in service at the place closest to the point of interconnection (POI) where there is land-based equipment that conditions the energy generated by the offshore wind project for transmission, distribution, or use.
Stakeholders in the offshore wind industry believed, however, that this approach did not adequately reflect the original intent of the IRA as it neglected to take into account the long-term benefits of activity related to offshore wind projects at locations, particularly ports, that were not at the POI.
Responding to stakeholder advocacy over the past several months, on March 22, the Internal Revenue Service (IRS) released updated guidance in IRS Notice 2024-30 (the Notice). The Notice permits projects with multiple POIs to qualify for the bonus credit, so long as one of the POIs is within an energy community. Stakeholders believe that this will be key in developing the shared transmission infrastructure that will be required for effective use of offshore wind energy.
Further, the Notice permits offshore wind facilities to attribute their nameplate capacity to additional property — namely, to supervisory control and data acquisition system (SCADA) equipment owned by the owner of the offshore wind project and located in an EC Project Port (as defined in the Notice). SCADA equipment is property that is used to remotely monitor and control the operations of the offshore wind project. The SCADA system is effectively the nerve center for an offshore wind project.
An “EC Project Port” is defined in the Notice as a port that is used either full or part time to facilitate maritime operations necessary for the installation or operation and maintenance of the offshore wind project, and that has a significant long-term relationship with the project’s owner by virtue of ownership or lease arrangements. The personnel based at the port need to include staff who are employed by, or who work as independent contractors for, the project’s owner and who perform functions essential to the project’s operations. Staff based at the port will be considered to perform functions essential to the project’s operations only if they collectively perform all the following functions: management of marine operations, inventory and handling of spare parts and consumables, and berthing and dispatch of operation and maintenance vessels and associated crews and technicians.
Finally, the Notice adds two industry codes from the North American Industry Classification System (NAICS) to those that are used to determine a community meets the IRA’s required percentage of its workforce who are employed in the extraction, processing, transport, or storage of coal, oil, or natural gas. These additional NAICS codes designate oil pipeline infrastructure and natural gas distribution infrastructure. These additional codes are intended to bring the benefits of the energy community bonus credit to more communities and the IRS has amended its list of energy communities accordingly.
Advocates note that the updated guidance in the Notice represents a more holistic approach to the energy communities bonus credit that will give offshore wind project developers more flexibility in identifying ports for their investment, The increased flexibility will bring the economic benefit of the offshore wind industry to more communities, which will ultimately reduce the cost burden to ratepayers.
What Is Happening? On March 14, 2024, The U.S. Environmental Protection Agency (EPA) signed a final rule requiring certain facilities to develop Facility Response Plans (FRPs) for a potential worst-case discharge of Clean Water Act (CWA) hazardous substances, including planning for the threat of a worst-case discharge. Existing EPA regulations require FRPs where certain thresholds of oil are exceeded; the new rule extends the FRP requirement to cover CWA hazardous substances, among other changes. The rule takes effect on May 28, 2024, and has a 36-month implementation period. We anticipate challenges to the rule, but unless a court issues a stay, affected facilities should plan to implement the rule’s new requirements in this timeframe.
Who Is Impacted? Affected industries include many industrial and commercial sectors and facilities that handle hazardous substances at or above current reportable quantity thresholds. These may include manufacturing and chemical plants and storage operations located near navigable waters that have an inventory of CWA-listed hazardous substances at or above threshold amounts. Facilities associated with oil and gas extraction, mining, construction, utilities, crop production, animal production and aquaculture, and support activities for agriculture and forestry, among others, could also be affected.
What Should I Do? Facility owners and operators potentially affected by the rule should assess whether they are subject to the rule and then begin developing their facility response plans.
The rule requires Facility Response Plans for worst-case discharges of CWA hazardous substances from onshore non-transportation-related facilities that, because of their location, could reasonably be expected to cause substantial harm to the environment by discharging into or on the navigable waters, adjoining shorelines, or exclusive economic zone. Facilities already subject to requirements for Spill Prevention, Control Countermeasure Plans, or FRPs for oil under 40 CFR Part 112 should anticipate that they will fall within the scope of the new rule and plan for compliance.
