On February 6, 2024, the California Legislature introduced Senate Bill 1036, which would make certain actions related to voluntary carbon offsets subject to California’s False Advertising Law. Senate Bill 1036 reintroduces last year’s Senate Bill 390, which California Governor Gavin vetoed due to concerns over the bill “inadvertently capturing well-intentioned sellers and verifiers of voluntary offsets” and “creating significant turmoil in the market for carbon offsets.”

If passed, S.B. 1036 would make it unlawful for a person to sell, issue, market, certify, verify, or maintain on a registry, a voluntary carbon offset if the person knows or should know that the greenhouse gas emissions (GHG) reductions or removal enhancements of the related offset project are unlikely to be “quantifiable, real, and additional.” GHG reductions and removal enhancements are “quantifiable” if all GHG emission sources, sinks, or reservoirs within an offset project boundary can be accurately measured relative to a project baseline, while accounting for uncertainty and leakage. “Real” means that GHG reductions or enhancements result from a demonstrable action (or set of actions); are quantified using methodologies that account for all emission sources, sinks, and reservoirs within the offset project boundary; and account for uncertainty and the potential for leakage. GHG reductions and removal enhancements are “additional” if they exceed any GHG reduction or removals otherwise required by law, and they exceed what would otherwise occur in a conservative business-as-usual scenario.

S.B. 1036 also places limitations on the marketing or sale of voluntary carbon offsets if the owner knows or should know that the durability of the voluntary carbon offset’s GHG reductions or removal enhancements—or the atmospheric lifetime of the GHGs associated with the offset’s GHG reductions or removal enhancements—is less than the atmospheric lifetime of carbon dioxide emissions. A potential exception would be when the seller explicitly markets the offset as not being physically equivalent to the climate impact of carbon dioxide emissions.

Violators of S.B. 1036 would be subject to all available civil penalties set forth in California’s False Advertising Law.

The proposed legislation builds on California Assembly Bill (A.B) 1305, signed into law in October 2023, which requires business entities that market or sell voluntary carbon offsets to disclose information on their websites that relates to projects that generate emission reductions associated with such offsets.

If passed, S.B. 1036 would have effects outside of California, since many carbon offset players are engaged with companies in California. The bill could potentially chill the voluntary carbon offset market, due to the bill’s civil penalties, and even, as Governor Newsom warned with respect to S.B. 390, create “significant turmoil” in the carbon offset market. Carbon offset market participants should track the progress of S.B. 1036 through the California Legislature to observe whether the new bill will elude the fate of S.B. 390.