Manufacturing accounts for nearly a quarter of the pollution in the US, with the country as a whole ranking as one of the largest producers of carbon emissions. As the manufacturing and industry sectors continue to grow at a rapid pace, reducing climate pollution is now non-negotiable.
If nothing is done to stave the growing impact that manufacturing in the US has on climate change – both nationally and internationally – this problem will compound, putting vulnerable populations at risk due to climate disasters such as floods, wildfires, deadly heat waves, and failed crops.
There is a global movement towards not just creating policies that help with transparency and accountability, but to incentivizing manufacturing companies to make concerted efforts towards mitigating climate-risky behaviors. Last January, the European Union introduced a new climate directive, the Corporate Sustainability Reporting Directive (CSRD) which requires organizations under the program to report ESG data and carbon emissions. This aims to standardize data and reporting mandates across the EU.
One of the US’s new policies that falls in alignment with global initiatives is the Clean Competition Act.
In this article, we’ll go over what the Clean Competition Act is, how it aligns with US Climate Policy, how companies can take action, and what this means for the future of US manufacturing.
What Is the Clean Competition Act?
The Clean Competition Act is an amendment to the Internal Revenue Code of 1986, to include a carbon border adjustment that’s based on industry carbon footprint.
The Clean Competition Act is an effort to create transparency and accountability regarding the carbon footprint of industrial companies throughout the US. This is another step in the ongoing US Climate Policy advancements towards meeting the UN Net Zero effort and is an acknowledgement of the impact that industry in the US has on the environment. It’s also an effort to reward manufacturing companies that strive towards a net-zero carbon footprint.
Because the Act sets out a plethora of parameters, following the legislation can be a bit confusing for companies that have not encountered this type of reporting before.
Essentially, the Act will require companies to submit reports, starting no later than June 30, 2026, that itemize greenhouse gas emissions. These reports must itemize emissions for each eligible facility under the purview of the company, and will include:
- All information eligible under the Greenhouse Gas Reporting Program, the total amount of electricity used at each facility during the previous calendar year
- The report must breakdown whether this electricity was provided through an electric grid or a dedicated generation source
- For any electricity not provided through the electric grid, any greenhouse gas emissions associated with the production of electricity must be reported
- For each facility, the total weight (in tons) of each eligible primary good produced at that facility
Additionally, the Clean Competition Act will impose a carbon border adjustment on all energy intensive imports and incentivize the decarbonization of domestic manufacturing. As of right now, these adjustments will apply to energy intensive industries such as:
- Fossil fuels
- Refined petroleum products
- Petrochemicals and fertilizers
- Hydrogen
- Adipic acid
- Cement, iron, steel and aluminum
- Glass, pulp and paper, and ethanol
In 2026, this will expand to include importing finished goods that are at least 500 pounds of covered energy intensive primary goods.
In 2028, the threshold will be lowered to 100 pounds.
Anything above these thresholds will be subject to a fee.
Why Is the Clean Competition Act So Important?
Each year, the earth’s temperature has increased by an average of 1.1 degrees Celsius. While this might seem insignificant, the ramifications of this temperature increase are huge and potentially disastrous.
Manufacturing sectors in the US play a vital role in mitigating climate change by curtailing climate-risk activities, inculcating ESG reporting and transparency, and supporting initiatives that are already being rolled out around the world that work towards a more sustainable future for everyone. This includes the Clean Competition Act.
What Does the Clean Competition Act Mean for US Companies?
As US Climate Change Policy has evolved, so must US manufacturing companies.
One of the aims of the Clean Competition Act is to encourage manufacturers to decarbonize their operations and products, while also providing investments in the future of clean energy research and development. Together, industry in the US can work towards a net-zero carbon future.
These investments will come from border fees paid by manufacturers whose goods surpass the 500 pound and 100 pound thresholds. A portion of the fees collected will be used for climate change research and development.
This climate policy initiative falls in line with other emerging global rules and regulations, but can present a challenge for companies that have not had to manage any climate related disclosures.
What Does the Clean Competition Act Mean for Companies Outside the US?
One of the crucial aspects of the Clean Competition Act is that the rules apply not just to domestically produced products, but also internationally imported products. This means that regardless of where a company is situated globally, any products brought into the US that fall under the purview of the Clean Competition Act’s product list will be subject to a border fee.
This can give rise to the potential of working collaboratively with other export countries towards the greater goal of reducing climate-risk activities. As many other countries are already establishing their own climate-risk policies applicable to manufacturing, the Clean Competition Act could potentially give US manufacturers wider access to partnerships abroad, bolstering domestic industry sectors.
