Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is marketing or selling voluntary carbon offsets, as defined, within the state to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, as provided. The bill would also require an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions or other, similar claims, as specified, to disclose on the entitys internet website specified information. The bill would require an entity that makes these claims to disclose on the entitys internet website all information documenting how, if at all, a claim was determined to be accurate or actually accomplished, how interim progress toward that goal is being measured, and whether there is independent third-party verification of the company data and claims listed. The bill would make a person who violates these provisions subject to a civil penalty of not more than $2,500 per day, as specified, for each violation, not to exceed a total amount of $500,000, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction. The bill would additionally require that disclosures be updated no less than annually.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is marketing or selling voluntary carbon offsets, as defined, within the state to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, as provided. The bill would also require an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions or other, similar claims, as specified, to disclose on the entitys internet website specified information. The bill would require an entity that makes these claims to disclose on the entitys internet website all information documenting how, if at all, a claim was determined to be accurate or actually accomplished, how interim progress toward that goal is being measured, and whether there is independent third-party verification of the company data and claims listed. The bill would make a person who violates these provisions subject to a civil penalty of not more than $2,500 per day, as specified, for each violation, not to exceed a total amount of $500,000, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction. The bill would additionally require that disclosures be updated no less than annually.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is marketing or selling voluntary carbon offsets, as defined, within the state to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, as provided. The bill would also require an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions or other, similar claims, as specified, to disclose on the entitys internet website specified information. The bill would require an entity that makes these claims to disclose on the entitys internet website all information documenting how, if at all, a claim was determined to be accurate or actually accomplished, how interim progress toward that goal is being measured, and whether there is independent third-party verification of the company data and claims listed. The bill would make a person who violates these provisions subject to a civil penalty of not more than $2,500 per day, as specified, for each violation, not to exceed a total amount of $500,000, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction. The bill would additionally require that disclosures be updated no less than annually.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is selling voluntary carbon offsets, as defined, to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, as provided. The bill would also require an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions or other, similar claims, as specified, to disclose on the entitys internet website specified information. The bill would require an entity that makes these claims to disclose on the entitys internet website all information documenting how, if at all, a claim was determined to be accurate or actually accomplished, how interim progress toward that goal is being measured, and whether there is independent third-party verification of the company data and claims listed. The bill would make a person who violates these provisions subject to a civil penalty in the amount of $5,000 of not more than $2,500 per day, as specified, for each violation, not to exceed a total amount of $500,000, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction. The bill would additionally require that disclosures be updated no less than annually.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is selling voluntary carbon offsets, as defined, to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, as provided. The bill would also require an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions or other, similar claims, as specified, to disclose on the entitys internet website specified information. The bill would require an entity that makes these claims to disclose on the entitys internet website all information documenting how, if at all, a claim was determined to be accurate or actually accomplished, how interim progress toward that goal is being measured, and whether there is independent third-party verification of the company data and claims listed. The bill would make a person who violates these provisions subject to a civil penalty in the amount of $5,000 per day, as specified, for each violation, not to exceed a total amount of $500,000, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction. The bill would additionally require that disclosures be updated no less than annually.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is selling voluntary carbon offsets, as defined, to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability measures if a project is not completed or does not meet the projected emission emissions reductions or removal benefits, as provided. The bill would also require a purchaser of an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net-zero net zero emissions or other, similar claims, as specified, to disclose on the purchasers entitys internet website specified information. The bill would require an entity that makes these claims to disclose on the entitys internet website all information documenting how, if at all, a claim was determined to be accurate or actually accomplished, how interim progress toward that goal is being measured, and whether there is independent third-party verification of the company data and claims listed. The bill would make a person who violates these provisions subject to a civil penalty in the amount of $5,000 per day, as specified, for each violation, not to exceed a total amount of $500,000, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction. The bill would additionally require that disclosures be updated no less than annually.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is selling voluntary carbon offsets, as defined, to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability if a project is not completed or does not meet the projected emission reductions or removal benefits, as provided. The bill would also require a purchaser of voluntary carbon offsets that makes claims regarding the achievement of net-zero emissions or other, similar claims, as specified, to disclose on the purchasers internet website specified information. The bill would make a person who violates these provisions subject to an unspecified a civil penalty in the amount of $5,000 per day, as specified, for each violation, not to exceed a total amount of $500,000, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources.

This bill would require a business entity that is selling voluntary carbon offsets, as defined, to disclose on the business entitys internet website specified information about the applicable carbon offset project and details regarding accountability if a project is not completed or does not meet the projected emission reductions or removal benefits, as provided. The bill would also require a purchaser of voluntary carbon offsets that makes claims regarding the achievement of net-zero emissions or other, similar claims, as specified, to disclose on the purchasers internet website specified information. The bill would make a person who violates these provisions subject to an unspecified civil penalty for each violation, which would be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1305

Author:(Gabriel)

As Amended Ver:September 8, 2023

Majority vote

SUMMARY

Requires disclosure of specified information by sellers and buyers of voluntary carbon offsets. Subjects violators to a civil penalty up to $2,500 per day for each violation.

Senate Amendments

1. Clarify and add information required to be disclosed by sellers and buyers of voluntary carbon offsets.
2. Add disclosure requirements for entities claiming to achieve net zero emissions, claiming that a product is carbon neutral, or making similar claims.
3. Require disclosures to be updated no less than annually.
4. Reduce the civil penalty cap from $5,000 to $2,500 per violation.
5. Clarify that the disclosure requirements apply to entities marketing or selling voluntary carbon offsets within the state, and do not apply to entities that do not operate within the state, do not purchase or use voluntary carbon offsets sold within the state, or do not make claims within the state.
6. Add definitions for "durability" and "protocol".

COMMENTS

Individuals and corporations purchase carbon offsets to compensate for the GHG emissions they create or contribute to. As more people purchase these reductions to compensate for their carbon footprint, questions arise as to what is being done to ensure that they are purchasing genuine carbon offsets. There is growing concern about the validity of emission reductions from projects sold and the potential for fraud. Despite the growth of the voluntary offset market in supporting advertising claims and even legal requirements, such as mitigation of GHG emissions under the California Environmental Quality Act, the market remains fairly opaque, and is not regulated by the Air Resources Board (ARB) or any other state entity.

The Federal Trade Commission's "Guides for the Use of Environmental Marketing Claims," which are intended to help marketers avoid making environmental marketing claims that are unfair or deceptive, includes the following brief guidance regarding carbon offsets:

260.5 Carbon Offsets.

(a) Given the complexities of carbon offsets, sellers should employ competent and reliable scientific and accounting methods to properly quantify claimed emission reductions and to ensure that they do not sell the same reduction more than one time.

(b) It is deceptive to misrepresent, directly or by implication, that a carbon offset represents emission reductions that have already occurred or will occur in the immediate future. To avoid deception, marketers should clearly and prominently disclose if the carbon offset represents emission reductions that will not occur for two years or longer.

(c) It is deceptive to claim, directly or by implication, that a carbon offset represents an emission reduction if the reduction, or the activity that caused the reduction, was required by law.

According to the Author

The voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary. While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate additionality in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency.

Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.

Arguments in Support

According to California Environmental Voters, AB 1305 will ensure that offset projects are in fact removing or avoiding emissions as well as important details that would confirm the project achieves its intended purpose by requiring both the sellers and purchasers of these offsets to disclose more information about each project. These changes will bring critically needed transparency to a process that is largely unregulated, ensuring that claims are made off verified data. This information will bring confidence accountability to both the purchasers and sellers of offsets and will ensure that bad actors are not able to make claims that aren’t based on verified data.

Arguments in Opposition

According to the California Chamber of Commerce, Voluntary carbon offsets are already subject to rigorous reporting requirements. Entities wishing to either generate or purchase offset credits through a voluntary process participate in a market such as the American Carbon Registry, Verra, or the Climate Action Reserve…These entities often have staff trained by ARB in offset protocols as well. The reporting requirements included in AB 1305 are already posted on the registries websites. Duplicating that process is wholly unnecessary and could potentially diminish the value of the registry by imposing this requirement on staff that have not been trained in offset protocols by ARB.

The voluntary carbon offset market is often the first point of entry for newer emission reduction technologies that are trying to operationally scale their solutions for broader participation which leads to more competitive pricing and refined solutions. AB 1305 imposes added requirements on both the buyer and generator of offsets that could make voluntary solutions less attractive. Particularly when there is potential for either the buyer or seller, or, perhaps, both, could be subject to a civil penalty of up to $500,000 if a project's carbon offsets do not materialize to the extent that was originally anticipated. 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.

FISCAL COMMENTS

According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

VOTES:

ASM NATURAL RESOURCES: 8-1-2

YES: Luz Rivas, Addis, Friedman, Muratsuchi, Pellerin, Ward, Wood, Zbur

NO: Mathis

ABS, ABST OR NV: Flora, Hoover

ASM JUDICIARY: 8-2-1

YES: Maienschein, Connolly, Haney, Kalra, Pacheco, Papan, Reyes, Robert Rivas

NO: Dixon, Sanchez

ABS, ABST OR NV: Essayli

ASM APPROPRIATIONS: 11-4-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Ortega

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Robert Rivas

ASSEMBLY FLOOR: 61-17-2

YES: Addis, Aguiar-Curry, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Grayson, Haney, Hart, Holden, Irwin, Jackson, Jones- Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NO: Alanis, Chen, Megan Dahle, Davies, Dixon, Flora, Vince Fong, Gallagher, Hoover, Lackey, Mathis, Jim Patterson, Joe Patterson, Sanchez, Ta, Waldron, Wallis

ABS, ABST OR NV: Essayli, Gipson

UPDATED

VERSION: September 8, 2023

CONSULTANT: Lawrence Lingbloom / NAT. RES. / (916)319-2092 FN: 0002414

 THIRD READING  

Bill No: AB 1305

Author: Gabriel (D), et al.

Amended: 9/8/23 in Senate

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-2, 6/28/23

AYES: Allen, Gonzalez, Hurtado, Menjivar, Skinner

NOES: Dahle, Nguyen

SENATE JUDICIARY COMMITTEE: 9-2, 7/11/23

AYES: Umberg, Allen, Ashby, Caballero, Durazo, Laird, Min, Stern, Wiener

NOES: Wilk, Niello

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 61-17, 5/30/23 - See last page for vote

SUBJECT: Voluntary carbon market disclosures

SOURCE: Author

DIGEST: This bill requires a business entity that is selling voluntary carbon offsets (VCOs) to disclose specified information about the applicable carbon offset project, including details regarding accountability if a project is not completed or does not meet the projected emission reductions or removal benefits. This bill also places obligations on entities making certain claims about their emissions.

Senate Floor Amendments of 9/8/23 make a number of minor technical changes to clarify the bill encompasses in-state buyers, sellers, and marketers, among other things.

Senate Floor Amendments of 8/30/23 reduce the daily penalty for noncompliance by half, and clarify that the data and calculation methods required from VCO sellers are only that which is pertinent.

ANALYSIS:

Existing law:

1. States that, under the California Climate Crisis Act (AB 1279, Muratsuchi, Chapter 337, Statutes of 2022), it is the policy of the state to achieve net zero greenhouse gas (GHG) emissions no later than 2045 and maintain net negative GHG emissions thereafter, and to ensure that by 2045 statewide anthropogenic GHG emissions are reduced to at least 85% below the 1990 level.
2. Defines terms related to the cap-and-trade program, including the California Air Resources Board (CARB’s) Compliance Offsets Program. (Title 17 CCR, Section 95802)

This bill:

1. Imposes disclosure requirements on those who would sell or market VCOs in California, including:
   1. Details regarding the project generating the offset including the location, timeline, dates, quantities of offset GHG emissions (as defined), total project emissions, type of project, durability of the project, compliance with voluntary standards, and whether there is independent validation or verification of the project;
   2. Accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits;
   3. Pertinent data and calculation methods needed to independently reproduce and verify the number of offsets issued using the protocol; and
   4. Definitions for pertinent terms, including “durability”, “protocol”, and “voluntary carbon offset.”
2. Imposes disclosure requirements on in-state buyers (or users) of VCOs who claim “carbon neutrality” or similar claims, including the name of the entity selling the offset, names and identification numbers if applicable, the type and location of the project generating the offset, the protocol used to estimate emission reductions or removal benefits, and whether there was independent third-party verification of the data and claims.
3. Requires an entity that claims “carbon neutrality” or a similar claim for themselves, their product, or an affiliated entity to disclose on their website information justifying that claim, including:
   1. How the claim was determined to be accurate;
   2. How interim progress to that goal is being measured; and
   3. Whether there is independent third-party verification of the company data and claims listed.
4. Declares that a violation of this act is subject to a civil penalty of not more than $2,500 per day, not to exceed a total amount of $500,000, which is to be recovered in a civil action by the Attorney General, a district attorney, county counsel, or city attorney.

Background

1. What is a carbon offset? In its simplest terms, a carbon offset is when one entity who is attempting to reduce their emissions instead pays another entity to then reduce or remove an equivalent amount of emissions, rather than actually reduce their emissions themselves.

The devil, of course, is in the details. Who is reducing their emissions instead? What emissions are they reducing, avoiding, or removing? Would they have reduced those emissions if they had not been paid through the offset arrangement? Are the offset emissions directly equivalent to the original emissions, or is their equivalence depending on subjective accounting assumptions? These questions and more have swirled around offsets for as long as they have been in use.

Despite these concerns, carbon offsets are widely used by individuals, corporations, and governments to mitigate their GHG emissions on the assumption that offsets reflect equivalent climate benefits achieved elsewhere.

1. Voluntary offsets versus compliance offsets. In California, many of the state’s largest polluters are subject to the state’s cap-and-trade program. Under the cap-and-trade program, they are required by law to either reduce their emissions by specified amounts over time, or otherwise surrender compliance instruments to cover those emissions. The two available compliance instruments are allowances (which originate from the state providing a set amount each year) and offsets (which originate from entities outside of cap-and-trade offering to reduce or avoid equivalent volumes of emissions). Offsets purchased to comply with cap-and-trade are “compliance offsets”; their use is to comply with mandatory legal obligations.

