Are Net-Zero Pledges Red Herrings to Escape Meaningful Decarbonization?

A country’s decarbonization performance is often predicated on the regulatory and legislative environment surrounding the transition. Distinguishing the perceived and actual legal barriers to the achievement of net-zero requires a careful analysis of the role net-zero pledges play in the fight against climate change. One of the primary actions for the United States is to distinguish between the perceived and actual legal barriers to the achievement of net-zero to better understand the regulatory and legislative environment with respect to net-zero emissions and decarbonization efforts. This review requires a careful analysis of the role net-zero pledges play in the fight against climate change.

Again, a major barrier to clean energy technologies is the patent and latent legal ambiguities affecting the achievement of net-zero goals with respect to investments in the United States’ critical infrastructure. Federal agencies have enthusiastically charged toward improvements in response to recognition by Congress for the need to improve the resilience of this critical infrastructure. Unfortunately, this enthusiasm has proven somewhat futile. As clean energy technologies continue to rapidly emerge, federal agencies have struggled, and will continue to struggle, to mitigate the risks associated with the acquisition of these technologies in the absence of clear and established regulations and legal precedent.

Net-Zero Pledges

Several countries have started making pledges to achieve net-zero emissions by the year 2050, with the United States following suit. This consolidated effort seeking to expedite decarbonization is, in part, responsive to the realization that increased natural disasters and surface temperatures across the globe will likely have catastrophic and irreversible impacts. Net-zero pledges have become the gold standard for countries and corporations seeking to take an active role in decarbonization. A pledge to achieve “net-zero emissions” means the total annual GHG emissions for an entity will equal the total annual GHG removals for that same entity. Net-zero emissions pledges rely on the notion that the outputted GHG emissions for a specific period of time would be counteracted by the amount of GHG emissions that are mitigated (i.e., taken out of the atmosphere) during that same period. But subject matter experts across the globe have widely accepted that net-zero pledges and initiatives cannot be achieved through the mitigation of GHG emissions alone, and that the removal of carbon emissions globally will be necessary.

History of Climate Change

Climate change has been a hot topic since the early 1990s, when the United States became one of the many countries that adopted the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC serves as the core foundation for international cooperation and is the first international treaty to address climate change.The UNFCCC holds annual meetings seeking to identify ways to combat and cope with the impacts of climate change.In 2015, the UNFCCC recognized that all countries need to take swift and immediate action to counteract climate change. In response, the UNFCCC drafted the Paris Agreement to establish their legal and binding commitment to decarbonization.

The Paris Agreement sought to balance “emissions by sources and removals by sinks of greenhouse gases in the second half of the century, on the basis of equity, and in the context of sustainable development and efforts to eradicate poverty” in order to “[hold] the increase in the global average temperature to well below 2 °C above pre-industrial levels and [to pursue] efforts to limit the temperature increase to 1.5 °C.” The United States committed to the Paris Agreement and further demonstrated its commitment to combatting climate change by making a pledge to achieve net-zero emissions by 2050.

Background

Shortly after the Paris Agreement, many well-known US industry stakeholders came together to form a coalition with subject matter experts across major hydrogen, fuel cell, power, oil, gas, and automotive companies. The coalition created a Road Map to a US Hydrogen Economy, which identified hydrogen as a critical component to achieving national carbon emission objectives. The coalition was formed in response to struggles by many critical clean-energy stakeholders, including local, state, and federal government agencies, to formulate action plans to expedite the implementation of hydrogen as an alternate fuel source.

The Road Map to a US Hydrogen Economy estimated that the development of the US hydrogen sector could provide “$750 billion per year in revenue and a cumulative 3.4 million jobs” by the year 2050. The coalition that released the Road Map to a US Hydrogen Economy agreed with the Department of Energy (DOE) that hydrogen is a generally accepted and widely supported means of achieving net-zero goals and pledges. The DOE has emphasized that the use of hydrogen as a long-term solution relies on the development and harmonization of “codes and standards,” “best practices for safety,” and a “robust supply chain and workforce.” The swift emergence of revolutionary clean energy technologies has left inadequate time for industry partners to gain the technical acumen to advance their understanding of the technology adequately enough to fully implement and establish the necessary regulations. Additionally, it is widely accepted that full decarbonization of the US economy will require the use of technologies that have not yet been invented, let alone adequately regulated and established.

