Over the past two weeks, the California Air Resources Board (CARB) has finally taken steps to begin implementation of climate disclosure legislation that was passed in 2023. CARB staff had been delayed in its implementation of the legislation, dubbed SB253 and SB261, link to prior blog here and here, and the legislature granted CARB an extension to issue its rules until July 1, 2025 in SB219. This month, CARB has taken two steps towards achieving implementation. First, it issued an enforcement discretion notice, and second, it began the long-awaited rulemaking process. 

The Enforcement Notice, dated December 5, 2024, states that CARB recognizes that companies need lead time to implement new data collection processes for “fully complete scope 1 and scope 2 emissions reporting, to the extent they do not currently possess or collect the relevant information.” CARB states that it will “exercise its enforcement discretion such that, for the first report due in 2026, reporting entities may submit scope 1 and scope 2 emissions from ‘the reporting entity’s prior fiscal year’ that can be determined from information the reporting entity already possesses or is already collecting [as of December 5, 2024].” CARB conditions the “discretion exercise” on entities “demonstrate[ing] good faith efforts to comply with the requirements of the law.” Press reports indicate that one of the sponsors of the legislation was concerned with CARB allowing companies to use reasonable efforts while the rulemaking proceeds, but the governor’s office on CARB’s behalf had requested two years to develop its rules and to have the requirements for companies not apply until the rules were done, since rulemaking in California typically takes 2 or more years to complete under the state’s administrative laws. Given that the legislation gave CARB only a 6-month extension and did not extend compliance dates for disclosures, CARB likely recognized that companies needing to file reports by year-end would need guidance on how to compile the data required for report. At the same time, trade associations are challenging the statutes in court, which are based among other things, on violations of the First Amendment of the U.S. Constitution. 

The second development reflects CARB’s efforts to commence the rulemaking process. CARB released this week a comment solicitation to help draft a proposed rulemaking. CARB’s solicitation seeks responsive information to inform implementation of SB 253 and SB 261 Climate Disclosure legislation. The deadline for comments is February 14, 2025. Among the key issues is what it means to “do business in California” such that a company would trigger the reporting requirements. Hunton Andrews Kurth is working on developing comments for a number of clients in response to the questions below:

1. SB 253 and 261 both require an entity that “does business in California” to provide specified information to CARB. This terminology is not defined in the statutes.
   1. Should CARB adopt the interpretation of “doing business in California” found in the Revenue and Tax Code section 23101?
   2. Should federal and state government entities that generate revenue be included in the definition of a “business entity” that “does business in California?”
   3. Should SB 253 and 261 cover entities that are owned in part or wholly owned by a foreign government?
   4. Should entities that sell energy, or other goods and services, into California through a separate market, like the energy imbalance market or extended day ahead market, be covered?
2. What are your recommendations on a cost-effective manner to identify all businesses covered by the laws (i.e., that exceed the annual revenue thresholds in the statutes and do business in California)?
   1. For private companies, what databases or datasets should CARB rely on to identify reporting entities? What is the frequency by which these data are updated and how is it verified?
   2. In what way(s) should CARB track parent/subsidiary relationships to assure companies doing business in California that report under a parent are clearly identified and included in any reporting requirements?

General: Standards in Regulation

1. CARB is tasked with implementing both SB 253 and 261 in ways that would rely on protocols or standards published by external and potentially non-governmental entities.
   1. How do we ensure that CARB’s regulations address California-specific needs and are also kept current and stay in alignment with standards incorporated into the statute as these external standards and protocols evolve?
   2. How could CARB ensure reporting under the laws minimizes a duplication of effort for entities that are required to report GHG emissions or financial risk under other mandatory programs and under SB 253 or 261 reporting requirements?
   3. To the extent the standards and protocols incorporated into the statute provide flexibility in reporting methods, should reporting entities be required to pick a specific reporting method and consistently use it year-to-year?

General: Data Reporting

1. To inform CARB’s regulatory processes, are there any public datasets that identify the costs for voluntary reporting already being submitted by companies? What factors affect the cost or anticipated cost for entities to comply with either legislation? What data should CARB rely on when assessing the fiscal impacts of either regulation?
2. Should the state require reporting directly to CARB or contract out to an “emissions” and/or “climate” reporting organization?
3. If contracting out for reporting services, are there non-profits or private companies that already provide these services?

SB 253: Climate Corporate Data Accountability Act

1. Entities must measure and report their emissions of greenhouse gases in conformance with the GHG Protocol,1 which allows for flexibility in some areas (i.e. boundary setting, apportioning emissions in multiple ownerships, GHGs subject to reporting, reporting by sector vs business unit, or others). Are there specific aspects of scopes 1, 2, or 3 reporting that CARB should consider standardizing?
2. SB 253 requires that reporting entities obtain “assurance providers.” An assurance provider is required to be third-party, independent, and have significant experience in measuring, analyzing, reporting, or attesting in accordance with professional standards and applicable legal and regulatory requirements.
   1. For entities required to report under SB 253, what options exist for third-party verification or assurance for scope 3 emissions?
   2. For purposes of implementing SB 253, what standards should be used to define limited assurance and reasonable level of assurance? Should the existing definition for “reasonable assurance2” in MRR be utilized, and if not why?
3. How should voluntary emissions reporting inform CARB’s approach to implementing SB 253 requirements? For those parties currently reporting scopes 1 and 2 emissions on a voluntary basis:
   1. What frequency (annual or other) and time period (1 year or more) are currently used for reporting?
   2. When are data available from the prior year to support reporting?
   3. What software systems are commonly used for voluntary reporting?