Background
The final rule is EPA’s response to the settlement of a 2019 lawsuit brought by the Natural Resources Defense Council and others. The lawsuit asserted that EPA failed to meet its statutory duty to issue regulations “requiring non-transportation-related substantial-harm facilities to plan, prevent, mitigate and respond to worst-case spills of hazardous substances.”
The Consent Decree required EPA to take final action on a rule addressing worst-case discharge plans for hazardous substances by September 2022. This final action represents EPA’s final action under the consent decree.
Applicability Criteria
EPA set forth a two-step process to determine whether the new rule applies to a facility. See 40 CFR 118.3. Specifically, the owner or operator of a covered facility must assess two screening criteria and, if both criteria are met, then assess the ability of the facility to cause substantial harm to the environment through the application of the substantial harm criteria. If an owner or operator determines that the covered facility meets one of the substantial harm criteria, the owner or operator must prepare a hazardous substance FRP in accordance with the new regulations.
Initial Screening. These screening criteria are to be assessed concurrently, with no implied order of priority:
Facility has a maximum quantity onsite of 1,000x the Reportable Quantity of CWA Hazardous Substances. The RQs published in 40 CFR Part 117 are based on a level of release of a hazardous substance that could potentially cause harm to waters. EPA’s decision to set the threshold criteria at 1000x rather than the initially proposed 10,000x the RQ represents a potentially significant expansion of the scope of the new rule.
Facility is within 0.5 miles of navigable water or conveyance to navigable water.
If a facility meets the two screening criteria, it must undergo an evaluation to determine whether it meets the substantial harm criteria.
Substantial Harm Criteria. If the two screening criteria are met, the next step is a substantial harm evaluation, which includes determining whether the facility meets one of the following four substantial harm criteria:
Ability to adversely impact public water system.
Ability to cause injury to fish, wildlife, and sensitive environments.
Ability to cause injury to public receptors.
Has experienced a reportable discharge of CWA hazardous substances that reached navigable water within the last five years.
These criteria are easily triggered under the FRP process for oil, which preexisted the new rule. For instance, an “injury” means any measurable adverse change, either long- or short-term, in the chemical or physical quality or the viability of a natural resource resulting either directly or indirectly from exposure to a discharge or exposure to a product of reactions resulting from a discharge. 40 CFR 112.2.
If both screening criteria and one or more substantial harm criteria apply, the facility must prepare and submit an FRP to EPA that includes information on each CWA hazardous substance above the threshold quantity onsite. The owner or operator must assess all substantial harm criteria.
Amendments from the Proposed Rule
In the final rule, the Agency determined that a 1,000x RQ multiplier, instead of the proposed 10,000x, will more appropriately screen for covered facilities that could cause substantial harm to the environment from a worst-case discharge. In response to comments, EPA indicated that the screening criteria, in conjunction with the substantial harm criteria, will appropriately target covered facilities that could cause substantial harm to the environment from a worst-case discharge of a CWA hazardous substance into or on the navigable waters. This change in scope from the proposed rule will likely significantly broaden the number of locations that must now complete the new assessment process for CWA hazardous substances.
As the basis for assessing risk to the environment, the new rule requires the use of the volume by the maximum quantity onsite inventory of hazardous substances above RQs, rather than the maximum onsite container capacity. EPA made this change in the final rule based on its view that this approach will more accurately reflect the hazard posed and is consistent with how oil is measured and regulated.
Once a facility determines it meets one of the substantial harm criteria, the owner or operator must now develop an FRP for all, not just one, of the CWA hazardous substances onsite above the threshold quantity. EPA made this adjustment by recognizing that the response and/or recovery actions may vary widely depending on which substance is released. Thus, the FRP must include information on each hazardous substance onsite that is above the threshold quantity.
EPA added § 118.4(a)(6) to the final rule, which requires a covered facility owner or operator to review and recertify their plan Agency every five years. EPA decided that this will ensure the FRPs remain up-to-date and owners or operators remain informed of their responsibilities. This requirement is consistent with oil FRP requirements.
EPA also added § 118.4(a)(7), requiring a facility owner or operator to evaluate or re-evaluate operations whenever EPA adds or removes a CWA hazardous substance from the list at 40 CFR 116.4 or adjusts relevant RQs as found in 40 CFR 117.3. EPA reasoned that such adjustments are made through a formal notice and comment rulemaking procedure; thus, regulated entities will have notice of these changes prior to them becoming final and effective.