Barriers to Clean Energy

Investment in the elimination of barriers for clean energy technologies is critical to the achievement of net-zero goals. The seemingly insurmountable barriers facing the rapid and national deployment of clean energy technologies begin with current revenue and tax codes. The current tax codes provide incentives to companies providing oil, coal, and other incumbent energy technologies over newer and clean energy technologies. Unfortunately, the tax code is just one example of how the regulatory and legislative environment has hindered the ability to make meaningful strides toward decarbonization in the United States. A country’s decarbonization performance is often predicted by the regulatory and legislative environment during the transition.

Net-zero pledges play an interesting role in the fight against climate change. Net-zero pledges have consistently driven entities to prioritize and address barriers to decarbonization, while simultaneously serving as a grandiose gesture toward decarbonization without a commitment to any measurable goals for the actual achievement of net-zero emissions. While net-zero pledges have helped to start conversations, the lack of accountability and enforceability of these pledges has forced nations and economies to dive deeper to identify the actual motives of industry players while distinguishing between the perceived and actual legal barriers to the achievement of net-zero emissions. Many entities have noted fear of litigation as a barrier to the achievement of net-zero emissions; however, this perceived barrier may seem less significant to others who struggle against more quantifiable barriers to the implementation of large-scale net-zero efforts. Quantifiable barriers to the achievement of net-zero emissions include lack of necessary substantive law, scarcity of legal precedent, limited funding, and abundance of risk associated with the net-zero initiatives.

As new technologies emerge, substantive law is heavily relied on to provide clear guidelines that innovators can follow to limit liabilities, which liabilities prohibit certain conduct and/or require affirmative action to address. Without substantive law to guide emerging clean energy technologies, many industry leaders are unwilling to assume the costs and risks associated with the research and development of such new technologies. The lack of sufficient substantive law also subjects companies developing clean energy technologies to risks of being potentially and retroactively subjected to legal and regulatory limits impacting the profitability of the technologies.

Even if sufficient technologies emerge, the lack of legal precedent serves as an additional barrier for professionals seeking to minimize and mitigate risks. The research and development of new technologies require a substantial financial investment in addition to the costs resulting from the lack of equitable tax breaks or incentives for the development of emerging technologies (as compared to those traditionally available for oil and gas companies). Yet even when some of these barriers are addressed, the risks involved in spearheading new technologies and investing in innovative approaches to decarbonization will still likely inhibit entities from pursuing net-zero objectives. This article addresses the current and quantifiable barriers to the achievement of net-zero emissions as they relate to substantive law, legal precedent, funding, and risk. It covers how each of these issues impacts the pursuit and acquisition of clean energy technologies as these technologies continue to emerge.

Substantive Law

Executive Order 14057

The first piece of substantive law that has impacted the acquisition of clean energy technologies is Executive Order 14057. Executive Order 14057, on “Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability,” recognizes the US government’s advantage as the country’s largest property owner, and how that position can act as a catalyst for change toward clean energy and net-zero emissions by 2050.

Executive Order 14057 charges federal agencies with spearheading the push toward clean energy with specific directions for agencies to pursue major changes, including the requirements that all agencies “achiev[e] Net-Zero Emissions Buildings, Campuses, and Installations.” Yet despite this specific instruction, Executive Order 14057 fails to provide the means and methods necessary to achieve net-zero emissions on federal installations; moreover, its legal requirements are vague and generic and fail to provide agencies with clear direction on how to move forward with these critical initiatives. Further, while Executive Order 14057 directs the US government to set and meet targets for the reduction of GHG emissions by 2030, it fails to provide a means to determine what those metrics should be to meet the net-zero directive by 2050. It also fails to provide guidance on the sources of funding for the net-zero initiatives, making any real progress toward net-zero initiatives inherently more impracticable.

In short, the US government’s efforts to leave Executive Order 14057 flexible enough to adapt to the ever-changing reality of clean energy is admirable, but the order’s vague and imprecise language serves as a current and quantifiable barrier to the achievement of net-zero emissions.

Executive Order 14008

The second piece of substantive law that has impacted the acquisition of clean energy technologies is Executive Order 14008. Executive Order 14008 lays out the “Federal Climate Adaptation Plans.” The call to action outlined under Executive Order 14008 prioritizes the climate crisis by putting it “at the center of United States foreign policy and national security” and “taking a government-wide approach.” Similar to Executive Order 14057, Executive Order 14008 requires federal agencies to evaluate and conduct an assessment to determine the best ways to implement “significant short-term global reductions in greenhouse gas emissions and net-zero global emissions by mid-century or before.” It further outlines the need for agencies to report their activities (along with any progress made) on an annual basis.