In contrast, voluntary carbon markets are not established by governments and participation is voluntary. These markets allow companies, governments, and other organizations to offset their carbon emissions on a voluntary basis, either to meet their own sustainability goals or to demonstrate their commitment to reducing their carbon footprint. The voluntary carbon market is currently smaller than the compliance market, but it is expected to grow as more entities seek to increase their climate ambitions while minimizing associated costs.

AB 1305 exclusively pertains to voluntary carbon markets. It makes no changes to the ability of cap-and-trade covered entities to use compliance offsets to comply with their cap-and-trade compliance obligations.

1. When offsets don’t offset. The central idea behind a carbon offset is that it can substitute for GHG emission reductions that an organization would have made on its own. When offsets are truly like-for-like (e.g. a ton of emitted CO2 is compensated by a ton of CO2 removed from the atmosphere and stored permanently), they can indeed be used to achieve carbon neutrality and reduce the total tonnage of GHG emissions to the atmosphere. This accounting quickly becomes wickedly complicated when vastly different pollutants, activities, and carbon stores are used to compensate for each other, however.

The issue is perhaps at its most inscrutable when it comes to so-called “avoided emissions.” To qualify as a genuine carbon offset, the reductions achieved by a project need to be “additional” to what would have happened if the project had not been carried out (e.g. continued as business-as-usual). In the case of avoided emissions, the business-as-usual scenario is often, at its core, an educated guess made by financially vested parties.

If you own and protect a forest for generations, it does not inherently create avoided emissions offsets. On the other hand, if you own and protect a forest, tell an offset registry you were planning to cut it down, then continue protecting it for generations, you can potentially create a number of valuable avoided emissions offsets. While simplistic, this example illustrates the vital importance of transparency, safeguards, and other best practices.

Moreover, continuing the example of the protected forest, no one can predict the future. Even with the best of intentions for responsible stewardship, the conditions for extreme wildfires arise more often as climate change worsens. What happens when your forest burns down? If the offset was already generated, and the (nearly permanent) CO2 emission was already justified, what recourse remains? Different protocols take different approaches to dealing with these so-called “reversals”, but it is crucial that plans are in place and able to assure that carbon removals do not simply go up in smoke without further compensatory actions.

1. Junk offsets. Not all offsets are created equal. The lack of regulation and oversight of VCO markets in particular results in offsets being issued and sold that are highly unlikely to generate the carbon benefits that they claim to represent, which can be referred to as “junk offsets.” Junk offsets inflict harm in two primary ways. First, buyers of offsets who sincerely believe that purchasing an offset will finance projects that generate carbon benefits are defrauded when they are sold a junk offset that fails to deliver such benefits. Second, corporate buyers of junk offsets may greenwash their activities (intentionally or unintentionally) if they use the offsets in their accounting of the corporation’s carbon footprint, which may result in claims to customers, employees, and investors that are inaccurate.
2. The Federal Trade Commission’s (FTC’s) Green Guides. The Green Guides are designed to help marketers avoid making environmental claims that mislead consumers. The FTC’s most recent update of the Guides includes, among other things, guidance on marketers’ claims about carbon offsets.

On carbon offsets, the FTC’s Green Guides read:

Given the complexities of carbon offsets, sellers should employ competent and reliable scientific and accounting methods to properly quantify claimed emission reductions and to ensure that they do not sell the same reduction more than one time.

It is deceptive to misrepresent, directly or by implication, that a carbon offset represents emission reductions that have already occurred or will occur in the immediate future. To avoid deception, marketers should clearly and prominently disclose if the carbon offset represents emission reductions that will not occur for two years or longer.

It is deceptive to claim, directly or by implication, that a carbon offset represents an emission reduction if the reduction, or the activity that caused the reduction, was required by law.

1. Comparing durability. Recent amendments made by the author to AB 1305 introduce a definition of durability (the same as exists in SB 390 of this session). The definition references the period of time for the offset as it compares to the atmospheric lifetime of CO2. This is an important inclusion, because without considering durability, one ton of CO2 emitted into the atmosphere can be offset by a ton of equivalent removal that will only keep the carbon in a solid form for several decades, or even less. From that point onward, the carbon released from the offset and the original emission both remain in the atmosphere; two tons of GHGs remain warming the atmosphere while the responsible party’s ledger shows carbon neutrality. Thus, durability is a crucial concept to consider in conversations around offsetting and carbon neutrality.

Comments

1. Purpose of Bill. According to the author, “The voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary. While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate additionality in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency.

“Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.”

1. More transparency leads to better decisions. Much like Senator Limon’s SB 390, AB 1305 is about providing market participants sufficient details about offsets to make informed decisions. This bill does not force companies to only buy offsets with durability equal to the atmospheric life of CO2, it forces VCO sellers and buyers to disclose the durability of the offsets and how that figures into claiming carbon neutrality.

Absent that information, businesses, governments, and individuals who earnestly believe that they have achieved carbon neutrality in their operations may in fact have been misled. Providing and reckoning with this information may well make it harder or more expensive to be able to claim carbon neutrality than it is today. But, the question those entities and this committee must then consider is this: do we prefer facile-yet-fraudulent carbon neutrality, or difficult-yet-durable carbon neutrality?

In the absence of regulation today, the VCO market has gravitated towards the former. While this has enabled many companies to claim that they are carbon neutral without breaking the bank, multiple investigations into some of those claims have raised significant concerns about their credibility. This has even led to a recent lawsuit where the plaintiff is alleging Delta Air Lines’ claim of carbon neutrality is false advertising. Thus, while AB 1305 could have the impact of constricting the VCO market and making it more onerous to claim carbon neutrality, it is the opinion of committee staff that that is preferable to the current state of affairs.

1. I’d gladly reduce emissions Tuesday for an offset today. Every ton of GHG emissions added to the atmosphere increases the peak warming the Earth will experience, full stop. Reducing the total tonnage of GHG emissions to the atmosphere minimizes peak warming, which will prevent staggering amounts of death and immiseration worldwide. Offsets, insofar as they can help reduce the total tonnage of GHG emissions to the atmosphere, have the potential to help in this monumental task.

Related/Prior Legislation

SB 390 (Limon, 2023) adds certain claims about VCOs to the False Advertising Law, related to VCOs that are known or should be known to not be quantifiable, real, and additional, as defined. SB 390 is currently in the Assembly Natural Resources Committee.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 9/8/23)

Climate Reality Project, Los Angeles

Climate Reality Project, San Fernando Valley

Greenlining Institute

Sierra Club

OPPOSITION: (Verified 9/8/23)

California Chamber of Commerce

ARGUMENTS IN SUPPORT: According to the Los Angeles and San Fernando Valley Chapters of the Climate Reality Project, “Because there are no regulations for the voluntary carbon offset market, significant opportunity for greenwashing exists. It is entirely possible that the voluntary market investments do not represent real reductions or removals of carbon emissions.