Implementation and Enforcement
Facility Response Plan preparation, submission, and implementation timelines are subject to the effective date and an initial 36-month implementation period. EPA included this implementation period to allow covered facilities time to familiarize themselves with the rule requirements and prepare their plans.
Initially-regulated covered facilities. The owner or operator of a non-transportation-related onshore facility in operation on November 30, 2026, that satisfies the applicability criteria must implement the requirements of the new regulations by June 1, 2027.
Newly-regulated covered facilities. The owner or operator of a non-transportation-related onshore facility in operation after November 30, 2026, that satisfies the applicability criteria must comply within six months.
Newly-constructed covered facilities. Covered facilities starting operations after June 1, 2027, must comply prior to the start of operations, including a 60-day start-up period adjustment phase.
Appeals
Similar to current regulations for Oil FRPs, a facility that believes it is not subject to the new rule may appeal a decision by the EPA Regional Administrator determining the potential or threat of substantial harm or significant and substantial harm from a facility or, in the case of an FRP that has been prepared, the Regional Administrator’s disapproval of a CWA hazardous substance FRP. If warranted, that decision can then be appealed to the EPA Administrator.
Petitions
The public and other government agencies may also petition EPA to determine whether a CWA hazardous substance-covered facility should be required to submit an FRP to EPA. Given the breadth of the new rule relative to the long list of hazardous substances and the 1000x RQ threshold, this public participation opportunity is a significant consideration for facilities that may already be under community scrutiny for other reasons.
During the opening remarks of the two-day SEC Speaks Conference, Chairman Gensler failed to express any statement of support in connection with the SEC’s recently promulgated rule on mandatory climate disclosures. (Instead, his speech focused on a number of other topics, including clearinghouse rules and proposed regulations.) In contrast, Republican SEC Commissioner Uyeda devoted the entirety of his speech to offering critiques of the SEC’s newly enacted mandatory climate disclosure rule.
While most of Commissioner Uyeda’s criticisms had been previously voiced on other occasions, certain legal arguments achieved greater prominence in these remarks. In particular, Commissioner Uyeda emphasized the concept of materiality, noting that “[t]he significant changes in the final rule reflect a recognition that no disclosure rule that veers from materiality is likely to survive a court challenge,” and opining that “changes to selected portions of the rule text intended to mitigate legal risk do not necessarily convert a climate change activism rule to a material risk disclosure rule.” There was also a focus on procedural concerns, including a potential violation of the Administrative Procedure Act due to “the failure to repropose the rule” since “the changes were so significant,” and that “the fail[ure] to consider [the] rule’s economic consequences [renders] the adoption of the rule arbitrary and capricious.” Finally, Commissioner Uyeda compared the climate disclosure rule to the previously enacted conflict minerals rule (which was mandated by Congress), stating that “public companies and investors are stuck with a mandatory disclosure rule that deviates from financial materiality but fails to resolve the social purpose for which it was adopted.” Each of these arguments should be expected to feature in the upcoming litigation in the Eighth Circuit concerning the legality of the SEC’s climate disclosure rule.
Still, the failure by Chairman Gensler and his fellow Democratic Commissioners to offer a robust public defense of the climate disclosure rule may simply reflect a shifting of priorities now that the rule has been enacted. Notably, just a few days ago–on March 22, 2024–Chairman Gensler forcefully defended the SEC’s climate disclosure rule at a conference hosted by Columbia Law School, where his entire speech advocated the concept of mandatory disclosures and stated that the SEC’s climate disclosure rule “enhance[d] the consistency, comparability, and reliability of [climate-related] disclosures.” Moreover, it is altogether possible that a speech on the second day of the conference might offer a rejoinder to the varied critiques of the climate disclosure rule.
Unlike the conflict minerals rule, which was mandated by Congress, the Commission has acted on its own volition to adopt a climate disclosure rule that seeks to exert societal pressure on companies to change their behavior. It is the Commission that determined to delve into matters beyond its jurisdiction and expertise. In my view, this action deviates from the Commission’s mission and contravenes established law.
Yes. Weather insurance products, including parametric insurance, are taxed as insurance; and derivatives are taxed in accordance with the tax rules applicable to the particular type of derivative product held by the taxpayer. A business needs to carefully consider these tax differences to determine the best product or products to meet its weather risk management needs.
How is insurance taxed to a policyholder?