Yet again, however, Executive Order 14008’s instruction to agencies (and their operations and facilities) is provided without regard for the necessary means for funding such resilience. The order uses vague language that directs agencies to “identify opportunities for Federal funding to spur innovation, commercialization, and deployment of clean energy technologies and infrastructure” without providing clarification on what that means in a practical sense. Outside of requiring agencies to prevent federal funding from directly subsidizing fossil fuels, Executive Order 14008 does little to outline the legal requirements agencies must meet to prioritize the climate crisis that is the underlying basis for the order.

Even where Executive Order 14008 does include some specific legal requirements, it fails to provide adequate extension of the requirements with provision of specific actions. An example of such a problem is the “Justice40 Initiative.” The Justice40 Initiative sets a requirement for clean energy investment benefits to be broken up with “40 percent of the overall benefits flow[ing] to disadvantaged communities.” This direction certainly helps to ease the burden placed on disadvantaged and historically marginalized communities, but it provides no long-term benefits to the country’s net-zero initiatives. Instead, this Justice40 Initiative may result in the loss of funding and resources that could be poured into the prioritization of and alignment with decarbonization efforts to lower GHG emissions and achieve net-zero emissions by 2050.

Federal Acts and Statutes: 42 U.S.C. § 17143

The next piece of substantive law that has impacted the acquisition of clean energy technologies is 42 U.S.C. § 17143, which outlines GHG management and reporting requirements. Of all the substantive laws that have impacted the acquisition of clean energy technologies, this code section provides the clearest and most unambiguous requirements. The legal requirements of 42 U.S.C. § 17143 include the direction for all federal agencies to each collect and submit a report outlining the agency’s GHG compliance and implementation status, in addition to taxpayer savings due to the outlined improvements. It also clarifies the requirement for the report to be submitted electronically to the director of the Office of Management and Budget annually. While these reporting requirements are clear, the code does not provide direction as to how an agency is to accomplish GHG compliance and decarbonization implementation efforts. As a result, 42 U.S.C. § 17143 provides legal guidance without a means to actually further Net-Zero initiatives or align with decarbonization efforts.

Federal Acts and Statutes: Clean Air Act

The Clean Air Act outlines requirements for the Environmental Protection Agency (EPA) to coordinate the reduction of GHG emissions (including carbon dioxide) with state governments. An essential component of the Clean Air Act is the Prevention of Significant Deterioration (PSD) program, which focuses on pollution control.

The PSD program requires a permit to be issued setting out appropriate emission requirements prior to the construction of facilities. The PSD program requires the permit be reviewed to validate that the facility’s owner has demonstrated that emissions from the facility will not “cause, or contribute to, air pollution in excess of” the emission standards outlined under federal regulations. This language, at first glance, appears to provide clear and enforceable requirements to meet emission standards and to obtain a permit. It also seems to set standards that would deter the construction of facilities without a permit or without proper pollution controls. However, violation of preconstruction requirements, according to the language of the Clean Air Act, occurs when construction has commenced, which limits the enforcement of a violation to the day the unauthorized construction commenced. This makes the enforcement of violations more of an inconvenience than a deterrence because offenders only receive a single violation in cases where the owner commenced and completed construction of a facility in violation of permitting requirements; an owner may continue to operate the facility years later without additional penalties for ongoing violations.

The Clean Air Act provided broad and expansive authority for the EPA to regulate GHG emissions; however, the EPA’s authority still relied on environmental, human health, and climate change–related policies and legislation promulgated by the executive branch, specifically through the EPA, Department of Energy (DOE), Department of Interior (DOI), and the White House. During the Trump administration, more than 210 such policies were reversed, thereby eroding critical regulatory authority for the enforcement of the Clean Air Act. The Clean Air Act’s language, broad authority, and reliance on supporting legislation have served to prevent acquisition of clean energy technologies. The EPA’s limited authority (as outlined in the Clean Air Act) has proven insufficient to effectively coordinate the reduction of GHG emissions in the long term. The Clean Air Act further limits the scope of the EPA’s regulatory authority as it is little more than an inconvenient hurdle to be avoided by those commencing construction in direct violation of claims and promises to lower emissions and meet defined objectives in support of Net-Zero pledges.

