Two leading industry groups representing aerospace and defense companies this week outlined their concerns about a proposed rule that would require federal contractors to keep tabs, and report, on their greenhouse gas (GHG) emissions, although their responses differ somewhat.
The Aerospace Industries Association (AIA) called for the rulemaking effort to be “suspended, unless and until” its concerns are addressed. The Council of Defense and Space Industry Associations (CODSIA), which includes AIA, isn’t asking for a suspension but seeks unity with other federal GHG emission reporting proposals, an extension on some of the proposed deadlines, and more flexibility in working with different standards bodies.
Both groups submitted their comments on Feb. 13, the deadline called for by the Department of Defense, NASA and the General Services Administration in their November 2022 notice on a proposal to amend the Federal Acquisition Regulation (FAR) so that certain contractors must disclose GHG emissions, their climate-related financial risks, and set science-based targets to reduce their GHG emissions.
Aerospace and defense contractors for more than a few years have been focusing on reducing their GHG emissions, publishing annual reports outlining their goals and progress. The emissions that are discussed in the proposed rule are categorized as Scope 1, 2 and 3, with the first two subject to direct or indirect control by companies and the third not at all.
Examples of Scope 3 emissions are employee commutes, suppliers’ operations, and customer uses of a product such as how the Air Force operates a fleet of fighter jets.
AIA highlighted that the federal contracting process already poses challenging compliance requirements for companies doing business and that mandating reporting around GHG emissions would lead to higher program costs, schedule delays, and performance impacts.
In particular, both groups warned about significant challenges posed by recording and reporting Scope 3 emissions.
“Accurately estimating Scope 3 emissions is beyond the ability of almost any company due to the extensive range and complexity of ‘upstream’ and ‘downstream’ emissions,” AIA said. “These data requirements would be especially difficult to meet for small businesses.”
CODSIA pointed out that the proposal around Scope 3 emissions is aligned with the GHG Protocol Corporate Standard, which it said “is undefined.” Moreover, the group said the FAR proposal is also out of synch with climate disclosures that were proposed earlier in 2022 by the Securities and Exchange Commission and said the mandates here should be consistent.
Once a final rule is published, significant and major contractors would have one year to disclose their total annual Scope 1 and 2 emissions.
The proposed rule defines significant contractors as those receiving between $7.5 million and $50 million in federal contract obligations in the prior federal fiscal year and major contractors receiving more than $50 million. Citing the Federal Procurement Data System, there were 4,413 significant contractors in fiscal year 2021 and 1,353 major entities, 389 of which are estimated to be small businesses, according to the Nov. 14, 2022 proposal.
Major contractors would have two years to comply with the requirements for Scope 3 emissions, which don’t apply to the significant contractors. CODSIA wants the FAR Council to give major contractors three years to disclose these emissions. AIA proposes that the final rule be delayed until the government analyzes the financial impact on small defense businesses.
CODSIA also suggests that government customers help their contractors by reporting their GHG emissions.
In addition to a burden on contractors, there would also be challenges for federal contracting personnel, warning of increased risk to contracting efforts, AIA warns.
“The proposed rule would require contracting officers and acquisition specialists to understand GHG emissions, science-based targets, and climate change issues as they assess contracts,” AIA said. “Government contracting officers and evaluators do not have the time or resources to maintain the knowledge required to keep up with the best available science to guide decisions.”
AIA’s response was signed by John Luddy and David Silver, vice presidents, respectively, for National Security Policy and Civil Aviation. In addition to AIA, CODSIA’s response was signed by the National Defense Industrial Association, the Professional Services Council, the Information Technology Industry Council, and the Computing Technology Industry Association Federal Procurement Council.