Mandatory GhG Emission Reporting for Business: Advancing CA Law Even Broader than SEC Proposal

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A California bill requiring large U.S. companies doing business in California to publicly report all of their worldwide greenhouse gas (GhG) emissions moved one step closer to Governor Newsom's desk. If the bill becomes law, it will apply more broadly than the SEC’s proposed GhG reporting rule, covered in our last Client Alert.

SB 260 (Weiner) is the first law proposed in the nation that would require businesses over a specified threshold to have to publicly report all GhG emissions "attributable to the business, including direct emissions, electricity use, and indirect emissions from the business' supply chain and other sources."  The technical terms for those three categories of emissions are Scope 1, Scope 2 and Scope 3 emissions, respectively. The most controversial and speculative, according to critics, are the Scope 3 emissions. To illustrate the difficulty in identifying and quantifying Scope 3 emissions, take Microsoft, for example.  Microsoft is committed to being "carbon negative" by 2030. One of their greatest challenges in hitting that goal is emissions attributable to the power sources for customers at home playing on Microsoft's Xbox.  In many parts of the country, those using an Xbox still get their electricity from coal-fired power plants. Those coal-based generation emissions for Xbox use go onto Microsoft's Scope 3 inventory.

The breadth of the reporting obligation, even broader than that being proposed by the SEC in terms of companies that must comply, is garnering broad opposition. Trade associations from nearly all sectors of the economy have expressed concern, from the Silicon Valley Leadership Group to the American Bankers Association. Senator Scott Weiner, the primary author of SB 260, says critics of his bill fail to appreciate the seriousness of climate change, and the bill, he says, "will increase corporate transparency and accountability, put an end to corporate green-washing, and help us fight climate change."

To comply with SB 260 as presently drafted, any U.S. company with revenues over $1 billion doing business in California would have to report all emissions worldwide to the California Secretary of State beginning in 2025 in accordance with regulations to be adopted by the California Air Resources Board (CARB) no later than January 1, 2024. Repeated or intentional violations of the CARB regulations would be subject to a $1,000,000 penalty per violation.

SB 260 has been considered and passed by the Assembly Committee on Natural Resources and the Assembly Committee on Judiciary, which re-referred the bill to the Committee on Appropriations. If SB 260 passes out of Appropriations it must then be voted on by the full Assembly and concurred in by the Senate before it can be sent to Governor Newsom.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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