“AB 1305 would establish disclosure standards for both buyers and sellers of voluntary offset credits. Sellers of voluntary carbon offsets would be required to disclose specific information about the carbon offset project to include projected emission reductions, the type of project and its timeline, and all data and calculation methods used determine the number of credits issued. Purchasers of voluntary carbon offsets shall disclose information such as the project type and site, the specific methodology to estimate emissions reductions or removals, and how a claim of ‘carbon-neutral’ or ‘net-zero emission’ is achieved.

“The information that would be disclosed as per AB 1305 ensures accurate information to evaluate the validity and effectiveness of the volunteer carbon offset market.”

ARGUMENTS IN OPPOSITION: According to the California Chamber of Commerce, “Voluntary carbon offsets are already subject to rigorous reporting requirements. Entities wishing to either generate or purchase offset credits through a voluntary process participate in a market such as the American Carbon Registry, Verra, or the Climate Action Reserve. These entities have been in existence for decades and have protocols in place to ensure the value of the offset is commensurate with the avoided emissions of that project. And, in fact, have spent over two decades refining their processes to ensure that there are methodologies in place to more accurately reflect best practices. These entities often have staff trained by the California Air Resources Board (CARB) in offset protocols as well. The reporting requirements included in AB 1305 are already posted on the registries websites. Duplicating that process is wholly unnecessary and could potentially diminish the value of the registry by imposing this requirement on staff that have not been trained in offset protocols by CARB.”

ASSEMBLY FLOOR: 61-17, 5/30/23

AYES: Addis, Aguiar-Curry, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Grayson, Haney, Hart, Holden, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NOES: Alanis, Chen, Megan Dahle, Davies, Dixon, Flora, Vince Fong, Gallagher, Hoover, Lackey, Mathis, Jim Patterson, Joe Patterson, Sanchez, Ta, Waldron, Wallis

NO VOTE RECORDED: Essayli, Gipson

Prepared by: Eric Walters / E.Q. / (916) 651-4108

9/11/23 12:23:51

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: AB 1305 (Author:Gabriel)

Version: July 3, 2023

Hearing Date: July 11, 2023

Fiscal: Yes

Urgency: No

Consultant: CK

SUBJECT

Voluntary carbon market disclosures

DIGEST

This bill requires a business entity that is selling voluntary carbon offsets to disclose specified information about the applicable carbon offset project, including details regarding accountability if a project is not completed or does not meet the projected emission reductions or removal benefits. The bill also places obligations on entities making certain claims about their emissions.

EXECUTIVE SUMMARY

Carbon offsetting is an activity that compensates for, or balances out, greenhouse gas emissions generated by an organization through its activities and operations. Essentially, an entity that wants to mitigate its greenhouse gas emissions can pay another entity or person to eliminate, reduce, or refrain from greenhouse gas emissions, offsetting the first party’s emissions. Verifying that these emissions are actually being offset is core to voluntary carbon offsets. Unlike the state’s cap and trade program, the voluntary carbon offset market is largely unregulated. This has driven concerns that there is rampant fraud in the industry and that many of these offsets are essentially worthless.

This bill seeks to provide needed transparency in these markets by requiring those selling voluntary carbon offsets to make certain disclosures on their website about the project as well as accountability and verifiability measures. The bill also requires disclosures from those buying and making claims in connection with such offsets. Finally, the bill requires disclosures from any entity making claims about its emissions. This bill is author-sponsored. The bill is supported by environmental groups and the Office of the San Francisco City Attorney. It is opposed by the Western States Petroleum Association. The bill passed out of the Senate Environmental Quality Committee on a 5 to 2 vote.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Makes it unlawful for a person to make an untruthful, deceptive, or misleading environmental marketing claim, whether explicit or implied. (Bus. & Prof. Code § 17580.5.)
2. Establishes the Unfair Competition Law (UCL), which provides a statutory cause of action for any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising, including over the internet. (Bus. & Prof. Code § 17200 et seq.)
3. Defines unfair competition for purposes of the UCL to mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code. (Bus. & Prof. Code § 17200.)
4. Establishes the False Advertising Law (FAL), which proscribes making or disseminating any statement that is known or should be known to be untrue or misleading with intent to directly or indirectly dispose of real or personal property. (Bus. & Prof. Code § 17500 et seq.)
5. Provides remedies for individuals who have suffered damages as a result of fraud or deceit, including situations involving fraudulent misrepresentations. (See Civil Code §§ 1709-1710, 1572-1573.)
6. Defines “greenhouse gas” to include the following gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen triflouride. (Health & Saf. Code § 38505.)
7. Defines terms related to the cap-and-trade program, including CARB’s Compliance Offsets Program. (17 C.C.R. § 95802)

This bill:

1. Requires a business entity that is selling voluntary carbon offsets to disclose details on their website regarding the applicable carbon offset project, including all of the following information:
   1. The specific protocol used to estimate emissions reductions or removal benefits.
   2. The location of the offset project site.
   3. The project timeline.
   4. The date when the project started or will start.
   5. The dates and quantities when a specified quantity of emissions reductions or removals started or will start, or was modified or reversed.
   6. The type of project including whether the offsets from the project are derived from a carbon removal, an avoided emission, or, in the case of a project with both carbon removals and avoided emissions, the breakdown of offsets from each.
   7. Whether the project meets any standards established by law or by a nonprofit entity.
   8. The 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.
   9. Whether there is independent expert or third-party validation or verification of the project attributes.
2. Requires the entity to also disclose details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, including details regarding what actions the entity shall take if carbon storage projects are reversed or future emissions reductions do not materialize.
3. Requires the entity to also disclose all data and calculation methods needed to independently reproduce and verify the number of emissions reduction or removal credits issued using the protocol.
4. Provides the following definitions:
   1. “Durability” means the duration of time over which an offset project operator commits to maintain its greenhouse gas reductions and greenhouse gas removal enhancements, as applicable, exclusive of any aspirational outcomes that exceed or extend beyond the mandatory outcomes required of the offset project pursuant to its offset protocol.
   2. “Protocol” means a documented set of procedures and requirements to quantify ongoing greenhouse gas reductions or greenhouse gas removal enhancements achieved by an offset project and to calculate the project baseline, including specification of relevant data collection and monitoring procedures, emission factors, and methodologies used to conservatively account for uncertainty and activity-shifting and market-shifting leakage risks associated with an offset project.
   3. “Voluntary carbon offset” means any product sold or marketed in the state that claims to be a “greenhouse gas emissions offset,” a “voluntary emissions reduction,” a “retail offset,” or any like term, that connotes that the product represents or corresponds to a reduction, not required by any law or regulation, in the amount of greenhouse gases present in the atmosphere or that prevents the emission of greenhouse gases into the atmosphere that would have otherwise been emitted.
5. Requires an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions, “carbon neutral” claims, or 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 to disclose on the entity’s website the following information pertaining to each project or program:
   1. The name of the business entity selling the offset and the offset registry or program.
   2. The project identification number, if applicable.
   3. The project name as listed in the registry or program, if applicable.
   4. The offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission, or a combination of both.
   5. The site location.
   6. The specific protocol used to estimate emissions reductions or removal benefits.
   7. Whether there is independent third-party verification of company data and claims listed.
6. Requires an entity that makes claims regarding the achievement of net zero emissions, claims that the entity, a related or affiliated entity, or a product is “carbon neutral,” or makes other claims implying the entity, related or affiliated 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 to disclose on the entity’s website all of the following information pertaining to all greenhouse gas emissions associated with its claims:
   1. All information documenting each claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured. This information may include disclosure of independent third-party verification of all of the entity’s greenhouse gas emissions, identification of the entity’s science-based targets for its emissions reduction pathway, and disclosure of the relevant sector methodology and third-party verification used for the entity’s science-based targets and emissions reduction pathway.
   2. Whether there is independent third-party verification of the company data and claims listed.
7. Requires each of these disclosures to be updated no less than annually.
8. Subjects a person who is in violation to a civil penalty of not more than $5,000 per day, for each day that information is not available or is inaccurate on their website, for each violation, not to exceed a total amount of $500,000. Authorizes these penalties to be sought in an action brought by the Attorney General, a district attorney, county counsel, or city attorney.

