On October 7, 2023, California Governor Newsom signed Assembly Bill 1305: the Voluntary Carbon Market Disclosures Business Regulation Act (VCMDA).[1] Effective on January 1, 2024, the VCMDA imposes transparency requirements for entities marketing, selling, or purchasing voluntary carbon offsets and entities making claims about carbon neutrality, net zero emissions, or other similar emissions reduction claims in California.[2] With the goal of increasing transparency, there is no threshold claim requirement and the bill applies regardless of entity size and affects the business entities described below. Non-compliance could result in civil penalties of $2,500 per day, up to $500,000 per violation.

WHO THIS BILL AFFECTS:

VCO Marketers/Sellers

Any business entity marketing or selling voluntary carbon offsets (VCOs) within California must disclose specific details on the related project on their website, including:

• The method for estimating emissions reduction or removal on an annual basis;
• The project location and timeline;
• Whether the offsets result from carbon removal, avoided emissions, or both;
• The durability period for any project that the seller knows or should know is less than the atmospheric lifetime of carbon dioxide emissions;
• Whether there is independent expert or third-party validation of the project;
• What actions the entity will undertake if the project is reversed or does not materialize.

For this category of business entities, VCOs do not include products that represent or correspond to legal or regulatory mandates for greenhouse gas emissions reductions or preventions.

VCO Purchasers

With respect to VCO Purchasers, the VCMDA applies to entities (1) operating within California or entities purchasing or using VCOs sold within California, and (2) claiming that they, a related entity, or a product is “carbon neutral,” does not add net greenhouse gases to the atmosphere, or has made significant carbon dioxide or greenhouse gas emissions reductions. Information required for website disclosure includes:

• The business entity selling the offset, and the offset registry or program;
• The project name and identification number;
• Whether the offsets result from carbon removal, avoided emissions, or both;
• The method for estimating emissions reduction or removal;
• Whether the claims have been verified by a third-party.

Entities Making Claims without Purchasing or Selling VCOs

Entities operating in California or making claims in California that they, a related or affiliated entity, or a product is “carbon neutral” or have made significant emissions reductions have reporting requirements whether or not they participate in the VCO market. The bill does not define the reach of a “related or affiliated entity,” nor does it set a limit to what language may imply “net zero emissions,” or “significant reductions.” The VCMDA requires businesses making such “claims” to post on their websites:

• All documentation on how, if at all, a “carbon neutral,” “net zero emission,” or other similar claim was determined to be accurate or actually accomplished;
• How interim progress toward that goal is being measured;
• Whether there is independent third-party verification of the company data and claims listed.

GOING FORWARD

Business entities impacted by this bill or concerned that they may be impacted by this bill should begin assessing necessary compliance measures and compiling documentation substantiating their carbon neutral and other emissions reduction claims and methodologies. AB 1305 will go into effect less than three months after its passing, leaving little time to assess its ambiguities. Baker Botts L.L.P. has experienced lawyers who are ready to assist you with preparing compliance materials or assessing the VCMDA’s applicability to your entity.

[1] A.B. 1305, 2023-2024 St. Assemb., Voluntary carbon market disclosures (Ca. 2023), available at https://leginfo.legislature.ca.gov/faces/billHistoryClient.xhtml?bill_id=202320240AB1305.

[2] For clarity, the voluntary carbon offset markets do not include products that represent or correspond to legal or regulatory mandates for greenhouse gas emissions reductions or preventions.

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