When a business buys weather insurance, it pays a premium to the insurance company so that the company assumes the business risks set out in the policy. Assuring the policy is purchased to manage a business’s legitimate weather-related risk, the premium is deductible under Internal Revenue Code (Code) § 162 as an ordinary and necessary business expense.
If insurance coverage is triggered and a policyholder receives a payout under the policy, the payout is not taxable up to the policyholder’s tax basis if the payment reimburses the policyholder for property damage or loss. In other words, payments under insurance policies are not taxable up to the policyholder’s tax basis because the payments simply restore (in whole or in part) the policyholder to the financial position it was in before it incurred the loss. If the reimbursement amount under the policy exceeds the policyholder’s tax basis, the amount it receives over its tax basis is treated as taxable income.[1]
Business interruption insurance covers losses (such as lost profits and ongoing expenses) from events that close or disrupt the normal functioning of the policyholder’s business. The payout amount is often based on past business results. Business interruption insurance proceeds are likely to be taxable to the policyholder because they compensate the policyholder for lost revenue.
To ensure that a policyholder receives the most favorable tax treatment, it must carefully document its business purpose for entering into the insurance, the amount of its tax basis, and receipt of the insurance proceeds.
How are derivatives taxed?
It depends on whether the taxpayer has entered into a futures contract, forward contract, option, swap, cap, or floor. The taxpayer must then consider its status in entering into each derivative: is it acting as a hedger, dealer, trader, or investor? The taxpayer must also determine whether it has made all the required tax identifications and elections. In dealing with derivatives, the taxpayer must go through this three-step process for each product it is considering. Hedgers and dealers receive ordinary income and loss on their derivative transactions, while traders and investors receive capital gain and loss.
Why might a taxpayer want to be treated as a hedger with respect to its weather derivatives?
A taxpayer seeking to use weather derivatives to manage its weather-related business risks typically wants to be treated as a tax hedger so that the gain or loss on its derivative transactions qualify as tax hedges. This would allow the taxpayer to match its derivative gains or losses with its weather-related income or losses. Because ordinary property generates ordinary income or loss, a business hedger typically wants to receive ordinary income or loss on its weather derivatives. In other words, a hedger wants to match the tax treatment it receives on its hedges with that of the items it is hedging. Many risk management transactions with respect to weather-related risks do not meet the hedge definition (see the discussed below). For a detailed discussion of the tax hedging rules, see the forthcoming Q&A with Andie, “Business Taxation of Hedging Transactions.”
What is required for a weather derivative to be treated as a tax hedge?
To qualify as a tax hedge, the transaction must manage interest rate fluctuations, currency fluctuations, or price risk with respect to ordinary property, borrowings, or ordinary obligations.[2] In addition to meeting the definition of a tax hedge, the taxpayer must comply with the identification requirements set out at Code §§ 1221(a)(7) and 1221(b)(2) and the tax accounting requirements set out at Treas. Reg. § 1.446-4.[3]
What is the tax analysis that a taxpayer should conduct to determine if its weather derivatives qualify as tax hedges?
When entering into a weather derivative, a taxpayer should conduct the following tax analysis: (1) is the transaction entered into in the ordinary course of its trade or business (2) primarily (3) to manage price risk (4) on ordinary property or obligations (5) held or to be held by the taxpayer. If the answer to all of these questions is “yes,” then the taxpayer has a qualified tax hedge if—but only if—it complies with all of the required identification rules set out in Code §§ 1221(a)(7) and 1221(b)(2) and as explained in Treasury Regulation § 1.1221-2. If the taxpayer cannot answer all of these questions with a “yes,” then the weather derivative transaction is not a tax hedge, and it is subject to the tax rules that apply to capital assets.[4] The requirement that a taxpayer must be hedging ordinary property, borrowings, or obligations means that favorable tax hedging treatment is not available for many legitimate weather risk management activities.
What types of assets, obligations, and borrowings qualify as ordinary property and ordinary obligations for purposes of the tax hedging rules?
Weather derivatives qualify as tax hedges if they can be tied to price risk with respect to ordinary assets or ordinary obligations. In many situations, however, weather derivatives are entered into to manage a taxpayer’s anticipated profitability, sales volume, plant capacity, or similar issues. These risks are not the transactions that receive tax hedge treatment.
