Navigating California's New Climate Laws: AB 1305 and Voluntary Carbon Offsets

With the voluntary carbon offset market being unregulated in the United States, California Assembly Bill No. 1305 (AB 1305) was enacted to confirm the authenticity of claimed emissions offsets, emphasizing the need to ensure the genuineness of voluntary carbon offsets ("VCOs") used by companies to offset their greenhouse gas emissions. Under AB 1305, effective January 1, 2024, companies must update their websites with disclosures of their VCOs and provide demonstrations substantiating any claims of net-zero emissions or carbon neutrality, or other statements that the business "has made significant reductions" to its greenhouse gas emissions. Unlike the other recent California climate disclosure bills, AB 1305 imposes disclosure requirements without requiring any agency to implement the regulations. 

Background on Carbon Offsets

Carbon offsets finance initiatives aimed at either reducing greenhouse gas emissions or removing them by extracting them from the atmosphere and storing them. Most commonly, carbon offsets are purchased through reforestation or the construction of renewable energy infrastructure. Among these projects, reforestation stands out as one of the most widely adopted projects for generating carbon offsets. These offsets are allocated to project owners who, in turn, sell them to third parties, such as companies seeking to offset their greenhouse gas emissions. Transactions on the global carbon markets totaled an estimated $850 million in 2021. To qualify for carbon offsets, a company must demonstrate its project's capability to genuinely reduce emissions, and accurately measure and quantify the amount of greenhouse gases prevented from entering the atmosphere.

Applicability and Impact of AB 1305

AB 1305 effects a wide swath of businesses and implicates any business that operates or makes "carbon neutral," "net zero emission," or similar claims within California. Companies operating in California must disclose information on their websites about the VCOs they market, sell, purchase, or use. But the more difficult task will be for a company to disclose how it supports or proves any claims of net-zero emissions, carbon neutrality, or otherwise implies that it "has made significant reductions" to its greenhouse gas emissions.

As the VCO market continues to grow, it is vital that businesses keep in mind the importance of accurately demonstrating claims to meet the requirements of AB 1305. Otherwise, companies might find themselves in violation of AB 1305 and subject to a civil penalty of up to $2,500 per day for each day that information is either not available or inaccurate on the company's website (limited to a maximum of $500,000).

DWT attorneys stand ready to assist our clients to ensure a proposed disclosure complies with AB 1305. 

 

*Shray Tapiawala is a 2L at George Washington University Law School. Shray is currently serving as a law clerk supporting the Energy, Natural Resources, and Environmental group in the Washington, D.C. office.