COMMENTS

1. Cleaning up the voluntary carbon offset market

Carbon offsets operate where a certain entity absolutely must emit carbon dioxide and so provides for the same amount of the greenhouse gas to be removed from the atmosphere by other means to compensate. Offsets were historically centered on the planting or protection of trees, which absorb carbon dioxide, however, the term has since been applied to a variety of environmental efforts globally:

The vast majority of offsets available fall into a category called “avoided emissions.” These are projects that either protect forests, provide people with alternatives to using fossil fuels, or avert emissions from waste. If done right, such projects can reduce the volume of greenhouse gases being added to the atmosphere while providing other benefits to local communities and promoting biodiversity. Beyond planting or protecting trees, offsets can also be generated by preventing the release of greenhouse gases other than CO2, like methane or nitrous oxide. Typically, more expensive offsets involve removing carbon dioxide that’s already in the atmosphere and storing it away. That may involve projects like growing a forest or installing machines that vacuum carbon dioxide out of the air. Just 4% of off sets actually remove CO2 from the atmosphere. . . .^[1]

The voluntary carbon offsets targeted by this bill are distinct from carbon offsets involved in the state’s cap-and-trade program. Under the cap-and-trade program, industry polluters are legally required to either reduce their emissions by specified amounts over time, or otherwise surrender compliance instruments to cover those emissions. The two available compliance instruments are allowances (which originate from the state providing a set amount each year) and offsets (which originate from entities outside of cap-and-trade offering to reduce or avoid equivalent volumes of emissions). Offsets purchased to comply with cap-and-trade are “compliance offsets”; their use is to comply with mandatory legal obligations.

Voluntary carbon markets are just that, voluntary. Voluntary carbon offsets allow companies, governments, and other organizations to offset their carbon emissions on a voluntary basis, either to meet their own sustainability goals or to demonstrate their commitment to reducing their carbon footprint.

The Federal Trade Commission has issued guidance on appropriate marketing of these products:

• Given the complexities of carbon offsets, sellers should employ competent and reliable scientific and accounting methods to properly quantify claimed emission reductions and to ensure that they do not sell the same reduction more than one time.
• It is deceptive to misrepresent, directly or by implication, that a carbon offset represents emission reductions that have already occurred or will occur in the immediate future. To avoid deception, marketers should clearly and prominently disclose if the carbon offset represents emission reductions that will not occur for two years or longer.
• It is deceptive to claim, directly or by implication, that a carbon offset represents an emission reduction if the reduction, or the activity that caused the reduction, was required by law.^[2]

Despite this guidance, this market is largely unregulated and there are concerns about the legitimacy of these offsets.

1. Addressing these concerns with transparency measures

According to the author:

The voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary. While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate additionality in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency.

Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.

The concerns highlighted by the author are well-documented and widespread:

The brisk sales of meaningless offsets is leading to widespread claims of climate progress that isn’t actually happening. As Bloomberg Green previously reported, environmental groups such as the Nature Conservancy and the National Audubon Society have sold credits for protecting trees that weren’t in danger of being harvested, leading to misleading claims of emissions reductions by Walt Disney Co., JPMorgan Chase & Co., and other companies. Meanwhile, North America’s largest carbon reforestation project, Green Trees, has sold credits for trees that were already planted through government programs, sometimes more than a decade earlier, resulting in inflated carbon reduction claims by Bank of America Corp. and many others. (The Nature Conservancy, Audubon, and Green Trees all said their projects followed the market’s rules, while Disney, JPMorgan, and Bank of America each declined to comment.) “There’s a distinct possibility that a great deal of existing carbon offsets are effectively fake,” says Robert Mendelsohn, professor of forest policy and economics at Yale.^[3]

These “junk offsets” inflict two major harms. First, buyers of offsets who sincerely believe that purchasing an offset will finance projects that generate carbon benefits are defrauded when they are sold a junk offset that fails to deliver such benefits. Second, corporate buyers of junk offsets may greenwash their activities (intentionally or unintentionally) if they use the offsets in their accounting of the corporation’s carbon footprint, which may result in claims to customers, employees, and investors that are inaccurate and can constitute a form of unfair competition.

This bill seeks to shine some light on this market by requiring a series of disclosures by those selling and buying these products, as well as those making certain claims about their net emissions. All disclosures are required to be updated no less than annually.

The bill defines “voluntary carbon offset” as any product sold or marketed in the state that claims to be a “greenhouse gas emissions offset,” a “voluntary emissions reduction,” a “retail offset,” or any like term, that connotes that the product represents or corresponds to a reduction, not required by any law or regulation, in the amount of greenhouse gases present in the atmosphere or that prevents the emission of greenhouse gases into the atmosphere that would have otherwise been emitted.

1. Entities selling voluntary carbon offsets

This bill first requires a series of disclosures to be placed on the websites of business entities that sell voluntary carbon offsets. It requires them to disclose certain details regarding the applicable carbon offset projects. This includes basic information regarding the type, location, and relevant timing of the project. They must also disclose the specific protocol used to estimate emissions reductions or removal benefits. It also requires information regarding certain metrics and validation, including whether the

project meets established legal or industry standards and whether there is third-party validation or verification.

These entities selling offsets must also post details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits. This includes details about what the entity plans to do if the carbon storage projects are reversed or if the future emissions reductions do not materialize.

Finally, these entities must post all data and calculation methods needed to independently reproduce and verify the number of emissions reduction or removal credits issued using the protocol.

The author explains the need for these disclosures:

For the provisions relating to methodology, data, and calculation methods needed to reproduce the number of credits issued, we intend to give researchers and the public the ability to check the claims that these companies are making about the amount of carbon that they are selling. As mentioned above, the routine over-crediting of projects and overstatements of their efficacy is extremely concerning. These provisions would give researchers the ability to run independent analyses of the number of credits that a project is generating and compare it to project details that are also required to be disclosed to evaluate efficacy.

By opening this door for additional state and private research, AB 1305 could help inform and direct future legislative action on this topic as the industries continue to grow in size and utilization.

1. Entities buying or using voluntary carbon offsets

The bill also requires each entity 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 they do not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions to disclose specified information on their website. This includes basic information about the entity that sold the offset and identifying information about the project. In addition, and similar to above, the purchasing entity must detail the specific protocol used to estimate emissions reductions or removal benefits and whether there is independent third-party verification of company data and claims listed.

