California is pioneering a new era of mandatory (and groundbreaking) climate-related accountability laws for organizations operating within its borders. On October 7th, 2023, Governor Newsom signed three crucial pieces of legislation: SB 253 and SB 261, which together make up The Climate Accountability Package, and Assembly Bill No. 1305 (“AB 1305”) the Voluntary Carbon Market Disclosures Act (VCMDA).
AB 1305 in particular has been receiving a lot of attention from media and businesses, but there remains a lot of ambiguity around the bill. The bill is only about two and a half pages long, leaving many questions up for interpretation. Unlike SB 253 and SB 261, the law stands alone, meaning there is no regulatory body that will be developing further regulations or rules under the law to make clarifications. As a result, clarity on the law will emerge through case-by-case or lawsuit-by-lawsuit deliberation, potentially leaving some in a temporary state of uncertainty.
In this blog we break down the most critical aspects of AB 1305 to help you be compliant with the new legislation.
A Tool for Accountability
AB 1305 brings much-needed accountability requirements related to voluntary carbon market offsets, as well as organizations that make climate-related claims. At its core, AB 1305 is a consumer protection law–a tool for those seeking to make well-informed decisions in the voluntary carbon market. Organizations around the world are actively seeking trustworthy reduction and removal services in an increasingly highly scrutinized environment.
Poor quality in the voluntary carbon market has left organizations exposed to legal, reputational, and financial risks, as well as accusations of greenwashing, like those Delta Airlines is currently facing over its carbon neutrality claims. A transparency mechanism like AB 1305 comes at a crucial time. Due to quality concerns in the voluntary carbon market, there has been hesitation from buyers to act. This is problematic because private capital investment is needed to both scale emerging decarbonization technologies and deliver capital to communities that are on the front lines of the climate crisis. This risk avoidance is preventing market growth and transformation, but California is taking bold steps to change this narrative and set new standards for climate action.
Summary of AB 1305
There are four components to the law:
- 44475: Disclosure requirements for organizations marketing or selling voluntary carbon offsets within the state of California.
- 44475.1: Disclosure requirements for organizations that purchase voluntary carbon offsets and use them to make climate objective-related claims, such as “carbon neutral” or “net zero”.
- 44475.2: Disclosure requirements for organizations that are making climate objective-related claims with or without the use of voluntary market credits..
- 44475.3: Description of violation penalties.
AB 1305 has no annual revenue threshold for compliance and applies to both public and private organizations operating in California. This means, if you have operations in California and make climate-related claims, or market, sell, or purchase voluntary carbon market credits, this disclosure law may impact you.
Organizations subject to AB 1305 will be required to disclose certain information publicly on their website every year, but what is being disclosed will vary from business to business:
- For marketers or sellers of carbon offsets: Disclosure will require the project details such as: the specific protocol used to estimated emissions reductions or removals; project location; project timeline; project start date; dates and quantities when a specified quantity of emissions reductions or removals started or will start, or was modified or reversed; project type; whether the project meets any standards established by law or a nonprofit entity; project durability; whether there is independent third-party validation or verification; annual emission reductions or removals; and accountability measures for reversals or emission reductions that do not materialize.
- For organizations using carbon offsets to make climate-related claims: Disclosure will require: the name of the business entity selling the offset and the offset registry or program; project identification number, if applicable; project name as listed in the registry or program, if applicable; offset project type; protocol used to estimate emissions reductions or removal benefits; and whether there is independent third-party verification of company data and claims.
- For organizations making climate-related claims with or without offsets: Disclosure will require: all documentation of how the claim was determined to be accurate or accomplished and how interim progress toward that goal is being measured, This may include, but not be limited to, sharing independent third-party verification of the organization’s greenhouse gas emissions inventory, climate target planning and methodology, and whether there is third-party verification of company data and listed claims.
AB1305 took many by surprise with how quickly it went into effect on January 1, 2024, however, there has been no clear guidance on when the first disclosures are required to be publicly posted. Further muddying the water, the sponsor of the bill, Assemblymember Jesse Gabriel, wrote a letter to the Chief Clerk of the Assembly to clarify that it was his “intent that the first annual disclosure be posted by January 1st, 2025.” Presumably, this postponement of the effective date was proposed in order to provide sufficient time for organizations to align their business practices with the bill’s requirements.
Because of this uncertainty, we recommend considering posting your disclosures as soon as possible. Don’t wait until the last minute because gathering the appropriate data and supporting documentation to substantiate claims or carbon credits could take a significant amount of time, especially if you don’t have the right tools or if there are many stakeholders that need to be engaged.
Non-compliance with AB 1305 includes potential civil penalties of up to $2,500 per day with a maximum penalty of $500,000. The law is enforceable by the state attorney general and the district attorney of each county (or the county counsel or city attorney) via civil action. Therefore, in order to safeguard against allegations of inaccurate or incomplete website disclosures, it will be important to update your disclosure regularly throughout the year, such as whenever your carbon credit procurement or climate-related claims strategies change.
Fighting climate change requires high quality, high impact solutions. Climate Vault welcomes credibility mandates like AB 1305 that strive for enhancing transparency and accountability. These mechanisms accelerate capital flow to, and elevate, the highest quality and impactful solutions that are critical to achieving a low carbon economy.
Climate Vault is committed to providing you with climate solutions that won’t keep you up at night. By leveraging the Compliance Carbon Markets to credibly and verifiably reduce + remove CO2 emissions, rather than the broken voluntary carbon market, you can confidently manage your climate action strategy. Get in touch with our team to learn how we can help you take credible climate action today.