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Article
Avoid penalties and other damage by complying with California climate laws
June 20, 2024 · Updated Dec. 4, 2024 · Authored by Madison Poitras
California Governor Gavin Newsom signed Senate bill 219 (SB-219) Greenhouse Gases: Climate Corporate Accountability: Climate-Related Financial Risk, into law on Sept. 27, 2024. This law amends California climate bills passed in October 2023. See article below for a summary of the original bills.
SB-219 upholds the 2026 effective date for reporting greenhouse gas (GHG) emissions and climate risks — rejecting a previously proposed two-year delay — and includes the following amendments:
Delays the deadline for California Air Resources Board (CARB) to adopt regulations for reporting of GHG emissions from Jan. 1, 2025, to July 1, 2025.
Allows GHG emissions reporting at the consolidated parent company level. Under SB-219, a subsidiary of a parent company that qualifies as a reporting entity is not required to prepare separate disclosures if it is included in the emissions report of the parent entity.
Allows CARB to establish the reporting timeline for Scope three emission disclosures any time in 2027, rather than requiring it to be submitted within 180 days following the public disclosure of Scopes one and two.
California assembly bill 2331 (AB-2331), Voluntary Carbon Market Disclosures, first introduced in March 2024 and amended in August 2024, includes the following proposed amendments:
First annual disclosures would be required by July 1, 2025, a six-month delay from the initial Jan. 1, 2025, date
Proposal to exclude Renewable Energy Certificates (REC) has been retracted
Summary of the original bills
California passed two senate bills and an assembly bill requiring public and private organizations with California operations to report GHG emissions, climate-related financial risks, voluntary carbon offsets (VCO), and other climate-related emission claims.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
SB-253 — Climate Corporate Data Accountability Act
AB-1305 — California Voluntary Carbon Market Disclosures Act
Companies doing business in California should have accurate, up-to-date data on their GHG emissions and climate-related financial risks to avoid potential penalties and reputational damage.
See the below tables to understand what these bills, enacted in October 2023, mean and the potential impacts to your organization.
SB 253 — climate corporate data accountability act
The Climate Corporate Data Accountability Act, or SB-253, aims to increase transparency and accountability regarding GHG emissions from large corporations.
Key details of SB-253
Revenue threshold
All organizations exceeding $1 billion in annual revenue with operations in California.
The Senate bill does not define doing business in California but it’s likely to be defined similar to the California tax law with further clarification in the near term.
Required reporting and disclosures
Scope 1, Scope 2, and Scope three GHG emissions
Scope one emissions. Direct greenhouse gas emissions that stem from sources that a reporting entity owns or directly controls.
Scope two emissions. Indirect greenhouse gas emissions from consumed electricity, steam, heating, or cooling purchased or acquired by a reporting entity.
Scope three emissions. Indirect upstream and downstream greenhouse gas emissions, other than those emissions reported in Scope two.
Timing requirements
Scope one and Scope two GHG emissions must be disclosed starting in 2026 for the prior fiscal year.
CARB to establish the reporting timeline for Scope three emission disclosures
Frequency
Annual
Frameworks utilized
All emissions must be reported in line with the GHG Protocol — the most widely used greenhouse gas accounting and reporting standards.
Location of reporting deliverables
Entities will have to submit their emissions information to an emissions reporting organization that will be designated by the CARB.
The organization will develop a publicly accessible digital platform for the emissions data.
Assurance requirements
Limited assurance is required for Scope one and Scope two emissions starting in 2026.
Reasonable assurance is required for Scope one and Scope two emissions starting in 2030.
On or before Jan. 1, 2027, the state board may establish an assurance requirement for third-party assurance engagements of Scope three emissions. The assurance engagement for Scope three emissions shall be performed at a limited assurance level beginning in 2030.
Penalty for noncompliance
Non-filing, late filing, or other failure to meet requirements will result in a penalty fee, limited to $500,000 per year.
SB-261 climate-related financial risk act
SB-261 is a bill that would require certain organizations to prepare and disclose a report on their climate-related financial risks and the measures they've adopted to reduce and adapt to these risks.
Key details of SB-261
Revenue threshold
All organizations exceeding $500 million in annual revenue with operations in California
The Senate bill does not explicitly define doing business in California but it’s likely to be defined similar to the California tax law with further clarification in the near term.
Required reporting and disclosures
This bill would require an applicable entity to prepare a climate-related financial risk report disclosing the entity’s climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk in accordance with the 2017 Final Report of Recommendations TCFD Framework guidance.
Timing requirements
Starting on or before Jan. 1, 2026
Frequency
Biennial
Frameworks utilized
Task Force on Climate-related Financial Disclosures (TCFD)
Location of reporting deliverables
Company website
Assurance requirements
No assurance requirements
Penalty for noncompliance
Failure to make report publicly available or publishing an inadequate or insufficient report will result in a penalty fee limited to $50,000 per year.
AB-1305 voluntary carbon market disclosures act
AB-1305 mandates businesses selling, marketing, and purchasing VCOs in California to disclose specific information about the related carbon offset project and any accountability measures on their website. This includes details about the carbon offset project's protocol, location, timeline, type, and annual reduction or removal amounts.
Key details of AB-1305
Revenue threshold
No revenue threshold for AB-1305
Definition of VCO
The act defines a VCO as any product sold or marketed in the state that claims to be a GHG emissions offset, voluntary emissions reduction, retail offset, or any like term, that connotes that the product represents or corresponds to a reduction in the amount of GHG present in the atmosphere or prevents the emission of GHG into the atmosphere.
Required reporting and disclosures
Market or Sell VCOs. For entities that market or sell VCOs in California the required disclosures include information on the specifics of the carbon offset project such as protocol used in emission estimation, location of offset project set, project timeline, project type and other factors.
Purchase or Use VCOs. For entities that purchase or use VCOs in California and make climate-related emissions claims related to achievement of net zero emissions or similar claims, are required to disclose information on the carbon offset such as the name of the entity selling the offset, offset project type, specific protocol used in emission estimation, independent third-party verification and other factors.
Make emission claims. Entities that operate in California and make California climate-related emissions claims related to the achievement of zero emissions or similar claims, are required to disclose how claims such as carbon neutral or net zero emissions are determined to be accurate, actually accomplished, or in progress.
Effective dates and timing requirements
AB-1305 disclosures are due on company websites by Jan. 1, 2025. The compliance deadline isn’t explicit in the bill; the deadline is based on the letter from the bill’s sponsor, Assembly Member Jesse Gabriel.
Frequency
At least annually
Location of reporting deliverables
Company website
Assurance requirements
No explicit assurance requirements but disclosures are required about whether there is independent-party verification of company data and claims listed
Penalty for noncompliance
Each violation is subject to civil penalties of no greater than $2,500 per violation per day, not to exceed a total of $500,000.