Federal Acts and Statutes: Inflation Reduction Act

The final piece of substantive law that has impacted the acquisition of clean energy technologies is the recent Inflation Reduction Act (IRA), which outlines ways to tackle both inflation and the impending climate crisis. Many consider the IRA to be the most substantial and most likely legislation to pave a clear pathway in support of the net-zero emissions target that the Biden administration laid out for 2050. The Biden administration set an interim goal toward net-zero to reduce emissions by 50 percent before 2030 (as measured against levels in 2005). The IRA will be critical to these goals because it created an estimated 170,000 clean energy jobs within the first 12 months of its enactment. The law also has impacted clean energy manufacturing, with companies in the industry announcing more than $110 billion of such investments. The EPA, among other federal agencies, has found new and innovative approaches to embedding a culture of equity and environmental justice by providing $650 million for environmental justice projects. More than half of the EPA’s GHG Reduction Fund of $27 billion has been designated to help low-income and disadvantaged communities benefit from the IRA, with such designation in alignment with President Biden’s Justice40 Initiative. One of the key aspects of the IRA includes bonus tax credits for the construction of clean energy projects that are located in low-income communities and/or those that rely on traditional energy. The IRA invested nearly $11 billion into rural electrification, which will help to create reliable and clean energy at lower costs, making such energy more affordable.

The IRA has provided funding and investments that would seem to pave a clear pathway toward the Biden administration’s net-zero emissions target for 2050. While funding the investment of clean energy technologies, the IRA also approved drilling projects that had previously been stalled, in addition to introducing a “one-for-one leasing requirement that ensures that for every acre of federal land made available for renewables development, an acre is also made available for oil and gas drilling.” The IRA’s major downfall, however, is its reliance on substantial clean energy incentives and funding without setting any significant caps or limits on the future use of fossil fuel and emissions. The IRA also fails to provide clear guidance on a path forward for the implementation of clean energy and/or the most effective use of the funding and incentives provided. Outside of simple transitions to clean energy, such as electric vehicles or solar panel installations, full decarbonization is impossible without clear guidance on practical steps and tasks to foster achievement.

The implementation of net-zero initiatives, such as the construction of new “Green” buildings and vessels, requires innovative approaches—and many such approaches are likely still in the development phase. Construction is estimated to be responsible for 40 percent of global GHG emissions, which includes emissions resulting from building materials, processing of materials, construction processes, and day-to-day operations. There are no clear guidelines on how government agencies can take the incentives provided and utilize them to eliminate GHG emissions, which will likely result in some idleness while agencies try to determine best methods on their own. Full decarbonization within the building sector will require “new and existing buildings [to] maximize energy efficiency, generate clean energy onsite or nearby where feasible, electrify end uses as the grid decarbonizes, and eliminate emissions from building construction and materials.”

The US government will need to enforce these requirements in coordination with state and local governments since local governments control most of the design and construction of buildings (both residential and commercial) within their individual jurisdictions. Federal agencies will each have to identify internal policies to regulate the decarbonization with consideration to the carbon associated with raw materials, products, waste, processing of materials, construction, and the generation of electricity for daily operations. But again, the IRA has provided funding to support the federal government, federal agencies, and other major players within the sustainability industry in taking steps toward net-zero emissions without providing necessary regulations or guidance to allow these key actors to do so.

The substantive law promulgated to date also has failed to provide clear legal requirements to support the governments and agencies at both the federal and local levels. Stakeholders will continue to struggle with the implementation of effective decarbonization efforts in the absence of defined regulations, guidelines, standards, benchmarks, contractual expectations, and other necessary legal support. Net-zero initiatives rely on the establishment of substantive law to support the development of clean energy technologies. Once substantive law has been established with regard to clean energy technologies, delay to complete decarbonization is likely as the industry awaits the interpretation and consistent application of legal precedent before pursuing alignment with any net-zero initiatives or decarbonization efforts.

Precedent

The absence of meaningful legal precedent has substantially delayed many net-zero initiatives and decarbonization efforts because the clean energy industry awaits the interpretation and consistent application of such legal precedent. The risks associated with pursuing full decarbonization are currently greater than the risks associated with pursing net-zero initiatives or taking no action. This circular challenge returns one to net-zero pledges and the ability of companies to hide behind papered pledges, where paper itself fails to drive meaningful decarbonization and changes to atmospheric emissions. Net-zero pledges are consistently applauded for their ability to showcase an entity’s prioritization of identified barriers to decarbonization; unfortunately, many net-zero efforts merely obfuscate greenwashing.

