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White House Proposes Environmental Rule That Would Impact Government Contractors

3 mins read

A proposed Biden-Harris administration rule would require a large portion of federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks while setting emissions reduction goals.

Supporting the administration’s earlier environmental executive orders, the new Federal Supplier Risks and Resilience Rule would make the U.S. the first national government to require its major suppliers to set emissions reduction targets in line with the Paris Agreement if approved.

The White House stated that the order covers approximately 85 percent of emissions tied to the federal supply chain. According to the fact sheet, those emissions are over two-times as much as emissions from maintaining the government’s 300,000 buildings and 600,000 vehicles.

If implemented, the rule would focus on “major” federal contractors, which are defined as companies that receive over $50 million in contracts each year. These organizations would be required to publicly report Scope 1 (direct-from-source) and Scope 2 (indirect from purchased energy) emissions as well as select Scope 3 (indirect value chain) emissions categories. They would also be required to disclose climate-related financial risks and set emission reduction targets.

Contractors within the $7.5 million to $50 million annual funding range, designated as “significant” contractors, would be required to divulge Scope 1 and Scope 2 emissions, while contractors receiving less than $7.5 million in yearly contracts would not be affected. Small businesses exceeding $7.5 million in contract awards each year would only be required to disclose Scope 1 and Scope 2 emissions.

Data from the Federal Procurement Data System shows that the significant contractors range includes approximately 4,413 organizations and estimates that 64 percent of these are small businesses. Within the 1,353 major contractors, 29 percent are estimated to be small businesses.

FPDS data also indicates that 31 percent of major contractors already report their emissions, while 10 percent of significant contractors currently disclose their emissions.

The expected first-year cost of compliance is over $604 billion, with an additional $442 billion annually.

As reported by the Washington Times, Christoph Mlinarchik, an experienced government contracting advisor and author, expressed his concern that new compliance costs may hurt small businesses that already have thin profit margins.

The Washington Times article included additional commentary from Markus Speidel, a government contracts attorney, who also expects the compliance costs to be significant. At the same time, he said that he foresees a widespread, cross-industry push for tightened environmental laws in the future and predicts that early participants will have an advantage.

According to the White House, the rule would provide economic benefits to both the federal government and its contractors as earlier emissions reduction strategies have reduced spending for both the government and companies across various sectors.

The White House is accepting input on the proposed rule until January 13.