Bloomberg Law
March 2, 2023, 9:00 AM

Requiring Climate Disclosure From Federal Contractors Is Legal

Will Dobbs-Allsopp
Will Dobbs-Allsopp
Governing for Impact
Anna  Rodriguez
Anna Rodriguez
Governing for Impact

Is the federal government prohibited from measuring its vulnerabilities to climate change? That’s the position of industry groups that have criticized a pending regulation requiring federal contractors to disclose carbon emissions.

The proposal, they claim, is not just misguided, but unlawful, especially in light of the nascent major questions doctrine—which subjects certain extraordinary regulatory policies to heightened judicial scrutiny. We disagree with this objection.

Climate Risk Is a Lawful Priority

The proposal by the Federal Acquisition Regulatory Council would require firms that receive more than $7.5 million in contracts annually to disclose Scope 1 and Scope 2 greenhouse gas emissions.

Under the rule, “major contractors”— those with contracts above $50 million—also would need to disclose Scope 3 emissions, conduct a climate risk assessment, and set—but not necessarily abide by—science-based GHG reduction targets.

Red-state attorneys general and other critics argue the proposal exceeds the FAR Council’s authority under the Federal Property and Administrative Services Act, which allows the government to impose requirements that will promote “economy” or “efficiency” in federal procurement.

But Congress, as the DC Circuit explained in its leading federal contracting case, adopted the FPASA to “introduce into the public procurement process the same flexibility that characterizes such transactions in the private sector.”

And that’s precisely what this proposal aspires to do—ascertain, just as any sensible private enterprise might, federal contractors’ prospective reliability.

Most importantly, the rule would allow the government to better assess its own climate vulnerabilities.

For example, by requiring sizable contractors to divulge emissions inventories, the government can gain valuable insight into contractors’ reliance on carbon-dependent suppliers, which face transition and physical risks from climate change.

As shifting energy generation patterns, natural disasters, and supply chain disruptions upend markets, poorly positioned contractors could struggle to fulfill their procurement obligations, jeopardizing critical federal operations.

A 2019 study found that 215 of the largest global companies face almost $1 trillion in climate risks and around $250 billion in losses due to stranded assets.

Major Questions Doctrine Doesn’t Apply

Commenters suggesting the FAR Council’s disclosure proposal violates the major questions doctrine have either misconstrued West Virginia v. EPA—the landmark case announcing the reinvigorated doctrine—or applied it without rigor.

For example, the Washington Legal Foundation cites West Virginia for the proposition that “climate policy is the exclusive prerogative of Congress”—concluding that executive action touching on the issue therefore poses a “major question.”

But West Virginia said nothing of the sort. In fact, it expressly avoided ruling that the Environmental Protection Agency lacked the authority to regulate carbon emissions.

By contrast, careful major questions doctrine analysis reveals that the government stands on firm ground. Whether a given regulation partly hinges, under West Virginia, “on the history and breadth of the authority asserted.”

Or, to use an alternative formulation from that decision, agencies that purport to “discover an unheralded power” in “a long-extant statute” will face judicial skepticism.

The FPASA provision at issue here isn’t some “little-used backwater,” like the statutory clause the EPA was rebuffed for using in West Virginia. The FAR Council has a rich regulatory history: administrations from both parties have imposed analogous conditions on contractors using the exact same legal authority.

Among other directives, these policies required contractors to certify their compliance with a set of highly prescriptive wage and price standards, post anti-union disclosures, use E-Verify to ascertain the immigration status of new hires, and provide employees with up to seven days of paid sick leave.

The climate disclosure proposal also doesn’t represent a “transformative expansion in [the FAR Council’s] regulatory authority”—another characteristic of major questions cases per West Virginia. It doesn’t seek to assert jurisdiction over a new class of regulated entities, as some previous actions invalidated under the doctrine attempted.

Instead, it applies to a limited set of actors that have always known their taxpayer-funded contracts come with strings attached, and that do business with the federal government voluntarily.

And unlike other rules that have triggered major questions scrutiny in the past, the proposal doesn’t stray from FAR Council’s core sphere of expertise: federal contracting management.

Finally, contrary to claims by groups like the Chamber of Commerce, the FAR Council’s disclosure directive fails to qualify as economically significant under the doctrine. This is assuming such a threshold even exists—a proposition some practitioners have forcefully contested.

The proposal imposes compliance costs orders of magnitude lower than rules that the US Supreme Court previously has deemed major questions, in which costs figured in the billions, even tens of billions, of dollars annually.

Our calculations show the average major contractor will face increased annual costs worth just 0.8% of the minimum value of their federal contract.

West Virginia announced a legal doctrine, not an incantation to be casually invoked whenever someone dislikes a regulation. And here, its proper application clearly favors the administration.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Will Dobbs-Allsopp is director of strategic initiatives and Anna Rodriguez is policy counsel at Governing for Impact.

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