California has just enacted the Voluntary Carbon Market Disclosures Act which requires the disclosure of specified information about net zero claims, carbon offsets, and more by businesses, including by an untold number of companies located beyond the Golden State’s borders.
Businesses need to immediately pay attention to this first in the nation law because it is effective January 1, 2024, subjecting violators to civil penalties of up to $2,500 per day for each violation up to $500,000.
At best, this new law is being heralded as an anti greenwashing crusade. At worst, critics challenge it as a frontal attack on using carbon offsets. Most believe that carbon offsets, which in simple terms are a credit a business buys in a project that reduces greenhouse gas to decrease its carbon footprint, serve the valid purpose of decreasing the use of fossil fuels and advancing the movement toward clean energy; despite the recent collapse of the Kariba project, the world’s biggest carbon enterprise in Zimbabwe which laid bare there is little in any way for the carbon industry to backstop failures. On its face, this statute requires disclosures in 3 categories of environmental claims:
First, a business “that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions, claims that the entity, related entity, or a product is “carbon neutral,” or makes other claims implying the entity, related entity, or a product does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions shall disclose” on the business’ website all of the following:
(a) The name of the business entity selling the offset and the offset registry or program.
(b) The project identification number, if applicable.
(c) The project name as listed in the registry or program, if applicable.
(d) The offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission, or a combination of both, and site location.
(e) The specific protocol used to estimate emissions reductions or removal benefits.
(f) Whether there is independent third-party verification of company data and claims listed.
Second, a business marketing or selling voluntary carbon offsets within the state now has particular disclosures mandated on the business’ website describing details regarding the applicable carbon offset project as can be found at Assembly Bill No. 1305.
And third, a business that makes claims regarding the achievement of net zero emissions, claims that the entity or a product is “carbon neutral,” or makes other claims implying the entity or a product does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions, is by this new law mandated to disclose on its website:
1. “All information documenting how .. the claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured.”
2. “Whether there is independent third-party verification of the company data and claims.”
The law additionally requires that disclosures be updated no less than annually.
“Consumers deserve to feel confident that carbon offsets are actually resulting in meaningful emissions reductions,” according to the bill’s sponsor, Assemblymember Jesse Gabriel. “This legislation will provide critical transparency and accountability to ensure that corporations are meeting their climate goals and that we are protecting our planet for future generations.”
This expansive new regulation of environmental marketing claims is in almost all articulable ways bigger and more expansive than anything currently required by the FTC Green Guides, that regulate environmental marketing claims made by businesses, but it is unclear what preemption issues will be presented with the soon to be released updated version of the Green Guides. And some question if one state, California, despite its street cred as having enacted the nation’s first air pollution law in 1947, should control environmental policy in the other 49 states?
There are some uncertainties, like undefined terms and that this statute has no temporal limitation arguably applying to a business’s current marketing claims about past offsets and GHG emission reductions, but such is to be anticipated in this first ever regulation of this space. This is an anti-greenwashing effort, but we suspect that it will lead to more greenhushing and businesses, public and private, large and small, will make fewer environmental claims in their marketing to mitigate their risk under this enactment and similar laws that may follow in other jurisdictions.
This new law, approved by Governor Gavin Newsom on October 7, 2023, applies to companies that operate in California or make the relevant claims in California, potentially making its application incredibly broad and wide, applying to California businesses and businesses organized outside of the state and there is no minimum activity threshold.
We anticipate that we will be providing the law’s required third party verification for businesses in a host of sectors.
Our attorneys are well positioned to advise clients on compliance with decarbonization matters at the local, state, and federal levels, including this enactment that will have ripple effects across the country if not the world.