Ordinary property includes property that if sold or exchanged by the taxpayer would not produce capital gain or loss without regard to the taxpayer’s holding period. Items included in a taxpayer’s inventory—such as natural gas or heating oil held by a dealer in those products—are treated as ordinary property that can be hedged. Qualifying hedges can also include hedges of purchases and sales of commodities for which the taxpayer is a dealer, such as electricity, natural gas, or heating oil. If a utility agrees to purchase electricity at a fixed price in the future, for example, the utility is exposed to price risk if it cannot resell the fixed-price electricity for at least the amount it paid to purchase that electricity. Accordingly, the utility could agree to sell electricity under a futures contract (short position) that would qualify as a tax hedge.
On the liability side of a business, the hedge could relate to a taxpayer’s price risk with respect to an ordinary obligation. An ordinary obligation is an obligation the performance of which (or its termination) would not produce a capital gain or loss. For example, a forward contract to sell electricity or natural gas at a fixed price entered into by a dealer is treated as an ordinary obligation. In addition, a utility that enters into a fixed price forward sales contract agreeing to sell electricity at a fixed price has an ordinary obligation to deliver electricity at that fixed price.
What sorts of weather derivative transactions are not tax hedges?
Many legitimate risk management activities do not qualify as tax hedges. Weather derivative transactions that protect overall business profitability (such as volume or revenue risk) are not directly related to ordinary property or ordinary obligations. As a result, weather derivatives entered into to protect a business’s revenue stream or its net income against volume or revenue risk are not tax hedges.
Many taxpayers in the normal course of their businesses enter into weather derivatives to manage volume or revenue risks of reduced demand for their products or services. These transactions are not tax hedges. The taxpayer is not managing a price risk (either current or anticipated) attributable to ordinary assets, borrowings, or ordinary obligations.
Take, for example, a ski resort or amusement park operator that enters into a weather derivative to protect itself against adverse weather conditions that are likely to result in a reduction in the number of skiers or amusement park visitors. The taxpayer’s risk management efforts in these cases either relate to its investment in its facility (which for the most part consists of real estate and business assets that are not taxed as ordinary assets) or to its expected revenue. Similarly, a power generator that hedges its plant capacity or its revenue stream with a weather derivative tied to the number of Cooling Degree Days would not meet the definition of a tax hedge.
Why don’t more weather derivatives qualify as tax hedges?
As part of Congress’ efforts to modernize the tax rules with respect to hedging, it specifically authorized the Treasury to issue regulations to extend the hedging definition to include other risks that the Treasury sets out in regulations.[5] The Treasury, unfortunately, has not proposed or issued any regulations extending the benefits of tax hedging. This means that weather derivative transactions entered into to manage weather-related volume or revenue risks do not qualify as tax hedges. In this situation, the taxpayer receives capital gain or loss on the derivative product.
What are some examples of weather derivatives that can qualify as tax hedges?
A weather derivative qualifies as a tax hedge if it manages the taxpayer’s price risks with respect to ordinary assets or obligations. Thus, a taxpayer entering into weather derivatives primarily to manage its price risk with respect to increased supply costs will meet the definition of a hedging transaction. Such a transaction manages the taxpayer’s price risks with respect to ordinary property.
If, for example, a commodity dealer buys a put option (or sells a call option) on a designated weather event to protect it against price risks with respect to its existing inventories or future fixed-price commitments, the dealer has entered into a qualified tax hedge, provided it meets the identification requirements.
A heating oil distributor with heating oil inventory (or forward contracts to purchase heating oil at a fixed price) might enter into a weather swap to protect itself from the risk of an unseasonably warm heating season. This swap should qualify as a tax hedge because the swap manages the distributor’s risk of a decline in the market price for its heating oil inventories (or a decline in its fixed-price forward contract purchase commitments) due to unseasonably warm weather.
If an electric utility enters into forward commitments to sell electricity at fixed prices for delivery in the summer cooling months, it may buy a call option on a designated weather event that would qualify as a tax hedge to the extent the option protects the utility against the risk of being unable to acquire or generate the electricity at a low enough price if the demand for electricity in the cooling season is higher than expected because of unseasonably warm weather resulting in higher electricity prices.
