Is Your Company Carbon Neutral? California Wants the Receipts

Companies claiming to be carbon neutral will need to back up their claims by publishing details of their environmental policies online under a new California law.

The measure (A.B. 1305) is the first of its kind in the US and could bring additional transparency to a carbon offset market critics say is awash in projects of questionable environmental value. The new law also requires companies to provide greater verification in selling voluntary carbon offsets to other businesses and organizations that are aiming to reduce emissions.

The law’s author, state Assemblymember Jesse Gabriel (D), said the measure is meant to help consumers and companies better navigate a flurry of advertising and claims from those touting their environmental credentials.

“It will give consumers more confidence that they are really moving the needle,” he said.

Opponents in industry contend the compliance process is too burdensome and onerous, with a potential fine of up to $500,000 for violating the new law. The measure could dampen support for offset projects, particularly those using emerging technologies, critics say.

Offsets Face Scrutiny

Offsets allow a company that is aiming to lower its emissions to pay another company to reduce or store emissions elsewhere through projects that can range from forest preservation to carbon capture.

The effectiveness of some projects can be difficult to calculate. Critics argue buying offsets has allowed some companies to portray themselves as more environmentally sustainable than they really are.

The new law will require any company marketing or selling offsets in California to publish online various details of the projects behind those offsets. Companies will be required to disclose the location and timeline of the projects, for example, as well as whether the projects meet any standards set by a governmental agency or environmental nonprofit. They also must detail whether there is an independent or third-party verification of the projects’ attributes and the total emissions or carbon removed on an annual basis.

Companies will also be required to spell out what actions will be taken if a project is not completed within a certain period of time or does not meet expectations.

The law will require any company operating in the state and claiming to be carbon neutral, or that any particular product is carbon neutral, to publish information on its website backing up those claims.

Companies covered by the law will be required to document how they measured emissions and disclose whether there is any independent or third-party verification of its emissions.

Information will have to be updated at least annually under the law. Anyone violating the measure could be fined up to $2,500 day, up to $500,000 overall.

‘Ripe for Oversight’

The law comes amid a growing pile of lawsuits accusing companies of making misleading claims about environmental measures. Passengers have sued Delta Air Lines Inc. over the company’s advertising claiming that it is carbon neutral. Even Etsy Inc. has faced litigation over its use of offsets, which the plaintiffs argued are calculated inaccurately and therefore misleading.

“We felt this was a market that was ripe for some oversight,” said Gabriel. “We view this as a fundamentally light touch approach, but hopefully it’s going to encourage companies to engage in meaningful due diligence.”

Danny Cullenward, a senior fellow at the University of Pennsylvania’s Kleinman Center for Energy Policy who joined several academics and researchers in supporting the measure, said the law should be relatively easy for companies to implement. Anyone buying or selling offsets should already have the information that the law calls for, he argued.

“There’s ready project-level documentation,” Cullenward said.

Opponents argue the new law has requirements that are duplicative to other standards, pointing to information already made available through markets like the American Carbon Registry. They also contend the new law could also stifle the offset market in the future.

“The risk associated with an arbitrary and excessive penalty amount may limit any buyer’s willingness to support newer technologies that have the potential to serve as an offset in the voluntary market,” the California Chamber of Commerce wrote in a letter earlier this year opposing the measure.

Emissions Reporting

California lawmakers targeted greenwashing this year with several other measures. The most high-profile law includes a requirement that companies with over $1 billion in annual revenue to report greenhouse gas emissions annually. It’s the first such measure in the country and will likely cover thousands of companies doing business in the state, though Gov. Gavin Newsom (D) has signaled there will be changes to the law in the coming year.

Other measures that would target the carbon offset market encountered a mixed reaction at the state capitol, however. Newsom this month vetoed a bill (S.B. 390) that would have extended the state’s false advertising law to expressly cover the marketing and sale of carbon offsets.

In vetoing the measure, the governor wrote that he wants to increase transparency in the carbon offset market and address “the problem of so-called ‘junk offsets,’” but raised concerns the legislation would punish unintentional mistakes in issuing or verifying offsets.