As a wave of sustainability sweeps over corporate culture, many businesses are likely familiar with green initiatives and carbon offsetting. These practices often serve as key elements in strategic plans and marketing. However, proving the integrity of such claims is soon becoming a necessity rather than a choice for companies operating in California. From January 1, they face more stringent regulations with the enactment of California’s AB 1305.
This new law, coined the Voluntary Carbon Market Disclosures Act, represents a determined effort to combat greenwashing. It requires companies trading voluntary carbon offsets (VCOs) to intensify their monitoring and scrutiny of these initiatives, bolster their reporting transparency, and elevate their overall climate-related oversight.
Products considered as VCOs in the context of this law include any that claim to reduce or prevent greenhouse gases, such as greenhouse gas emissions offsets or retail offsets. This does not encompass offerings linked to legal or regulatory obligations to cut or thwart emissions.
To adhere to this act, businesses will have to develop a methodical approach to validating data for VCO projects. This includes disclosing specific protocols used to estimate emissions reductions or removal benefits; the project type (carbon removal, avoided emissions or a mix); and the durability period for any undertaking. Additional information, like the project’s location, timeline, emissions reductions or removals data, and any independent validation or verification details, must also be reported.
Corporations are also expected to disclose details about failed projects, revealing action plans for situations where carbon storage projects are reversed and emissions are not reduced as initially planned. Importantly, any claims made must be supported by data, using correct calculation methods to verify the amount of emissions reduction or removal credits issued.
Upon the commencement of AB 1305, businesses operating within or using VCOs sold in California must also disclose on their websites specifics about their carbon neutrality, net zero emissions, or emissions reduction claims. For example, particulars like the business selling the offset, the project ID number, the offset project type, the protocol used to estimate the benefits, and any independent verification must be accounted for.
Violations of these regulations can be costly, as businesses risk facing a civil penalty of $2,500 for each day their information is inaccurate or unavailable on their website (up to $500,000). These penalties can be pursued in a civil action by the state’s attorney general or any district attorney, county counsel, or city attorney.
This legislation signifies a new era of regulation in the voluntary carbon market, pushing businesses to be more attentive and proactive in their green practices, adopting a risk-averse approach to avoid hefty penalties and maintain consumer trust.
The full details of this key development can be found on Bloomberg Law.
Original article authored by Jonathan S. Storper, partner at Hanson Bridgett representing investors and companies.