Understanding California's AB 1305: California's Voluntary Carbon Market Disclosure Act
On October 7, 2023, California Governor Gavin Newsom signed into law a pivotal piece of legislation, Assembly Bill (AB) 1305, also known as the Voluntary Market Disclosures Act, establishing a new bar for corporate transparency in regard to the use of voluntary carbon offsets (VCO) and environmental (green) marketing claims. The law aims to combat "greenwashing" by defining disclosure requirements for entities participating in the voluntary carbon market (marketing, selling, purchasing, or using voluntary carbon offsets) within the state.
AB 1305 defines VCOs as products claiming to be a "greenhouse gas emissions offset," a "voluntary emissions reduction," a "retail offset," or similar terms indicating a reduction in greenhouse gas emissions. It excludes products that are legally mandated.
What is the Scope of AB 1305 and when is it Effective?
Similar to California’s other recent climate-related disclosure laws (SB 261 and SB 253), AB 1305 extends its reach beyond California borders. AB 1305 applies to business entities marketing or selling VCOs in California, those purchasing or using VCOs in the state, and entities making emissions marketing claims within California, even if not headquartered or registered in the state. The law provides a broader scope of reporting entities when compared to other recent climate-related disclosure laws in the state.
Effective January 1, 2024, AB 1305 carries the weight of potential civil penalties, reaching up to $2,500 per day per violation, with a maximum limit of $500,000. Though effective January 2024, the intent is for entities to disclose by January 2025.
What Detailed Disclosures are Required for AB 1305?
Entities marketing or selling VCOs must disclose project details, including the protocol used, location, duration, associated emissions reductions, project type, third-party verification or validation, and annual emission reductions or removal.
Entities purchasing or using VCOs and making emissions marketing claims must disclose details of the business that sold the VCO, including registry or program information, project name, type, protocol for emissions reductions, identification number, and third-party verification status.
Entities making emissions marketing claims must describe the basis for their claims, update disclosures annually, and provide documentation on how claims like "carbon neutral" or "net zero emissions" were determined.
What Can You Do Now to Prepare for Compliance?
To comply with AB 1305, businesses operating in California or utilizing VCOs within the state should consider the following steps:
1. Accurate Documentation for VCO Purchases:
Entities purchasing VCOs should require detailed information from sellers, including project specifics, third-party verification status, and more.
2. Documentation of VCOs in Use:
Clarify what it means to be an "entity that uses" VCOs and obtain necessary information about current VCOs in use and not only potential VCO purchases.
3. Substantiate Emissions Marketing Claims:
Businesses making emissions marketing claims should prepare documentation to support these claims to ensure compliance.
Conclusion:
AB 1305 represents a significant step in California's commitment to eradicating greenwashing and fostering transparency in the voluntary carbon market. The regulatory landscape continues to evolve, including additional legislation in California and ongoing federal regulatory action from the SEC, FTC, and CFTC, as well as a rapidly evolving regulatory landscape in the EU. These and other requirements will put increased pressure on businesses to increase action and transparency into their commitments on emissions, including purchase and use of VCOs.
In preparation for compliance, businesses purchasing or using offsets should proactively reach out to their providers and conduct a thorough review of their sustainability and carbon neutrality claims across the business. They should also ensure the collection of relevant information for disclosures, including project specifics and third-party verification status, as it is crucial to align with AB 1305's rigorous standards and verify the accuracy of these claims.
As the regulatory environment shifts, proactive engagement with providers and a meticulous review of sustainability claims will position businesses to not only comply with current regulations but also adapt seamlessly to future developments in the environmental disclosure landscape. Your company will benefit from an external partner with the right expertise to help you prepare for action, avoid greenwashing, and integrate sustainability into your corporate processes and strategy.
Uplift’s team of experts are ready to partner with you and make it happen.
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