Five Reasons Why California Needs to Reconsider its Mandated Disclosure Policy

By: Tyler Hengen, AISI Director of Sustainability

The American steel industry is the backbone of the U.S. economy and produces the world’s cleanest steel. Of the major steel producing countries, the United States has the lowest carbon dioxide emissions per ton of steel produced and the lowest energy intensity. Chinese steel production, by contrast, creates carbon emissions that are twice as high as American steel emissions.

Despite this fact, the California Air Resources Board (CARB) is moving forward with implementation of a program that unduly burdens American-based manufacturers, including the steel industry, with greenhouse gas emissions (GHG) and climate-related financial risk disclosure requirements that do not apply to their foreign competitors.

Background:

In 2023, the California legislature passed two sister bills, Senate Bills 253 and 261 that together mandated CARB to develop a program requiring large U.S.-based companies “doing business in California” to regularly disclose their GHG emissions and climate-related financial risk information. While other issues exist with these programs, their explicit exclusion of foreign manufacturers from the bills is the largest problem as it guarantees that American manufacturers will be unfairly burdened compared to foreign competitors and that the data obtained from this program will be inaccurate and incomplete. The result is a lose-lose proposition – added regulatory burdens for American companies and junk data for Californians.

On February 26, CARB will hold a formal public hearing – the first step in the process of implementing these bills. Unfortunately, the California legislature has set up CARB to fail by passing a well-intended but fatally flawed program.

Here are five reasons why California needs to reconsider its mandated disclosure policy:

1. The Disclosure Burdens Inequitably Harm the Domestic Industry

The American steel industry has long demonstrated a commitment to producing the world’s cleanest steel and has thoroughly disclosed information regarding their operations. Even still, these domestic manufacturers face the risk of additional burdens, unclear regulations, and potential forcing of disclosure of confidential business information, all while their foreign competitors are allowed to evade most of these disclosure obligations.

2. Excluding Foreign Manufacturers Paints an Incomplete Picture

Per CARB, the goals of this program are to improve transparency, inform consumer and investor decisions and drive “bold action through sound climate policy” in support the state’s climate neutrality goals. The simple fact of the matter is that the program, as currently proposed, will not meet these stated goals because it will not account for foreign-made products making their way into the California market. The state cannot claim that transparency is improved or climate neutrality goals are being met simply by pretending foreign-made goods do not exist.

3. The Proposed Regulations Provide an Easy Avenue for Disclosure Evasion

The proposed regulations rewards foreign manufacturers who evade disclosure. A foreign manufacturer could sell a nearly endless amount of dirty, foreign-made steel into California through third-party vendors. If those vendors did not meet the criteria for disclosure, the foreign manufacturer would have no obligation to disclose any data. American manufacturers would instead face mandatory disclosure. There would be no requirement for GHG emissions or climate risks associated with the foreign-made product to be disclosed. Under this scheme, “greenwashing” by foreign manufacturers is baked into the regulations.

4. CARB’s Proposal Incentivizes the Use of Foreign-Made Goods

Businesses respond to incentives, and this disclosure program incentivizes the use of foreign-made goods. For example, if a California builder uses American-made steel, it does so with an accurate accounting of the GHG emissions and climate risk associated with its products. But if that same California builder uses foreign-made steel bought through a vendor, it has no obligation to disclose GHG emissions or climate risk. Under this example, the builder would be foolish to use American steel when they could “magically” reduce the GHG emissions and climate risks associated with their project just by using foreign-made steel.

California businesses will respond to the state’s incentives and buy the “cleaner” foreign steel, even though back in the real world, American steel is the world’s cleanest. Federal projects must comply with “Buy America” requirements for steel products. California’s proposal could lead to an unintended “Buy Anyone But America” requirement.

5. Without Equivalent Data, California’s Goals Cannot be Achieved

Without requiring equivalent data from all large corporations selling into the California market, this data cannot inform or support the state’s goal of carbon neutrality by 2045.

California cannot use the data obtained through this program to measure progress towards its climate neutrality goals. If the state’s benchmark is based only upon information from domestic manufacturing, the benchmark will be artificially low and the corresponding trends will be wholly unrepresentative of the true GHG emissions and climate-related financial risk associated with companies “doing business in California.”

California must do better. Inequitably burdening American manufacturers only hurts American industry and gives foreign competitors a free pass. The American steel industry is proud of their sustainability efforts and continues to openly disclose the impacts of their operations. To not mandate the same of foreign competitors is simply wrong and will only lead to increased use of foreign-made goods, rampant greenwashing and a completely ineffective program. It is up to CARB, and if necessary, state legislators to fix this program. American manufacturers are counting on them to do so.