Greenwashing is the public display of images and initiatives that reflect the prioritization of environmental care and stewardship but are not supported by actual actions or changes to positively impact the environment. While some entities may claim the fear of litigation prevents them from decisive action toward the achievement of net-zero emissions, the very absence of such litigation is the result of lacking actions (i.e., it is incumbent on industry players to take actions to create legal precedent through litigation). Litigation and resultant decisions would create established precedent against which targets and actions can be assessed. Unfortunately, the current limited legal precedent has major implications on the country’s ability to achieve full decarbonization and respond properly to climate change.

West Virginia v. Environmental Protection Agency (2022)

While there is a lack of legal precedent, some does exist. In 2022, in the case of West Virginia v. Environmental Protection Agency, the Supreme Court held that the EPA lacks the authority to (i) set certain standards under the Clean Power Plan (CPP) and (ii) enforce the regulation of those standards with respect to GHG emissions. The Court’s majority held that the EPA was able to pursue the limited regulation and reduction of emissions under the EPA’s CPP but that the EPA’s authority was found valid only with small-scale regulations that support the indirect shifting of energy generation. As a result of this decision, the EPA was practically forced to focus on emissions at individual power plants. This decision has served as a stepping stone for litigants to bring forth challenges to the actions of federal agencies across all federally regulated industries. While the court recognized the EPA’s authority to determine the necessary pollution reduction that power plants are required to achieve under the Clean Air Act, the Court’s ruling limited the EPA’s range of options and discretion to enforce regulations that support decarbonization.

Supreme Court of the Netherlands

Unlike the precedent set in the United States, courts abroad made rulings that have required entities to meet the lofty goals outlined in pledges in an effort to further mitigate greenwashing and its effects. For example, in 2019, the Supreme Court of the Netherlands found against the Dutch government for its failure to fulfill its duties to increase the rate of decarbonization. In 2021, the Supreme Court of the Netherlands held that Shell Oil’s climate plans violated standards of care and human rights; the court ordered Shell Oil to expedite the reduction of its emissions in alignment with its alleged net-zero objectives.

These different legal frameworks have major implications on net-zero emissions. The difference between the effectiveness of a comprehensive plan of decarbonization through net-zero pledges and a greenwashed commitment to do better depends on the judicial environment in which entities find themselves. The issue with current legal precedent is the lack of support and accountability that domestic courts have provided for net-zero initiatives to take decisive action to halt climate change. The absence of legal precedent is a current and quantifiable barrier to the achievement of net-zero emissionsas domestic courts are loathe to enforce an individual’s or entity’s failure to align with the decarbonization efforts outlined in their self-proclaimed net-zero pledges or agreements.

Funding

Congressional Legislation’s Ability to Impact Funding

Currently, banks and investors play an elusive role in the accomplishment of net-zero objectives. Absent congressional legislation, banks and investors have traditionally followed historical norms and risk aversion as they continue to finance fossil fuel companies and stakeholders within the utility sector. This support of fossil fuel companies has hindered, and will continue to hinder, the nation’s progress toward net-zero emissions. In order to address this obstacle, Congress needs to recognize the role financiers play in the net-zero push and create legislation to support banks’ and investors’ divestiture from companies that contribute to the nation’s high rate of carbon emissions. While unprecedented, if Congress was to place limits on such funding, it would serve to hinder the viability of projects that rely on fossil fuels while mitigating the risks associated with financing net-zero objectives and projects.

Legislation to curtail the financing of fossil fuel companies would likely struggle to find congressional support and approval, and even in the event such legislation was passed, it would likely result in swift and aggressive challenges through the judicial system. Fossil fuel companies have consistently fought against legislation seeking to harm their industry and many major fossil fuel companies have substantial financial resources that allow them to fund litigation. As a result, any legislation of the type imagined here would need to be meticulous to prevent being overturned by the judicial system.