1. Entities making certain emissions claims

The bill also requires similar postings be made by each entity that makes claims regarding the achievement of net zero emissions, claims that the entity, a related or affiliated entity, or a product is “carbon neutral,” or makes other claims implying they do not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions. These entities must post all information documenting how, if at all, a “carbon neutral,” “net zero emission,” or other similar claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured, for all greenhouse gas emissions associated with its claims.

Again, the entity must document whether there is independent third-party verification of the company data and claims listed.

1. Enforcement

Enforcement is tasked to public prosecutors, namely the Attorney General, district attorneys, county counsel, or city attorneys. They may seek civil penalties of not more than $5,000 per day, for each day that information is not available or is inaccurate on the relevant website, for each violation, not to exceed a total amount of $500,000.

1. Stakeholder positions

The Office of the San Francisco City Attorney writes in support:

Outside of California’s compliance market exists a voluntary offset market where consumers or businesses purchase credits to offset their emissions voluntarily. Unfortunately, researchers have grown increasingly concerned with the efficacy of this voluntary market, with a recent investigation by The Guardian finding greater than 90% of rainforest offset projects listed on one of the largest voluntary offset standards bodies did not represent genuine carbon reductions. With no central regulations currently existing in this market, there is a clear need to ensure that consumers are not misled to believe that credits represent legitimate reductions or removals of emissions when they do not.

AB 1305 would establish disclosure requirements for both buyers and sellers of voluntary offset credits. These disclosures would include important information regarding details specific to the offset projects, how the number of offset credits offered for sale was calculated, and other important information about how these credits factor into claims buyers make relating to emission reduction achievements.

By making this information publicly available, AB 1305 will crack down on corporate greenwashing and give researchers and the public the information they need to determine the validity of these products being sold to businesses and consumers.

Writing in opposition, the Western States Petroleum Association argues:

The bill lacks a clear definition of business entity that will be subject to this law – it is unclear whether these requirements are only for in-state project developers and voluntary offsets purchasers. The bill would create duplicative reporting requirements for entities interested in generation and purchase of voluntary carbon credits – a business entity who is interested in development of a project to generate high quality and verified voluntary carbon credits must follow rigorous protocols developed by carbon registries such as the American Carbon Registry or Climate Action Reserve. Protocols developed by these registries ensure that the project is delivering promised carbon dioxide (CO2) reduction or removal benefits by ensuring high standards are followed in measurement, monitoring, verification, and reporting of avoided or removed CO2 emissions from the project. This ensures project developers are accountable during and after generation of credits. In addition, once the project is verified, it is listed on the respective registry’s website for public view and includes all the information that AB 1305 is asking project developing entities to list on their internet website (Section 1 Part 10 44475 (a) 1-7). This is a redundant and duplicative requirement that, in case of failure to complete, carries a civil penalty.

It should be noted that the bill applies to voluntary carbon offsets that are sold or marketed in California.

Writing in support, the San Fernando Valley and Los Angeles Chapters of the Climate Reality Project assert:

AB 1305 would establish disclosure standards for both buyers and sellers of voluntary offset credits. Sellers of voluntary carbon offsets would be required to disclose specific information about the carbon offset project to include projected emission reductions, the type of project and its timeline, and all data and calculation methods used determine the number of credits issued. Purchasers of voluntary carbon offsets shall disclose information such as the project type and site, the specific methodology to estimate emissions reductions or removals, and how a claim of “carbon-neutral or “net-zero emission” is achieved.

The information that would be disclosed as per AB 1305 ensures accurate information to evaluate the validity and effectiveness of the volunteer carbon offset market.

SUPPORT

Climate Reality Project, Los Angeles Chapter

Climate Reality Project, San Fernando Valley Chapter

Office of the San Francisco City Attorney

Sierra Club California

OPPOSITION

Western States Petroleum Association

RELATED LEGISLATION

Pending Legislation: SB 390 (Author:Limón, 2023) makes it unlawful to engage in specified unfair, deceptive, or fraudulent practices in the market related to voluntary carbon offsets, including verifying an offset project for the purposes of issuing a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project are unlikely to be quantifiable, real, and additional. SB 390 is currently in the Assembly Appropriations Committee.

Prior Legislation: SB 343 (Allen, Ch. 507, Stats. 2022) tightened the requirements around the permissible use of the “chasing arrows” recycling symbol to avoid deceptive uses in marketing and otherwise.

PRIOR VOTES:

Senate Environmental Quality Committee (Ayes 5, Noes 2)

Assembly Floor (Ayes 61, Noes 17)

Assembly Appropriations Committee (Ayes 11, Noes 4)

Assembly Judiciary Committee (Ayes 8, Noes 2)

Assembly Natural Resources Committee (Ayes 8, Noes 1)

**************

1. Ashkat Rathi & Ben Elgin, What Are Carbon Offsets and How Many Really Work? (June 14, 2022) Bloomberg, https://www.bloomberg.com/news/articles/2022-06-14/what-are-carbon-offsets-and-how-many-really-work-quicktake?leadSource=uverify%20wall. All internet citations are current as of June 29, 2023. ↑

2. Green Guides, FTC, https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-issues-revised-green-guides/greenguides.pdf. ↑

3. Ben Elgin, This Timber Company Sold Millions of Dollars of Useless Carbon Offsets (Mar. 17, 2022) Bloomberg, https://www.bloomberg.com/news/articles/2022-03-17/timber-ceo-wants-to-reform-flawed-carbon-offset-market. ↑

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Allen, Chair

2023 - 2024 Regular

SUBJECT: Voluntary carbon offset disclosures

DIGEST: This bill creates specified disclosure requirements for the sellers and buyers of voluntary carbon offsets (VCOs), as defined, involving the details, accounting, and justifications of VCOs with regards to claiming carbon neutrality, among related claims. It also states that a violation of the act is subject to a specified civil penalty.

ANALYSIS:

Existing law:

1. Under the California Climate Crisis Act (AB 1279, Muratsuchi, Chapter 337, Statutes of 2022), states that it is the policy of the state to achieve net zero greenhouse gas (GHG) emissions no later than 2045 and maintain net negative GHG emissions thereafter, and to ensure that by 2045 statewide anthropogenic GHG emissions are reduced to at least 85% below the 1990 level.
2. Defines terms related to the cap-and-trade program, including the California Air Resources Board (CARB’s) Compliance Offsets Program. (Title 17 CCR, Section 95802)

This bill:

1. Imposes disclosure requirements on sellers of VCOs, including:
   
   1. Details regarding the project generating the offset including the location, timeline, dates, quantities of emissions, type of project, durability of the project, compliance with voluntary standards, and whether there is independent validation or verification of the project;
      
   2. Accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits;
      
   3. All data and calculation methods needed to independently reproduce and verify the number of offsets issued using the protocol; and
      
   4. Definitions for pertinent terms, including “durability”, “protocol”, and “voluntary carbon offset”.
      
2. Imposes disclosure requirements on the buyers (or users) of VCOs who claim “carbon neutrality” or similar claims, including the name of the entity selling the offset, names and identification numbers if applicable, the type and location of the project generating the offset, the protocol used to estimate emission reductions or removal benefits, and whether there was independent third-party verification of the data and claims.
   