How Can Manufacturing Companies in the US Prepare for the Clean Competition Act?
The Clean Competition Act is not the only piece of climate change legislation that’s impacting manufacturing companies. As we discussed previously, disclosure of climate-risk activities – including production, transportation, and energy use – is starting to become the standard, not just in legislation, but investors, stakeholders and customers are demanding corporate transparency and accountability.
As with other climate change policies and initiatives, companies will be required to keep rigorous data regarding climate-risk activities and products in alignment with ESG regulations. Understandably, this can become an extremely complex task, particularly for large, multi-armed companies.
One of the complaints that have arisen from the ongoing changes to legislation across the board, is that all the new disclosure rules will levy extra burden on companies, particularly small businesses. However, the rules and regulations – for the most part – only apply to large companies, and will not affect small and family-owned businesses.
Having said that, many manufacturing companies in the US will be impacted by this. Furthermore, all manufacturing companies in the US should be adopting the collection of ESG data and reporting as a standard practice, particularly if they are supporting larger companies that do fall under the purview of the ESG rules and regulations.
Preparing for the Clean Competition Act is largely the same as preparing for many new and amended pieces of legislation that work towards addressing climate change within the manufacturing industry.
It all comes down to ESG data collection, reporting, and transparency.
While many companies already have some form of ESG data collection and reporting systems – particularly those who rely on investors and stakeholders who demand this transparency – to develop a data collection and reporting system from the ground up can be a monumental task.
The good news is that there are steps you can take to smooth the transition, throughout all arms of the company. Here’s what we recommend:
1. Create an ESG Team Across All Arms of the Company
As the legislation continues to evolve regarding climate-risk activities that demands more robust ESG reporting and transparency, it’s crucial to create a cross-functional team within the company, composed of personnel who are fully trained and versed in current regulations and requirements.
This team can create a charter of roles and responsibilities, including all procedures on a daily basis as well as in the event of data discrepancies. This team can then educate the rest of the personnel as required, ensuring everyone is on the same page.
When it comes to undertaking a task as complex as ESG data gathering and reporting, education, accountability, and clear communication and expectations are the key to obtaining company-wide buy-in.
2. Articulate Clear Workflows Company-Wide Using ESG Reporting Software
Creating systems for all ESG data gathering and reporting company-wide is a huge task that requires meticulous care. Implement workflow systems that align with all applicable rules and regulations, including the Clean Competition Act, and have personnel on-staff ready to onboard employees responsible for data-gathering and reporting.
For many large companies, this could mean across multiple departments, facilities, and even in different regions of the world.
ESG data gathering and reporting software can work with your specific requirements and departments. Additionally, check in with your team and conduct audits regularly to catch any issues during the process. This will help catch any errors or discrepancies, and will save time and money in the long run.
3. Create an Internal Governance Charter
As we’ve mentioned previously, creating an internal governance and controls protocol is essential in ensuring ESG data integrity. Do this by creating a company-wide internal governance charter that articulates all aspects of ESG data collection and reporting. This should also include a list of active players, roles and responsibilities, as well as what to do in the event of any errors or discrepancies in reporting deadlines – both hard and soft.
Additionally, create a system where your team can continually update their education regarding various legislations, including the Clean Competition Act, that might apply to your company, as well as responsible reporting.
4. Go Beyond by Inculcating Company-Wide Carbon Positivity
Working away from corporate “greenwashing” is essential in making positive climate friendly manufacturing policies. But it’s not just that.
“Carbon positive” is a term used when articulating climate action goals. It is a step further than carbon neutral policies, and moves towards making additional positive impacts to atmospheric levels. Basically, it’s actions taken that not just offset carbon emissions to result in a net zero effect, but to go beyond by creating positive change.
Keep in mind that carbon positive actions only apply to carbon emissions. However, this is a step in the right direction.
What Does This Mean for the Future of US Manufacturing?
Given the extensive efforts that many countries have made in order to mitigate climate-risk activities within the manufacturing sectors, the future of US manufacturing has now become predicated on following suit.
The Clean Competition Act, while not perfect, is a step in the right direction. It encourages carbon neutral manufacturing through transparency and accountability. It also signals to other nations that US manufacturers are taking action in mitigating climate-risk activities.
By moving forward with ESG policies and procedures, the US manufacturing industry can remain robust and competitive on both the global and domestic marketplace.
Take Action Today
To learn more about how your company can efficiently and accurately collect, manage, and report any climate-risk data, speak to a FigBytes expert today.
