CA’s voluntary carbon offset law: What you need to know

Daniela Arias, Thomas Marine

If your organization markets, sells, or purchases voluntary carbon offsets (VCOs) in California, a new law mandates additional reporting. Our team breaks down AB 1305 and covers how to prepare.

What is AB 1305?

Gov. Gavin Newsom of California recently signed into law three landmark climate bills: the Climate Corporate Data Accountability Act (SB 253), the Greenhouse Gases: Climate-Related Financial Risk Act (SB 261), and the Voluntary Carbon Market Disclosures Act (AB 1305).

The first two laws require companies to disclose their greenhouse gas (GHG) emissions and climate-financial risks on an annual and biennial basis, respectively, if they meet certain annual revenue requirements. The third law, AB 1305, mandates additional reporting regarding the use of carbon offsets. 

Effective Jan. 1, 2024, AB 1305 introduces annual disclosure requirements for:

Public and private business entities (reporting entities or covered entities) that market and sell VCOs within California
Reporting entities that purchase or use VCOs through California’s voluntary carbon market
Reporting entities that make public claims regarding the achievement of net-zero emissions or the carbon neutrality of the business or specific products or services

Entities that market or sell voluntary carbon offsets in California

Under AB 1305, any business entity that markets or sells voluntary carbon offsets in California must disclose information regarding the quality of the offsets it markets on its website. Those disclosures include: 

Details regarding the applicable projects, including the protocol used to estimate emissions benefits, project location, project type (such as carbon removal, avoided emissions), timeline with specific start dates, emissions reductions and removal quantities, alignment with any legal or voluntary standards, durability, third-party verification status, and annual emissions reduced or carbon removed
Details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits
Data and calculation methods needed to independently reproduce and verify the number of emissions reduction or removal credits issued using the protocol

Entities that purchase or use voluntary carbon offsets in California

An entity that purchases or uses VCOs and makes any net-zero, carbon neutral, or similar claims implying the entity’s or product’s reduced greenhouse gas emissions must disclose the following on its website: 

Details identifying the carbon offset projects purchased, including:
- Selling entity and the offset registry or program
- Offset project type (such as avoided emissions, carbon capture) and site location
- Protocol used to estimate emissions reductions or removal benefits
- Whether any company data and claims listed were subject to independent third-party assurance

Entities that make any claims regarding net-zero, carbon neutrality, or similar emission reductions in California

An entity that otherwise makes claims regarding the achievement of net-zero emissions, carbon neutrality, or similar emission reductions, irrespective of whether it purchases or uses VCOs, must disclose the following on its website:

Details supporting how the entity’s carbon reduction-related claims were determined, including:
- Details supporting how, if at all, carbon-neutral, net-zero emission, or other similar claims were deemed accurate or achieved
- How interim progress toward any stated net-zero goals are monitored or measured
- Whether any company data and claims listed were subject to independent third-party assurance

These disclosures apply to companies that operate in the state of California and either purchase carbon offsets or make claims within the state.

How can your organization prepare?

Taking the following steps can help your company develop the right compliance approach.

1. Assess whether the organization is subject to AB 1305

If the organization operates in California but does not purchase or use VCOs or does not make public claims of carbon neutrality, annual disclosure requirements under AB 1305 might not apply. Otherwise, consider which trigger is relevant. 

2. If the organization is a covered entity under AB 1305, establish proper accounting mechanisms

It’s critical to conduct regular reviews on projects and investments that count toward net-zero goals and to collect data on key project details, such as the name of the seller and associated registry, the carbon offset project name and identification number, the carbon offset project type, measurement protocol, and total numbers of purchased credits, as well as any future carbon offset or carbon avoidance projects. 

3. When making carbon-neutrality or net-zero claims, establish processes and controls

The claims need to be properly substantiated and grounded on science and reputable standards, such as those issued by the Science Based Targets initiative. Net-zero claims might be due to both internal process improvements that resulted in emissions reductions as well as the use of VCOs.

4. Prepare written summaries and publish them on the organization’s website

There are varying disclosure requirements depending on whether the company sells VCOs, purchases VCOs, or makes carbon neutrality or net-zero claims.

Summaries for companies that purchase or use VCOs in California should include:

Project start date
Project identification number
Project name as listed in the registry or program
Project locations
Summary of how the carbon is offset, avoided, and removed
Amount of carbon avoidance, offset, and removal for which the organization has taken credit
Specific protocol used to estimate emissions reductions or removal benefits
Whether independent third-party assurance has been achieved for such carbon removal and avoidance claims

Summaries for companies that market or sell VCOs in California should include:

Specific protocol used to estimate emissions reductions, avoidance, and removal
Offset project site location
Project timeline, including start and finish date
Dates and quantities of when a specified quantity of emissions reductions or removals started or will start, or was modified or reversed
Type of project, including whether the offsets from the project are derived from a carbon removal, an avoided emission, or both
Whether the project meets any standards established by law (federal, state, or local) or by a not-for-profit entity
Durability period for any project that the seller knows, or should know, that the durability of the project’s greenhouse gas reductions or greenhouse gas removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions
Project-specific emissions reduced, avoided, or physical carbon removed on an annual basis
Whether there is independent third-party validation for the project and the offsets, credits, or avoided emissions sold

Summaries for companies that make carbon-neutral or net-zero goals or claims in California should include:

Steps taken to achieve stated goals (such as purchase of zero-carbon energy and fleet electrification, among others)
Emissions reduction measurement data
Accounting methodologies used to measure emissions reduction or net-zero claims
Whether there is independent third-party verification or assurance in place for these individual claims

While some companies might already report on some of these topics, the extensive nature of the reporting and the timing of the bill mean it’s vital to start assessing your compliance needs now. Pulling together a cross-functional team can help your company gather, organize, and develop your reporting quickly.

If your organization is looking for additional help with compliance, consider engaging an outside firm that has deep knowledge of the bill and experience helping companies manage their ESG regulatory obligations.

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