3. Requires an entity that claims “carbon neutrality” or a similar claim for themselves, their product, or an affiliated entity to disclose on their website information justifying that claim, including:
   
   1. How the claim was determined to be accurate;
   2. How interim progress to that goal is being measured; and
   3. Whether there is independent third-party verification of the company data and claims listed.
      
4. Declares that a violation of this act is subject to a civil penalty of not more than $5,000 per day, not to exceed a total amount of $500,000, which is to be recovered in a civil action by the Attorney General, a district attorney, county counsel, or city attorney.
   

Background

1. What is a carbon offset? In its simplest terms, a carbon offset is when one entity who is attempting to reduce their emissions instead pays another entity to then reduce or remove an equivalent amount of emissions, rather than actually reduce their emissions themselves.
   
   The devil, of course, is in the details. Who is reducing their emissions instead? What emissions are they reducing, avoiding, or removing? Would they have reduced those emissions if they had not been paid through the offset arrangement? Are the offset emissions directly equivalent to the original emissions, or is their equivalence depending on subjective accounting assumptions? These questions and more have swirled around offsets for as long as they have been in use.
   
   Despite these concerns, carbon offsets are widely used by individuals, corporations, and governments to mitigate their GHG emissions on the assumption that offsets reflect equivalent climate benefits achieved elsewhere.
   
2. Voluntary offsets versus compliance offsets. In California, many of the state’s largest polluters are subject to the state’s cap-and-trade program. Under the cap-and-trade program, they are required by law to either reduce their emissions by specified amounts over time, or otherwise surrender compliance instruments to cover those emissions. The two available compliance instruments are allowances (which originate from the state providing a set amount each year) and offsets (which originate from entities outside of cap-and-trade offering to reduce or avoid equivalent volumes of emissions). Offsets purchased to comply with cap-and-trade are “compliance offsets”; their use is to comply with mandatory legal obligations.
   
   In contrast, voluntary carbon markets are not established by governments and participation is voluntary. These markets allow companies, governments, and other organizations to offset their carbon emissions on a voluntary basis, either to meet their own sustainability goals or to demonstrate their commitment to reducing their carbon footprint. The voluntary carbon market is currently smaller than the compliance market, but it is expected to grow as more entities seek to increase their climate ambitions while minimizing associated costs.
   
   AB 1305 exclusively pertains to voluntary carbon markets. It makes no changes to the ability of cap-and-trade covered entities to use compliance offsets to comply with their cap-and-trade compliance obligations.
   
3. When offsets don’t offset. The central idea behind a carbon offset is that it can substitute for GHG emission reductions that an organization would have made on its own. When offsets are truly like-for-like (e.g. a ton of emitted CO2 is compensated by a ton of CO2 removed from the atmosphere and stored permanently), they can indeed be used to achieve carbon neutrality and reduce the total tonnage of GHG emissions to the atmosphere. This accounting quickly becomes wickedly complicated when vastly different pollutants, activities, and carbon stores are used to compensate for each other, however.
   
   The issue is perhaps at its most inscrutable when it comes to so-called “avoided emissions.” To qualify as a genuine carbon offset, the reductions achieved by a project need to be “additional” to what would have happened if the project had not been carried out (e.g. continued as business-as-usual). In the case of avoided emissions, the business-as-usual scenario is often, at its core, an educated guess made by financially vested parties.
   If you own and protect a forest for generations, it does not inherently create avoided emissions offsets. On the other hand, if you own and protect a forest, tell an offset registry you were planning to cut it down, then continue protecting it for generations, you can potentially create a number of valuable avoided emissions offsets. While simplistic, this example illustrates the vital importance of transparency, safeguards, and other best practices.
   
   Moreover, continuing the example of the protected forest, no one can predict the future. Even with the best of intentions for responsible stewardship, the conditions for extreme wildfires arise more often as climate change worsens. What happens when your forest burns down? If the offset was already generated, and the (nearly permanent) CO2 emission was already justified, what recourse remains? Different protocols take different approaches to dealing with these so-called “reversals”, but it is crucial that plans are in place and able to assure that carbon removals do not simply go up in smoke without further compensatory actions.
   
4. Junk offsets. Not all offsets are created equal. The lack of regulation and oversight of VCO markets in particular results in offsets being issued and sold that are highly unlikely to generate the carbon benefits that they claim to represent, which can be referred to as “junk offsets.” Junk offsets inflict harm in two primary ways. First, buyers of offsets who sincerely believe that purchasing an offset will finance projects that generate carbon benefits are defrauded when they are sold a junk offset that fails to deliver such benefits. Second, corporate buyers of junk offsets may greenwash their activities (intentionally or unintentionally) if they use the offsets in their accounting of the corporation’s carbon footprint, which may result in claims to customers, employees, and investors that are inaccurate.
   
5. The Federal Trade Commission’s (FTC’s) Green Guides. The Green Guides are designed to help marketers avoid making environmental claims that mislead consumers. The FTC’s most recent update of the Guides includes, among other things, guidance on marketers’ claims about carbon offsets.
   
   On carbon offsets, the FTC’s Green Guides read:

“Given the complexities of carbon offsets, sellers should employ competent and reliable scientific and accounting methods to properly quantify claimed emission reductions and to ensure that they do not sell the same reduction more than one time.

“It is deceptive to misrepresent, directly or by implication, that a carbon offset represents emission reductions that have already occurred or will occur in the immediate future. To avoid deception, marketers should clearly and prominently disclose if the carbon offset represents emission reductions that will not occur for two years or longer.

“It is deceptive to claim, directly or by implication, that a carbon offset represents an emission reduction if the reduction, or the activity that caused the reduction, was required by law.”

1. Comparing durability. Recent amendments made by the author to AB 1305 introduce a definition of durability (the same as exists in SB 390 of this session). The definition references the period of time for the offset as it compares to the atmospheric lifetime of CO2. This is an important inclusion, because without considering durability, one ton of CO2 emitted into the atmosphere can be offset by a ton of equivalent removal that will only keep the carbon in a solid form for several decades, or even less. From that point onward, the carbon released from the offset and the original emission both remain in the atmosphere; two tons of GHGs remain warming the atmosphere while the responsible party’s ledger shows carbon neutrality. Thus, durability is a crucial concept to consider in conversations around offsetting and carbon neutrality.

Comments

1. Purpose of Bill. According to the author, “The voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary. While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate additionality in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency.

“Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint”

1. More transparency leads to better decisions. Much like Senator Limon’s SB 390, heard and supported previously in this committee, AB 1305 is about providing market participants sufficient details about offsets to make informed decisions. This bill does not force companies to only buy offsets with durability equal to the atmospheric life of CO2, it forces VCO sellers and buyers to disclose the durability of the offsets and how that figures into claiming carbon neutrality.
   
