Manufacturing accounts for nearly a quarter of all pollution in the US with the country as a whole ranking as one of the largest producers of carbon emissions. As the industrial sector continues to grow at pace, reducing climate pollution is clearly non-negotiable.
In fact, if nothing is done to alleviate the impact of US manufacturing on climate change – both nationally and internationally – this problem will only compound, putting vulnerable populations at risk due to climate disasters such as floods, wildfires, deadly heat waves, and failed crops.
To alleviate such risks, there is now a global movement not just to create policies that increase accountability, but that actually incentivize manufacturing companies to mitigate climate-risky behaviors. In the US, one such policy is the Clean Competition Act – a piece of legislation designed specifically to reward the decarbonization of domestic manufacturing.
To help you make sense of the Act, and its potential impact on your business, this guide explains exactly what the Act covers, and how to prepare your business for the enhanced data collection and reporting requirements it will entail.
What Is the Clean Competition Act?
The Clean Competition Act is actually an amendment to the Internal Revenue Code of 1986 to include a carbon border adjustment based on industry carbon footprint.
Drafted in an effort to increase transparency and accountability in the US manufacturing sector, it represents another step in ongoing attempts to meet UN Net Zero through US Climate Policy. As such, it not only recognizes the impact that industry has on the environment, it’s also an effort to actively 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, it will require companies to submit reports, starting no later than June 30, 2026, itemizing their greenhouse gas emissions for each eligible facility, including:
- 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 and in 2028, the threshold will be lowered to 100 pounds.
Anything above these thresholds will be subject to a fee.
What Does the Clean Competition Act Mean for US Companies?
One of the aims of the Clean Competition Act is to encourage manufacturers to decarbonize their operations and products, while also providing funds to invest in the future of clean energy.
To this end, a portion of the fees collected through the Clean Competition Act will be used for climate change research and development, ultimately working towards a net-zero carbon future. This investment will come from border fees paid by manufacturers whose goods surpass the 500 pound and 100 pound thresholds.
For those unused to making climate related disclosures, this can present a challenge to your business, but if handled effectively it need not be a barrier to profitability. What’s more, taking steps toward climate positive manufacturing can even be a source of competitive advantage.
What Does the Clean Competition Act Mean for Companies Outside the US?
Crucially, Clean Competition Act applies not just to domestically produced products, but also to internationally imported products. This means that regardless of where a company is situated, any products brought into the US that fall under Act’s product list will be subject to a border fee.
Ideally, this will encourage collaboration with other export countries, working towards the shared goal of reducing climate-risk activities.
As many other countries are already establishing their own climate policies applicable to manufacturing, the Clean Competition Act could potentially give US manufacturers wider access to partnerships abroad, bolstering domestic industry sectors.
How Can You Prepare for the Clean Competition Act?
Challenging as the Clean Competition Act might be, it is not the only piece of climate change legislation that’s currently impacting manufacturing companies.
As we discussed previously, disclosure of climate-risk activities – including production, transportation, and energy use – is starting to become standard, not just due to legislation, but because investors, stakeholders and customers are demanding transparency and accountability.
As with other climate change policies, companies will be required to keep rigorous records regarding climate-risk activities in alignment with ESG regulations. Understandably, this can be a complex task, particularly for large, multi-armed companies.
But it’s not just large companies that are impacted. All manufacturing companies in the US should be collecting and reporting ESG data as standard, particularly if they are supporting larger companies that fall under the purview of the ESG rules and regulations
Successfully meeting these rules and regulations depends on one thing – accurate ESG data collection and seamless data management.
While many companies already have some form of ESG data collection and reporting system, particularly those whose investors and stakeholders demand transparency, developing a data collection and reporting system from the ground up can be a monumental task.
Luckily there are steps you can take to smooth the transition across your company. Here’s what we recommend:
1. Create an ESG Team Across the Company
As legislation continues to evolve demanding more robust ESG reporting and transparency, it’s crucial to create a cross-functional team 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 daily procedures and what to do in the event of data discrepancies as well as educating other personnel to ensure 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 are the key to obtaining company-wide buy-in.
2. Articulate Clear Workflows Using ESG Reporting Software
Creating systems for company-wide ESG data gathering and reporting 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 staff ready to onboard employees responsible for data-gathering and reporting.
For large companies, this could mean working 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 regular audits to catch any issues during the process. This will help spot 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.
Create a system where your team can continually update their education regarding various legislation that might apply to your company, as well as responsible reporting.
4. Instill Company-Wide Carbon Positivity
Moving away from corporate “greenwashing” is an essential part of establishing climate friendly manufacturing policies, but to achieve Net Zero, companies need more than honesty.
In essence, they will need “carbon positive” climate action goals. This goes a step further than carbon neutral policies by making additional positive impacts to atmospheric levels. Basically, it’s taking action that not just offsets carbon emissions to result in a net zero effect, but goes beyond by creating positive change.
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 sector, the future of US manufacturing now depends 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 while also signaling to other nations that US manufacturers are taking action to mitigate climate-risk activities.
Far from holding your company back, by moving forward with ESG policies and refining your strategy, you can work to 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 an AMCS expert today.