Congressional Incentives

Congress has the authority to make substantial progress toward net-zero initiatives through the use of financial and other incentives for federal, state, and local governments. The use of incentives will help to expedite the promulgation of updated building codes, net-zero emission standards, regulations, guidelines, benchmarks, contractual expectations, and other appropriate legal support necessary for a stable and sustainable clean energy infrastructure. If Congress was to provide financial incentives for the adoption of such standards, it would advance the net-zero industry significantly. Such financial incentives would allow for designers, architects, and builders to incorporate federal, state, and local net-zero guidance in the construction of all future projects to allow all new residential and commercial buildings to reach net-zero emissions by 2030.

Congress needs to set clear benchmarking requirements for all new and existing commercial buildings while encouraging and providing incentives to state and local governments for adopting performance-based standards. These standards must support a major energy overhaul to prioritize “efficiency improvements, onsite renewable energy generation, and electrification of end uses in buildings,” including heating, cooling, large-scale weatherization, and efficiency in low-income and frontline communities. It also must require “federal buildings to undergo deep energy retrofits, perform energy and emissions benchmarking, and meet ambitious energy use and emissions intensity targets.” Congress also should provide incentives to support the reduction of building construction by reusing buildings and requiring the use of lower-emission materials for federally owned buildings. The use of congressional incentives would align with federal decarbonization efforts, which would lower a barrier for entities seeking GHG emissions compliance with net-zero pledges and initiatives. The current lack of congressional incentives to motivate federal, state, and local governments to adopt the necessary regulations for net-zero projects is a quantifiable barrier to the funding and achievement of net-zero emissions.

Congressional Budget

The congressional budget should prioritize the innovation of clean energy technologies. Subject matter experts across the clean energy industry agree that the achievement of full decarbonization of the nation’s economy will depend on the development and use of new technologies that have yet to be invented. Congress will need to provide substantial funding for the research and development of clean energy technologies, in addition to funding that will expedite the demonstration and eventual deployment of these technologies. Congress should also earmark funding within the DOE to prioritize the climate and facilitate the necessary partnerships to drive innovation and deployment of clean energy technologies. The innovation and invention of new technologies in the near future will minimize the long-term financial investment required to meet net-zero objectives, as they increase the efficiency and effectiveness to streamline new and innovative processes for decreasing GHG emissions. This funding also will allow industry stakeholders to better understand clean energy technologies, resulting in the promulgation of clear and specific guidance to maximize the effectiveness of the technology’s deployment.

Congressional funding in the form of “revolving loan funds, grants, and tax incentives for efficiency upgrades, process changes, and retooling” will help to develop the necessary infrastructure for essential decarbonization technologies. Technologies expected to transform the industry can be deployed once the infrastructure is in place, including “low- and zero-carbon hydrogen.” If Congress was to create markets to support the deployment and use low-emission products through, for example, a “Buy Clean” program, Congress could enhance the ability to support the research and development of additional clean energy technologies. This would positively impact net-zero technologies while ensuring alignment with decarbonization efforts.

Tax Benefits

The most detrimental and elusive barrier to innovation and deployment of clean energy technologies is the current tax code. The current tax code provides incentives and benefits that support the sustainment of “oil, coal, and other incumbent energy technologies” at the expense of clean energy technologies. Congress has provided benefits to major oil and gas companies in the form of tax breaks, which has made the introduction and sustainment of clean technologies more difficult. Congress must repeal the current tax breaks and set a price on carbon to address the market’s failure to respond to the costs associated with the unmitigated pollution while creating a fairer tax code. Such changes to the tax code will remove the benefits received by major GHG emitters while creating a more even playing field with innovators of clean energy and net-zero-driven technologies. Such changes also will likely result in immediate benefits for those prioritizing nt-zero initiatives and projects that support full decarbonization efforts.

Risk

Prosecution for Antitrust Violations

The Net-Zero Insurance Alliance (NZIA) is comprised of insurance industry members that have agreed to achieve netzZero GHG emissions within their underwriting portfolios (for insurance and reinsurance) prior to 2050. NZIA is well known for the establishment of the first-ever set of standards outlining the most effective way to measure and disclose insured GHG emissions and protocols for setting net-zero targets for insurers. The NZIA has recognized the critical role that insurance companies play in sustaining traditional energy markets, especially since the top 10 insurers in the oil and gas insurance market make up more than 70 percent of the total coverage provided. Only a few insurance firms have the requisite knowledge and capabilities to provide insurance coverage to any major fossil fuel projects.

