Tackling global climate change regulations

As part of our 2024 mid-year forecaster webinar series, experts Beatriz García Fernández-Viagas, Yangyang Geng, Lauren Payne, and Arnas Acas discussed the new climate change regulations emerging in Europe, Asia Pacific, and the United States, spotlighting greenhouse gas emission reduction and new reporting expectations for international businesses. 

In this article, we’ll highlight some of the major climate change-related regulatory trends affecting businesses around the globe in 2024, and explain what impact these may have on operations. 

Climate change in the EU

EU Regional Expert, Beatriz García Fernández-Viagas discussed how the EU has long presented its goal to become climate-neutral by 2050 and has consequently adopted a host of proposals under the ‘’Fit for 55’’ package to tighten the environmental legislation and reach the climate-neutrality ambition. Here are some examples.

Revised Industrial Emissions Directive (IED)

The Industrial Emissions Directive (IED) – the primary legislation regulating industrial pollution in the EU – has been revised in order to reduce harmful emissions from further industrial activities and installations, such as mining, large-scale batteries manufacturing, and additional intensive livestock farms. The revised IED aims to: 

• Simplify the permitting process — with the implementation of e-permits by 2035 

• Introduce stricter conditions in industrial permits — for example, operators or industrial installations that are subject to permit will have to comply with new environmental performance limit values and with stricter emission level values, and will have to implement environmental management systems for each installation 

• Stricter penalties — with both criminal and administrative penalties introduced. For the most serious infringements, companies will be fined at least 3% of their annual EU turnover. Further, if an individual’s health has been impacted by infringing the directive, they’ll be entitled to claim compensation 
   

Regulation establishing stricter rules on environmental reporting 

This Regulation will apply to industrial installations from 1 January 2028, replacing the European Pollutant Release and Transfer Register (E-PRTR) Regulation from the same date. More industrial installations will be subject to reporting under this new Regulation (such as medium combustion plants), with the following standards: 

• Report at installation level — previously, companies were only expected to provide reports and data at a facility level, but this new regulation will now mandate reporting at an installation level instead 

• More data — companies will be required to provide more data in their annual reports, including information on water and energy use, raw materials resources, number of operating hours and production volume
   

Revised Energy Performance of Buildings Directive

The EU has adopted the revised directive on energy performance of buildings with the aim of making infrastructure and building operations more energy efficient, and, therefore, more sustainable long-term.  

The revised rules must be transposed by Member States by 29 May 2026. There’s an expectation that this revised directive will lead to major renovations for buildings in the EU. 

Here are some of the most significant changes it introduces: 

• Zero emission buildings — any building built after 1 January 2030 must produce zero onsite carbon emissions from fossil fuels. Existing buildings that undergo major renovations will be expected to achieve zero emissions from 2050. Some sites may be exempt, such as industrial sites, but many buildings in Europe will have to change their operations and materials to comply 

• Stricter minimum energy performance rules — the revised Directive establishes stricter minimum energy performance rules for existing buildings, which will have to ensure their energy consumption is 16% lower than the “worst-performing buildings” by 2030 and 26% lower by 2033 

• Solar energy equipment — the revised Directive will phase out the use of fossil fuel boilers by 2040, as well as mandate the installation of solar energy equipment in new buildings with useful floor area larger than 250 m2 from 2027. New and existing buildings will also need to renovate their parking to include recharging points for electric vehicles and more bicycle spaces from 2026. 

It’s evident from these latest trends that the EU is introducing ambitious measures to achieve their climate neutrality goal. The new mandates controlling new and existing infrastructure will promote emissions reductions across industrial sites and buildings. Almost all companies in Europe will be impacted by these new standards, and will have to review their systems, energy usages, and internal operations to eliminate the risks of non-compliance. 

Climate change in Asia Pacific

Regional Expert, Yangyang Geng, explored how, much like the EU, countries in Asia Pacific are adopting various approaches to tackle climate change and emphasizing the importance of sustainable practices.  

China

China has recently introduced a stricter allocation methodology of carbon emission allowances and additional proposals on greenhouse gas (GHG) reporting.
 

Interim Regulation on Management of Carbon Emission Trading

Coming into effect on 1 May 2024, this regulation aims to enhance the management of the national carbon emission trading market by specifying, among others, the allocation methodology of carbon emission allowances. 

Previously, applicable companies could receive their carbon emission allowances at no extra cost, but this new regulation will gradually transition the allowances from being free to a combination of free and paid. This means some companies may have to pay for part of their initial carbon emission allowances in the future, hopefully encouraging businesses to better monitor their emissions and take actionable steps to reduce them.
 

GHG reporting guidelines proposals

In April, China issued two proposals of GHG reporting guidelines for cement clinker manufacturing and aluminum smelting industries, signaling the likely inclusion of the 2 industries into the national carbon emission trading market in the near future. 

Currently, the market only covers the power generation industry, but the authority has been intending to include more high-emitting industries, such as petrochemicals, chemicals, cement, steel, non-ferrous metals, and civil aviation.  

Given the aforementioned proposals, it seems that cement and aluminum industries are likely to be the early adopters.  

India

Elsewhere in Asia Pacific, India has established new specific minimum percentages for the consumption of renewable energy to promote greener resource use among businesses.
 

Minimum Percentage of Renewable Energy Consumption for the Year 2024-25

As of 1 April 2024, designated consumers, such as facilities manufacturing aluminum, textiles, and certain chemicals, as well as commercial buildings and establishments, must meet minimum percentages for their renewable energy consumption.  