Conclusion
All organizations face weather and climate risks. As part of their enterprise-wide risk management, they have available to them a number of weather risk transfer tools. This series on weather and climate risk provides a detailed review of weather risk management. Organizations can look to standardized futures and option contracts traded on regulated commodity exchanges; they can enter into customized OTC weather derivatives designed with their specific weather risks in mind; they can put in place indemnity insurance; they can purchase parametric insurance; or they can mix and match multiple derivative products and insurance coverages to meet their specific organization’s needs. In Part I of this Q&A series on Weather & Climate Risk Management, we considered the landscape and context within which weather and climate decision making takes place, along with the overarching risk management approaches and principles that apply. In Part II, we looked at the details on the various weather risk management products. In Part III, we addressed the regulation of these products; and in Part IV, we reviewed the taxation of these various classes of products.
[2] Treas. Reg. § 1221-2 and Code §§ 1221(a)(7) and 1221(b)(2).
[3] For a detailed discussion of the tax hedging rules see my forthcoming Q&A with Andie, “Business Taxation of Hedging Transactions” due out in Spring 2024.
[4] If the taxpayer is a dealer or a commodity derivatives dealer, the weather derivative would be an ordinary asset in the taxpayer’s hands.
Last year, California became the first state to pass laws requiring companies to make disclosures about their greenhouse gas (“GHG”) emissions as well as the risks that climate change poses for their businesses and their plans for addressing those risks. These new laws now face funding and legal hurdles that are delaying their implementation.
While California’s new laws navigate these challenges, the U.S. Securities and Exchange Commission (“SEC”) adopted its own final climate disclosure rule on March 6. Formally entitled The Enhancement and Standardization of Climate-Related Disclosures for Investors (“SEC Rule”), it requires public companies to make disclosures about the climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, a registrant’s business strategy, operations, or financial condition, and also to disclose their Scope 1 and Scope 2 GHG emissions. The SEC Rule is significantly scaled-back from what the SEC originally proposed in March 2022; most notably, it does not require disclosure of Scope 3 GHG emissions. It too faces legal challenges.
California’s New Laws[1]
On October 7, 2023, California Governor Gavin Newsom signed into law two sweeping climate disclosure bills, Senate Bill 253 (“SB 253”), the Climate Corporate Data Accountability Act, and Senate Bill 261 (“SB 261”), the Climate-Related Risk Act.
Under SB 253, companies that do business in California and have more than $1 billion in annual revenue will be required to disclose emissions data to the California Air Resources Board (“CARB”) each year, starting in 2026. The new law will affect more than 5,400 companies. Under the new law, CARB can levy fines of up to $500,000 per year for violations thereunder. The new reporting requirements apply to both public and private companies, unlike the SEC Rule, which applies only to certain public companies.
Under SB 261, companies with more than $500 million in annual revenue will be required to disclose on a biennial basis how climate change impacts their business, including reporting certain climate-related financial risks and their plans for addressing those risks. These disclosures also begin in 2026 and will affect roughly 10,000 companies.
Funding Hurdles
Funding is necessary for CARB to develop and implement regulations for both climate disclosure laws, as well as to review, administer, and enforce the new laws. To implement SB 253, CARB estimated that it required $9 million in the 2024-25 fiscal year and $2 million in the 2025-26 fiscal year. For SB 261, CARB estimated that it needed an aggregate of $13.7 million over the 2024-25 and 2025-26 fiscal years to identify covered entities, establish regulations, and develop a verification program.
Governor Newsom’s $291.5 billion budget proposal for the 2024-25 fiscal year did not allocate any funding for the implementation of the new laws. The sponsors of the two laws, SB 253’s Senator Scott Wiener and SB 261’s Senator Henry Stern, immediately released a statement sharply critical of this aspect of the Governor’s budget proposal.[2] With limited exceptions, the budget proposal defers all new discretionary spending decisions to the spring, pending input from the legislature, with a final spending plan expected in July of 2024.
The budget process in California can be a lengthy negotiation. The Governor proposes a budget, but then must work with the Legislature to develop the final budget. In this regard, it is important to note that Senator Wiener was appointed to chair the Senate Budget Committee earlier this year. Thus, it’s possible that funding will be provided to implement the laws, though CARB already faced an aggressive set of deadlines for developing the regulations.
Legal Challenges
Some companies, including tech giants like Apple and Salesforce, want the new rules implemented quickly. Large businesses may have an interest in implementing the legislation expeditiously for the benefit of operational certainty and because they have the resources to absorb costs that their smaller competitors cannot. Other companies view the new rules as needlessly burdensome and are committed to halting the legislation in its tracks.