NZIA members recognize the role they play in preventing decarbonization. but even still, few are willing to place strict limits to prevent underwriting for fossil fuel projects out of fear of a potential antitrust violation. Antitrust laws prohibit arrangements between competitors in an effort to fix prices, divide markets, or rig bids. These acts are considered “per se” violations, which prevent a violator from claiming a defense or justification for their actions. The NZIA formally considered the adoption of a requirement for members to avoid underwriting coal insurance but ultimately scrapped the proposition. Well known for the creation of its Target Setting Protocol, the NZIA, in response to antitrust concerns, also carefully cautioned that the protocol was only intended to provide “general measures and best practices on how to set and pursue individual targets” rather than setting any sort of requirement for members to support, accept, or even concur with the measures outlined.

While each member of the NZIA will continue to work toward the achievement of their individual net-zero pledges by 2050, each company will have to perform individual work to determine the most effective ways for it to fulfill the net-zero commitments. NZIA representatives have been coordinating with the European Union to identify ways to lessen concerns over antitrust laws and to create avenues for collaboration without the risk of violating antitrust laws. To date, the NZIA’s fear of antitrust violations has created an obstacle for significant progress toward net-zero commitments and has slowed their alignment with efforts to support full decarbonization.

Clean Energy and Net-Zero Rating Systems

Sustainable or “green building” construction concerned the development of buildings with careful consideration given to the overall efficiency of the structure. “Green building” considers the use of natural resources, waste, energy, water, airborne particulates, greenhouse gases, materials, and the prioritization of human health and the environment. “Green building” efforts also seek to reduce the impact of buildings through better “siting, design, construction, operation, maintenance and removal.” There are numerous rating systems designed to support clean energy and net-zero initiatives, but the effectiveness of these rating systems varies widely.

Clean Energy and Net-Zero Rating Systems: ENERGY STAR

The DOE has worked alongside the EPA to develop and maintain ENERGY STAR designations for products that meet a certain set of strict criteria for performance based on overall energy efficiency. The EPA’s Office of Inspector General found some non–ENERGY STAR products performed comparably or better than ENERGY STAR products during an independent review and comparison of ENERGY STAR certified products. After its inception, the federal government’s ENERGY STAR program grew to encompass the certification of homes and apartments in 1995. The major issue noted with the ENERGY STAR Home Certification program is the scope of certification. Currently, ENERGY STAR’s limited scope only considers the energy efficiency of the building’s structure and its heating and cooling systems. Recent data have shown that other factors not considered during the ENERGY STAR home certification process also impact the success of “green buildings,” including a home’s location, size, lot size, and carbon produced from “building materials and construction practices.” ENERGY STAR’s failure to consider these critical components of a “green building” calls into question the accuracy and legitimacy of the rating system.

Clean Energy and Net-Zero Rating Systems: National Fenestration Rating Council

The National Fenestration Rating Council (NFRC) is a nonprofit organization comprised of window, door, and skylight industry manufacturers, suppliers, code officials, researchers, and other stakeholders. The NFRC has developed a fenestration rating system that independently evaluates and certifies products based not just on energy efficiency, but also on energy performance. National standards and programs for window energy efficiency are based on these certified NFRC ratings, including local, state, and federal “building energy codes, tax credits, utility incentives, and ENERGY STAR” certifications. This NFRC performance-based rating system allows one to “compare between energy-efficient products by breaking down a product’s energy performance”; however, the system has a limited impact on clean energy and net-zero buildings due to the certification only covering windows, doors, and skylights.

Clean Energy and Net-Zero Rating Systems: Leadership in Energy and Environmental Design

Leadership in Energy and Environmental Design (LEED) is the most prominent private-sector organization known for development and promulgation of voluntary standards that promote “green building” practices. LEED is a tiered system with four levels: Certified, Silver, Gold, and Platinum. LEED certification gives buildings credit based on site selection, water efficiency, energy and atmosphere, materials, resources, indoor environmental quality, regional priority, and innovation in design. LEED standards exceed typical building codes and require certification by an independent third-party expert. LEED standards place significant weight on the use of local and renewable construction materials, which are preferred for “green building” due to the benefits of avoiding high transportation costs from shipping materials across long distances. LEED certification also considers house size, efficiency of residential water use, proximity to transportation, and location with respect to nearby cities and businesses when making determinations. Most notably, a complement to LEED certification known as LEED Zero was recently developed to verify the accomplishment of net-zero objectives—including net-zero carbon emissions, energy use, water use, and waste—in existing buildings. LEED Zero is the first and only rating system with a proven track record for accurately assessing a net-zero building’s success.

