December 20, 2023

California Mandates Greenhouse Gas Emissions Disclosures Beginning Jan. 1, 2024

What Companies Need to Know About the Broad Reach of AB 1305
Holland & Knight Alert
Emily Martinez Lieban | Brian C. Bunger | Andy Kriha

Highlights

  • California Gov. Gavin Newsom on Oct. 7, 2023, signed Assembly Bill 1305, the Voluntary Carbon Market Disclosures Act (AB 1305), which creates new disclosure obligations for businesses and organizations participating in carbon offset markets.
  • Disclosure obligations apply to businesses operating in or "making claims" in California, as well as businesses selling or marketing voluntary carbon offsets in California.
  • Though the bill's author apparently intended the requirements to come into effect Jan. 1, 2025, in the absence of legislative action, the law and its requirements become effective Jan. 1, 2024.

Assembly Bill 1305 (AB 1305), also called the Voluntary Market Disclosures Act, is a new California statute requiring companies to make certain disclosures if they make claims in the state regarding greenhouse gas (GHG) emissions or they market, sell, purchase or use voluntary carbon offsets to make certain disclosures. It was signed by Gov. Gavin Newsom on Oct. 7, 2023. The statute is far-reaching, and it is raising significant legal questions.

If a Company Isn't Headquartered or Registered in California, Is AB 1305 Still an Issue?

Yes. Similar to California's recently enacted Climate Corporate Data Accountability Act and Climate Related Financial Risk Act (see Holland & Knight's previous alert, "Greenhouse Gas Guessing Game: California's Latest Climate Disclosure Legislation," Sept. 28, 2023), AB 1305 sweeps in businesses outside of the state. In particular, AB 1305 applies to businesses operating in the state or "making claims" in the state. To the extent a company is making claims that are viewable in the state of California (e.g., makes a claim on a website), AB 1305 could arguably apply.

When Does AB 1305 Become Effective?

Disclosure is required by Jan. 1, 2024. The bill's author recently expressed his intent that the statute not take effect until Jan. 1, 2025. However, the California Constitution provides that statutes enacted before the close of the first year of a biennial session become effective the next year – i.e., Jan. 1, 2024. Given the potential penalties, adverse press and the statute's enforceability by a wide range of public attorneys, businesses that do not comply by Jan. 1, 2024, are at risk.

How Can Companies Comply?

Compliance under AB 1305 is fact-specific. However, the following measures have general applicability. The statute applies to businesses that either 1) operate within California or 2) make claims within the state. The statute's disclosure requirements are triggered by:

  • claims of "net zero" emissions
  • claims of "carbon neutrality," or
  • other claims "implying" that the business or a product is carbon-neutral or "has made significant reduction to its" GHG emissions

A covered business must disclose "all information" documenting how that claim was determined and how interim progress to the overall goal is being measured, including the science-based targets for emission reductions and methodology for assessing emissions and emission reductions. The business must also disclose whether these claims have been verified by a third party.

If a business also purchases or uses voluntary carbon offsets and makes the above claims, that business must disclose:

a. the name of the business entity selling the offset and the offset registry or program

b. the project identification number, if applicable

c. the project name as listed in the registry or program, if applicable

d. the offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission or a combination of both, along with the site location

e. the specific protocol used to estimate emissions reductions or removal benefits

f. whether there is independent third-party verification of company data and claims listed

A "voluntary carbon offset" means any product sold or marketed in California that claims to be a "greenhouse gas emissions offset," "voluntary emissions reduction," "retail offset" or similar claim that "connotes" that the product represents a GHG reduction. Legal or regulatory mandates, such as offsets necessary to comply with California's Cap-and-Trade regulation, are excluded.

AB 1305 requires the entities marketing or selling voluntary carbon offsets to make detailed disclosures that covered companies may use in preparing their own disclosures.

What Happens if a Company Fails to Comply?

Violations of AB 1305 are subject to a civil penalty of not more than $2,500 per day for each day that information is either not available or inaccurate on the company's website and limited to a maximum of $500,000. AB 1305 can be enforced not only by the California attorney general, but also by district attorneys, county counsel and city attorneys.

What's Next?

Businesses purchasing or using offsets should reach out to their providers to collect the relevant information for disclosures. Potentially covered businesses should also carefully review their corporate sustainability claims for statements regarding carbon neutrality or significant GHG reductions in the business or its products.

The Holland & Knight Greenwashing Mitigation Team can assist in identifying statements likely to fall within the purview of AB 1305 and compiling sufficient information for disclosures.

Download the Holland & Knight presentation on the new Greenhouse Gas Emission Disclosures.

Holland & Knight attorneys Amy L. Edwards, Deborah Brundy, Susan G. Lafferty and Alexander S. Holtan also contributed to this alert.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.


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