For 2024/25, the designated consumers must ensure: 

• 0.67% of total energy consumption is produced by wind renewable energy 

• 0.38% of total energy consumption is produced by hydro renewable energy 

• 1.5% of total energy consumption is produced by distributed renewable energy 

• 27.35% of total energy consumption is produced by other renewable energy 

The total renewable energy used by a company must account for 29.91% of their total share of energy consumption. These minimum targets must be met through direct consumption or by purchasing Renewable Energy Certificates (RECs).  

Australia

Australia is presently focusing on introducing a mandatory climate-related financial disclosure regime, which would provide investors with more transparent and comparable information about the financial materiality of climate change to individual companies. 
 

Proposed Mandatory Climate-related Financial Disclosure Scheme

A draft bill is currently under consideration in the Australian Parliament to introduce new reporting expectations for very large, large, and medium-sized companies.  

The scheme would mandate that companies prepare annual sustainability reports containing a climate statement, including information on climate-related financial risks and opportunities, metrics and targets related to climate (including scope 1, 2 and 3 GHG emissions), and governance, strategy, or risk management related to these matters.  

The report would have to follow the sustainability standards currently under development by the Australian Accounting Standards Board, which are intended to be closely aligned with the ISSB standards, in particular IFRS S2 Climate-related Disclosures. The purpose of this internationally aligned approach is to minimize compliance costs for Australian companies operating overseas.  

If this bill is adopted, it would most likely be implemented in three phases, with companies phased in based on their size or level of emissions. The first set of companies would be required to report for the period commencing from 1 January 2025 (or 1 July 2025, depending on the start date of the regime) to 30 June 2026. The second set of companies would need to prepare reports from the 2026-2027 financial year. And, finally, the third set of companies would be required to report from the 2027-2028 financial year.  

From the regulatory changes occurring in Asia Pacific, it’s evident that these governments are prioritizing tackling climate change by reducing carbon emissions and mandating that companies pay closer attention to the impacts their operations have on the environment.   

Climate change in the US

Senior EHS Regulatory Consultant, Lauren Payne, outlines the climate change regulations emerging in the US. Similar to Europe, the US is focusing on reducing greenhouse gas emissions, with a goal to meet 50-52% below the 2005 levels in 2030 and achieve a net-zero emissions economy by 2050. The EPA’s FY 2025 Budget is continuing to “prioritize tackling climate change with urgency” by driving reductions in emissions by providing support to tribal, state, and local governments. But the budget has dropped by 9% to almost USD 11 billion.  

Here’s how the US is tackling climate change. 

GHG reporting

Firstly, the US has introduced increased state level reporting requirements for greenhouse gas emissions, with a focus on manufacturing sectors. More stringent GHG emissions limits and goals, as well as scope 1, 2, and 3 emissions, are being adopted in Illinois, Maryland, Colorado, and Washington.  

In Illinois, companies with an annual revenue over USD 1 billion could be required to verify and report annual scopes 1, 2, and 3 emissions, and disclose direct and indirect emissions from their supply chain. In 2023, California adopted a similar measure, making these reports public access, therefore publicly holding companies accountable.  

In Maryland, a new bill means the Department of the Environment must carefully balance setting GHG limits that aren’t too costly or stricter than a company’s 2023 GHG emissions levels. 

Federal Air Emission Reporting

The Securities and Exchange Commission (SEC) has adopted new disclosure requirements for climate-related information in registration statements and periodic reports. These were initially amended in 2022 and adopted in March, but an effective date has been indefinitely suspended due to upcoming court cases.  

If the SEC requirements are approved, companies will need to provide information related to climate change in their registration statements and reports, including any climate-related risks that have or will have an impact on business strategy, operations, or finance.  

Industrial Demonstrations Program 

To support air emissions initiatives, the Federal Industrial Demonstrations Program aims to accelerate decarbonization projects in energy and carbon-intensive industries using its USD 6.3 billion in funding for technologies in the following industries: 

• Chemicals and refining 

• Cement and concrete 

• Iron and steel 

• Aluminum and metal 

• Food and beverage 

• Glass 

• Process heat 

• Pulp and paper
   

Building Energy Efficiency

On a state level, Vermont, Washington, and DC have all adopted amendments to energy efficiency. Applicable to companies that construct, renovate, alter, or repair commercial buildings, the scheme aims to promote greener infrastructure and more sustainable energy consumption.  

To comply, Vermont has updated its Commercial Building Energy Standards for buildings over four stories high. Washington has also updated its 2021 Washington State Energy Code, including the 2021 edition of the International Energy Conservation Code, which establishes new criteria to obtain energy efficiency credits for equipment like water heat pumps and space heating.  

Further, in DC, buildings with more than 10,000 square feet are now permitted to delay submitting information regarding benchmarks and statements of energy performance until July 2024.  

In a similar vein to Europe and APAC’s efforts, the US is committed to managing the climate crisis through the reduction of GHG emissions, with a stronger focus on controlling the pollution produced by the manufacturing industry.  

Actionable steps to mitigate impacts of climate change

According to our experts, climate policy trends in the EU, US, and Asia Pacific are pushing forward measures to reduce air emissions, improve energy efficiency, and overall aim to combat the devastating impacts of climate change. More stringent rules are not only holding businesses accountable for their energy consumption and emissions, but also promoting a more transparent economy where annual reports publicly announce the efforts — or lack thereof — of global businesses. 

Senior Team Lead, Arnas Acas, exhibited how businesses can leverage Enhesa tools Regulatory Forecaster and Compliance Intelligence to explore the EHS regulatory landscape by topic, act on current compliance expectations, stay ahead of emerging regulations in your industry, and remain informed of critical developments.  

Enhesa solutions allow companies to be proactive in the face of a rapidly changing landscape, focus their efforts on impactful and results-oriented strategies, and foster a harmonized system for all colleagues to maintain compliance.