Clean Energy and Net-Zero Rating Systems: National Green Building Standards

Similar to LEED, National Green Building Standards (NGBS) are voluntary standards followed by homebuilders that exceed typical local and state building codes while requiring certification by an independent third-party expert. Like LEED, NGBS standards also place significant weight on the use of local and renewable construction materials, which is preferred for “green building” due to the benefits from avoiding high transportation costs due to shipping materials across long distances. NGBS certification also considers efficiency of residential water use, proximity to transportation, and location with respect to nearby cities and businesses when making determinations. NGBS does not, however, consider house size as a criterion for certification. NGBS is unique due to its approval and receipt of accreditation from the American National Standards Institute (ANSI).

Clean Energy and Net-Zero Rating Systems: Additional Rating Systems

As the nation seeks to streamline clean energy and net-zero initiatives, it will be necessary to conduct a thorough review of the various rating systems, which, in addition to those mentioned above, include Passive House Institute, Sustainable Sites Initiative, WELL Building Standard, Building Research Establishment Environmental Assessment Methodology, Green Star, Fitwel, and Green Globes. Other than Green Globes, few of these rating systems have received an ANSI-approved rating system for “green buildings.” These rating systems all identify various means and methods to address “green building” criteria to include site selection, emissions, materials, building size, lot size, residential water use, and diverse certification processes, making any sort of standardization across the “green building” industry seem unlikely soon. These rating systems also show that the construction industry is striving to meet clean energy objectives, yet significant progress with respect to net-zero objectives remains elusive.

Lack of Contractually Enforceable Standards for Sustainability

A Lexis Nexis search performed by the author revealed only two federal and 17 state court cases that mention “green building standards.” Both of the federal cases that reference “green building standards” were circuit court cases, and all 17 of the state court cases at various levels were based in California. The few courts that have addressed these issues often find the litigation is brought against builders for failure to meet “green building” standards.

In June 2023, the US Green Building Council, Inc., released a statement that only approximately 150 LEED Zero certifications were issued, which certifications are used to verify emissions from buildings have achieved their defined net-zero goals for energy use, carbon emissions, water use, and waste. Of the 150 LEED Zero certifications, at least 60 were issued to companies located outside of the United States. The relatively small number of total LEED Zero certifications is not surprising considering the absence of a single search result or court case on Lexis Nexis for “LEED Zero certifications.” Without any legal precedent for “LEED Zero certifications” and nominal cases on “green building standards,” many companies have been hesitant to take any decisive action toward these initiatives.

Investors and owners will usually complete an in-depth review of all factors that could put a project at risk before making any final business decisions. Within the realm of net-zero pledges, the lack of legal precedent poses major risk because there is substantial uncertainty regarding what, if any, remedy a party may be entitled to for breach of a clean energy contract obligation, especially where no contractually enforceable standards for sustainability exist. Companies making decisions without legal precedent to guide them run the risk of being on the wrong side of the contractual interpretation. Companies have opted to rely on vague language with unclear and ambiguous standards, instead of relying on tangible standards like earning a “LEED Zero certification.” Vague language has mitigated the risk of a company being liable for failure to meet net-zero pledges while also serving as a significant hurdle to progress toward net-zero initiatives and alignment with full decarbonization efforts.

Conclusion

Current substantive law (Executive Order 14057, Executive Order 14008, and 42 U.S.C. § 17143) fails to provide legal requirements that would allow the US government and other major players within the sustainability industry to develop and rely on defined regulations, guidelines, standards, benchmarks, contractual expectations, “green building” rating systems, and other appropriate legal support to facilitate the implementation of effective decarbonization efforts. As a result, net-zero pledges have failed to result in sufficient progress toward the pledge to reach net-zero by 2050. Emphasis should be placed on the prioritization of decarbonization efforts, with a withdrawal from the generally accepted societal approach of unenforceable and unsuccessful net-zero pledges. The clear and unambiguous definition of critical substantive law is required to mitigate the risk associated with the lack of or limited precedent within the area of decarbonization and sustainability efforts, in addition to streamlining funding measures to ensure the congressional budget and tax codes are in alignment with the government’s net-zero initiatives in a meaningful way. This approach will simultaneously address the current apprehension that has resulted from fear of prosecution for antitrust violations and the lack of contractually enforceable standards for sustainability.