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Climate Change

Biden Administration to Require Federal Contractors to Report and Reduce Greenhouse Gas Emissions

A new proposed regulation may test the limits of the Executive Branch's authority to impose regulatory requirements on federal contractors.

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Yesterday, the Biden Administration announced that it would be proposing a new regulation to require federal contractors to report on and reduce their greenhouse gase emissions. From the White House Fact Sheet:

In support of President Biden's Executive Orders on Climate-Related Financial Risk and Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, the Administration is proposing the Federal Supplier Climate Risks and Resilience Rule, which would require major Federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets. . . .

The proposed rule is part of the President's leadership to implement the first comprehensive, government-wide strategy to measure, disclose, manage, and mitigate the systemic risks that climate change poses to American families, businesses, and the economy. . . .

The Federal Acquisition Regulatory Council, composed of the Department of Defense, the General Services Administration, the National Aeronautics and Space Administration, and chaired by the Office of Federal Procurement Policy in the Office of Management and Budget, is issuing this proposed rulemaking, which would amend the Federal Acquisition Regulation (FAR) to implement these changes, if finalized. The FAR is the primary regulation for use by all executive agencies in their acquisition of supplies and services with appropriated funds.

The proposed rule will be published in the Federal Register on Monday. Here's what it does (according to the White House):

Under the proposed rule, the largest suppliers including Federal contractors receiving more than $50 million in annual contracts would be required to publicly disclose Scope 1, Scope 2, and relevant categories of Scope 3 emissions, disclose climate-related financial risks, and set science-based emissions reduction targets. Federal contractors with more than $7.5 million but less than $50 million in annual contracts would be required to report Scope 1 and Scope 2 emissions. All Federal contractors with less than $7.5 million in annual contracts would be exempt from the rule. Small businesses with over $7.5 million in annual contracts would only be required to report Scope 1 and Scope 2 emissions under the proposed rule. . . .

For reference, here are the Environmental Protection Agenct guidances on Scope 1 and 2 and Scope 3 emissions.

Like the Biden Administation Executive Order requiring federal contractors to vaccinate their employees, the source of authority for this regulation is the Federal Property and Administrative Services Act, 40 U.S.C. § 101 et seq. (aka the "Procurement Act"). Specifically, the proposed regulation cites 40 U.S.C. § 121(c) and 51 U.S.C. § 20113.

These statutory provisions provide the federal government with broad authority to standardize federal procurement and to encourage economy and efficiency within the procurement system. But that does not mean this regulation will be easy to defend in court, particularly insofar as it requires contractors to report supply-chain emissions (Scope 3 emissions). Just as courts were skpetical of the Biden Adminsitration's attempt to require federal contractors to vaccinate their employees (as I discussed here and here), they may be skeptical here.

As I noted in my posts on the federal contractor vaccination requirement litigation, it is not entirely clear how broadly the executive branch may impose conditions on contractors that do not relate in some way to the effective and efficient provision of goods and services to the federal government. Part of the problem is that the Supreme Court has never resolved the question.

The prevailijng precedent is AFL-CIO v. Kahn, a 1979 en banc opinion from the U.S. Court of Appeals for the D.C. Circuit. In Kahn, a divided D.C. Circuit held:

Although the terms and legislative record of the FPASA are not unambiguous, the relationship of the Act to this case can be outlined. [The Procurement Act] grants the President particularly direct and broad-ranging authority over those larger administrative and management issues that involve the Government as a whole. And that direct presidential authority should be used in order to achieve a flexible management system capable of making sophisticated judgments in pursuit of economy and efficiency.

Aubsequent decisions, such as UAW-Labor Employment and Training Corp. v. Chao (D.C. Cir. 2003) have interpreted this  language broadly. In Chao, for insance, the D.C. Circuit said this authority could be used to require federal contractors to post notices informing workers of their rights not to join a union or pay union dues. If this was okay, on the theory that it promotes ecomomy and efficiency to require federal contractors to inform their workers of their rights, perhaps it is no problem to impose broad regulatory comments to prevent climate change. But was it okayAgain, we do not have clear Supreme Court precedent on this question.

It has never been clear to me that Kahn and its progeny are correct. (On this score, it is worth considering Judge MacKinnon's Kahn dissent). I also have severe doubts that the current Court would construe the scope of authority under the Procurement Act so broadly. Further, insofar as this regulation is sseeking to leverage the federal government's procurement power to address problems that etend well beyond the economy and efficiency of federal procurement—and are part of a broader "all of government" climate strategy—there are good reasons to think federal courts will be skeptical of this initiative.

Recall that in reecting the OSHA vaccinate-or-test requirement for large firms, the Supreme Court seemed concerned that OSHA was using this rule not to enhance workplace safety, as such. Rather, the rule was part of what we might call an "all of government" effort to increase vaccination rates. And to a majority of the Supreme Court, this was a problem.

This sort of re-purposing of regulatory authority—pouring new wine out of old bottles—was something the Court would not allow in NFIB v. OSHA. By the same token, one has to wonder whether this Court would allos a similar repurposing of the Procurement Act, particularly insofar as the proposed regulation sweeps beyond reducing the carbon footprint of the federal government, but extends to value-chain (Scope 3) emissions of federal contractors. Indeed, this could even be thought of as a "major question," and this rule may be as vulnerable as the SEC's proposed climate disclsoure rule.

I expect these sorts of concerns to be raised during the rulemaking process, so it will be worth watching to see how the federal government responds. One thing is for sure: This rule will be litigated.