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Proposed Rule On Greenhouse Gas Emissions Would Impose Significant Compliance Obligations On Federal Contractors – Environmental Law


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The Federal Acquisition Regulatory Council recently
issued a far-reaching proposed rule that includes significant
compliance obligations for contractors related to their greenhouse
gas emissions.


  • Most federal contractors, including small businesses, would be
    required to prepare an annual inventory of their greenhouse gas

  • “Major contractors” also would have to publicly
    disclose their annual inventory and efforts to reduce greenhouse
    gas emissions.

  • Failure to comply with these new obligations may result in a
    contracting officer finding of “non-responsible” under
    FAR Part 9.

The Federal Acquisition Regulatory Council (FAR Council)
recently issued a proposed rule, implementing Section 5(b)(i) of
Executive Order 14030 (Climate-Related Financial Risk), that would
require most federal contractors to make disclosures and
representations regarding their greenhouse gas (GHG) emissions and
certain contractors to also set science-based targets to reduce
those emissions. The proposed rule adopts the definition of GHG
from Federal Acquisition Regulation (FAR) 23.001, which defines GHG
as carbon dioxide, methane, nitrous oxide, hydrofluorocarbons,
perfluorocarbons, nitrogen trifluoride and sulfur hexafluoride.

The proposed rule would apply to “major” and
“significant” contractors. A “major contractor”
is defined as any entity that received more than $50 million in
federal contract obligations in the prior fiscal year. A
“significant contractor” is defined as any entity that
has received $7.5 million or more (but less than $50 million) in
federal contract obligations in the prior fiscal year. Accordingly,
small businesses receiving as little as $7.5 million in awards are
covered by the proposed rule. All small businesses that meet the
$7.5 million threshold are to be treated as “significant
contractors,” so the additional obligations that apply to
“major contractors” (discussed below) would not apply to
small businesses. Further, all contractors would have to
certify on whether they are or are not a major or
significant contractor and, if so, represent their compliance with
the three obligations discussed below.

The proposed rule includes three main obligations. First, the
proposed rule would require both major and significant contractors
to prepare an annual GHG inventory of their “Scope 1” and
“Scope 2” GHG emissions. Scope 1 emissions include GHG
emissions from sources that are owned or controlled by the
contractor. Scope 2 emissions are those GHGs “associated with
the generation of electricity, heating and cooling, or steam, when
these are purchased or acquired for the reporting company’s own
consumption but occur at sources owned or controlled by another
entity.” Major and significant contractors must also disclose
their GHG inventory on In terms of calculating GHG
emissions, the proposed rule provides that contractors “may
calculate emissions using the calculation tool of their choice, as
long as it is in alignment with the GHG Protocol Corporate
Accounting and Reporting Standard” and directs contractors to
the Environmental Protection Agency’s simplified GHG emissions calculator.

The second obligation, which applies only to major contractors,
is a requirement to complete an annual climate disclosure and make
the disclosure available on a publicly accessible website
(e.g., the contractor’s own website). The disclosure
must include the contractor’s GHG inventory of Scope 1 and
Scope 2 emissions, and any “relevant Scope 3
emissions, which are [GHG] emissions that are a consequence of the
operations of the reporting entity but occur at sources other than
those owned or controlled by the entity,” such as the sources
in its supply chain. The disclosure also must describe the
contractor’s climate risk assessment process and any risks that
it has identified. The proposed rule provides that the disclosure
obligation may be fulfilled by completing a questionnaire through
the Carbon Disclosure Project or CDP, a nonprofit
entity that runs a global environmental disclosure system.

The third obligation, which also applies only to major
contractors, is a requirement to develop science-based targets and
have the targets validated by
Science-Based Targets Initiative
(SBTi). The proposed rule
defines a “science-based target” as “a target for
reducing GHG emissions that is in line with reductions that the
latest climate science deems necessary to meet the goals of the
Paris Agreement to limit global warming to well below 2 °C
above pre-industrial levels and pursue efforts to limit warming to
1.5 °C.” The contractor’s targets must be validated by
SBTi within the previous five calendar years and must also be made
available on a publicly accessible website.

A contractor’s obligation to prepare its GHG inventory will
begin one year after the publication of the final rule. The
obligations specific to major contractors will begin two years
after the publication of the final rule.

With respect to exceptions, a significant or major contractor is
not required to prepare a GHG inventory of its Scope 1 or Scope 2
emissions and a major contractor is not required to complete an
annual climate disclosure or set science-based targets for GHG
reduction, if the contractor is a(n): (1) Alaska Native
Corporation, Community Development Corporation, Indian tribe,
Native Hawaiian Organization or Tribally owned concern; (2) higher
education institution; (3) nonprofit research entity; (4) state or
local government; or (5) entity deriving 80 percent or more of its
annual revenue from federal management and operating contracts that
are subject to agency annual site sustainability reporting

Finally, the proposed rule includes new procedures for
determining responsibility under FAR 9.104-3. If a contractor’s
SAM representations indicate that it is a significant or major
contractor and that it is not in compliance with its
obligations under the proposed rule, then the contracting officer
is directed to follow new procedures set forth at FAR 9.104-3(e).
In that regard, under these new procedures, contracting officers
must presume that the contractor is non-responsible,
unless the contracting officer can establish the following: (1) the
contractor’s non-compliance resulted from circumstances
properly beyond its control; (2) the contractor has provided
sufficient documentation that demonstrates substantial efforts to
comply; and (3) the contractor has made a public commitment to
comply as soon as possible on a publicly accessible website (within
one year).

Based on the significance of this proposed rule, Pillsbury
expects to publish additional client alerts on this proposed rule.
In the meantime, we encourage you to take advantage of the public
comment period to voice your concerns and support for this proposed
rule. Comments on the proposed rule are due by January 13,

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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