In January, the U.S. Chamber of Commerce joined the American Farm Bureau Federation, California Chamber of Commerce, Central Valley Business Federation, Los Angeles County Business Federation and Western Growers Association in filing a lawsuit[3]in federal district court challenging the climate disclosure laws under the theory that they violate the First Amendment of the U.S. Constitution and are preempted by federal law.
According to the complaint, the climate disclosure requirements violate the First Amendment of the U.S. Constitution by “forc[ing] thousands of companies to engage in controversial speech that they do not wish to make, untethered to any commercial purpose or transaction…for the explicit purpose of placing political and economic pressure on companies to “encourage” them to conform their behavior to the political wishes of the State.” The plaintiffs argue that, in the event that the State seeks to compel a business to speak noncommercially on controversial political matters, such action shall be presumed by a reviewing court to be unconstitutional unless the government proves that it is narrowly tailored to serve a compelling state interest. The plaintiffs also allege that the new climate disclosure laws are not narrowly tailored to further any legitimate interest of the state, let alone a compelling one.
The lawsuit also contends that the federal Clean Air Act preempts California’s ability to regulate GHG emissions beyond its jurisdictional borders. According to the plaintiffs, the new laws seek to regulate out-of-state emissions “through a novel program of speech regulation.” The complaint further argues that, because the new disclosure requirements operate as de facto regulations of GHG emissions nationwide, they “run headlong” into the Dormant Commerce Clause and broader principles of federalism. The plaintiffs ask the court to enjoin California from implementing or enforcing the new rules, thereby making them null and void.
A more serious preemption challenge may be that the California climate disclosure laws are preempted by the SEC Rule. The issue was addressed during the March 6 SEC hearing (discussed below), and it’s been reported that SEC General Counsel Megan Barbero answered that “nothing” in the Rule “expressly preempts any state law.” However, she added that the issue could arise as a question of “implied preemption,” which “would be determined by a court in a future judicial proceeding.” The question would be whether the SEC has “occupied the field” to such an extent that it preempts state rules in the space. Those would be questions of fact largely turning on how the climate laws are being applied and enforced, and thus any such challenge is likely to await CARB’s implementation of the laws.
The SEC Rule
On March 6, 2024, the SEC adopted the final SEC Rule which will require public companies to include certain climate-related disclosures in registration statements and annual reports. The final SEC Rule requires registrants to disclose material climate-related risks, activities undertaken to mitigate or adapt to such risks, information regarding the board of directors’ oversight of climate-related risks and management of material climate-related risks, and information about climate-related targets or goals that are material to the company’s business, operations, or financial condition.
To add transparency to investors’ assessments of certain climate-related risks, the SEC Rule also requires disclosure of material Scope 1 and Scope 2 GHG emissions, the filing of an attestation report in connection thereof, and disclosure of impacts that severe weather events and other climate-related conditions have on financial statements, including costs and losses. The final SEC Rule includes a phased-in compliance period for all registrants, with compliance dates ranging from fiscal year 2025-26 to 2031-32, depending on the registrant’s filer status and the content of the disclosure. In general, the SEC Rule requires less than the California climate disclosure laws, as Senator Wiener observed[4].
Key Takeaways
Implementation and/or enforcement of SB 253 and SB 261 is delayed for the time being due to a lack of funding, and thus the roll-out of the regulatory regime for the two laws appears likely to slip, such that the laws’ 2026 compliance deadlines may also slip.
The lawsuit challenging SB 253 and SB 261 adds some uncertainty to the process of ensuring compliance with climate disclosure requirements, and may cause further delay.
The delayed implementation of the new laws affords companies additional time to develop a compliance strategy. Due to the lessened scope of the SEC Rule, companies that are prepared to comply with the California laws are likely to be prepared to comply with the SEC Rule. And implementation of the SEC Rule may be delayed by legal challenges as well, thereby creating more time for companies to develop a compliance strategy.
FOOTNOTES
[1] A prior article describing these laws in more detail is here.
[3] Chamber of Commerce of the United States of America, et al. v. Cal. Air Resources Board, et al. (Cal. Central Dist., Western Div.) (Case No. 2:24-cv-00801).