   Absent that information, businesses, governments, and individuals who earnestly believe that they have achieved carbon neutrality in their operations may in fact have been misled. Providing and reckoning with this information may well make it harder or more expensive to be able to claim carbon neutrality than it is today. But, the question those entities and this committee must then consider is this: do we prefer facile-yet-fraudulent carbon neutrality, or difficult-yet-durable carbon neutrality?
   
   In the absence of regulation today, the VCO market has gravitated towards the former. While this has enabled many companies to claim that they are carbon neutral without breaking the bank, multiple investigations into some of those claims have raised significant concerns about their credibility. This has even led to a recent lawsuit where the plaintiff is alleging Delta Air Lines’ claim of carbon neutrality is false advertising. Thus, while AB 1305 could have the impact of constricting the VCO market and making it more onerous to claim carbon neutrality, it is the opinion of committee staff that that is preferable to the current state of affairs.
   
2. I’d gladly reduce emissions Tuesday for an offset today. Every ton of GHG emissions added to the atmosphere increases the peak warming the Earth will experience, full stop. Reducing the total tonnage of GHG emissions to the atmosphere minimizes peak warming, which will prevent staggering amounts of death and immiseration worldwide. Offsets, insofar as they can help reduce the total tonnage of GHG emissions to the atmosphere, have the potential to help in this monumental task.
   
   Unfortunately, offsets can also have the ability to make the task of reducing emissions and minimizing peak warming harder, through obfuscation and shoddy accounting. Even though they are generally treated the same, there are fundamental differences between an offset generated through a bona fide removal of carbon from the atmosphere and on an offset generated through accounting for the avoided emissions of a certain action. Avoided emissions offsets in particular are sensitive to reversals, where the carbon associated with the offset is returned to the atmosphere far sooner than the carbon emission it was intended to offset. The promise of future emission storage and reductions cannot be used to justify continued delays in emission reductions, at least without extremely robust protective measures that ensure the carbon stays removed. In the context of the bill, which involves disclosure allowing offset buyer to make the best decisions, that outcome can be served by being clear about how the offset is being generated.
   
   The committee may wish to clarify that, in referring to the “type” of offset, the provider and purchaser of an offset should state whether the offset derived from a removal of carbon from the atmosphere or avoided emissions.
   
3. Committee amendments. Staff recommends the committee adopt the bolded amendments contained in comment 3 above.

DOUBLE REFERRAL:

If this measure is approved by the Senate Environmental Quality Committee, the do pass motion must include the action to re-refer the bill to the Senate Judiciary Committee.

Related/Prior Legislation

SB 390 (Limon, 2023) adds certain claims about VCOs to the False Advertising Law, related to VCOs that are known or should be known to not be quantifiable, real, and additional, as defined. SB 390 is currently in the Assembly Natural Resources Committee.

SOURCE:

Author

SUPPORT:

Climate Reality Project, Los Angeles Chapter
Climate Reality Project, San Fernando Valley

OPPOSITION:

Calchamber

ARGUMENTS IN SUPPORT:

According to the Los Angeles and San Fernando Valley Chapters of the Climate Reality Project, “Because there are no regulations for the voluntary carbon offset market, significant opportunity for greenwashing exists. It is entirely possible that the voluntary market investments do not represent real reductions or removals of carbon emissions.

“AB 1305 would establish disclosure standards for both buyers and sellers of voluntary offset credits. Sellers of voluntary carbon offsets would be required to disclose specific information about the carbon offset project to include projected emission reductions, the type of project and its timeline, and all data and calculation methods used determine the number of credits issued. Purchasers of voluntary carbon offsets shall disclose information such as the project type and site, the specific methodology to estimate emissions reductions or removals, and how a claim of “carbon-neutral or “net-zero emission” is achieved.

“The information that would be disclosed as per AB 1305 ensures accurate information to evaluate the validity and effectiveness of the volunteer carbon offset market.”

ARGUMENTS IN OPPOSITION:

According to the California Chamber of Commerce, “Voluntary carbon offsets are already subject to rigorous reporting requirements. Entities wishing to either generate or purchase offset credits through a voluntary process participate in a market such as the American Carbon Registry, Verra, or the Climate Action Reserve. These entities have been in existence for decades and have protocols in place to ensure the value of the offset is commensurate with the avoided emissions of that project. And, in fact, have spent over two decades refining their processes to ensure that there are methodologies in place to more accurately reflect best practices. These entities often have staff trained by the California Air Resources Board (CARB) in offset protocols as well. The reporting requirements included in AB 1305 are already posted on the registries websites. Duplicating that process is wholly unnecessary and could potentially diminish the value of the registry by imposing this requirement on staff that have not been trained in offset protocols by CARB.”

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1305

Author:(Gabriel)

As Amended Ver:April 18, 2023

Majority vote

SUMMARY

Requires disclosure of specified information by sellers and buyers of voluntary carbon offsets. Subjects violators to a civil penalty up to $5,000 per day for each violation.

Major Provisions

1. Requires a business entity that is selling voluntary carbon offsets to disclose on the business entity's internet website all of the following information:
   1. Details regarding the applicable carbon offset project, including all of the following information:
      1. The specific methodology used to estimate emission reductions or removal benefits;
      2. The location of the offset project site;
      3. The project timeline;
      4. The date when the project started or will start;
      5. The date when the emission reductions or removals started or will start;
      6. The type of project; and,
      7. Whether the project meets any standards established by law or by a nonprofit entity.
   2. Details regarding accountability if a project is not completed or does not meet the projected emission reductions or removal benefits, including, but not limited to, details regarding what happens under all of the following circumstances:
      1. If carbon storage projects are reversed;
      2. If future emission reductions do not materialize; and,
      3. If past reductions are reversed.
   3. All data and calculation methods needed to independently reproduce the number of credits issued.
2. Requires a purchaser of voluntary carbon offsets that makes claims regarding the achievement of net-zero emissions, claims to be "carbon neutral," or other claims implying the company does not add net carbon dioxide to the climate or has made significant reductions to its carbon dioxide emissions to disclose on the purchaser's internet website all of the following information:
   1. The offset registry or program;
   2. The project identification number, if applicable;
   3. The project name as listed in the registry or program, if applicable;
   4. The offset project type and site location;
   5. The specific methodology used to estimate emission reductions or removal benefits; and,
   6. How a "carbon neutral," "net-zero emission," or other similar claim was determined to be accurate or actually accomplished.
3. Subjects a person who violates the bill's disclosure requirements to a civil penalty of not more than $5,000 per day, for each day that information is not available or is inaccurate on the person's internet website, for each violation, not to exceed a total amount of $500,000, assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction.
4. Defines "voluntary carbon offset" as any product sold in the state that claims to be a "greenhouse gas emission (GHG) offset," a "voluntary emission reduction," a "retail offset," or any like term, which connotes that the product represents or corresponds to a reduction, not required by any law or regulation, in the amount of GHGs present in the atmosphere or that prevents the emission of GHGs into the atmosphere that would have otherwise been emitted.

COMMENTS

Individuals and corporations purchase carbon offsets to compensate for the GHG emissions they create or contribute to. As more people purchase these reductions to compensate for their carbon footprint, questions arise as to what is being done to ensure that they are purchasing genuine carbon offsets. There is growing concern about the validity of emission reductions from projects sold and the potential for fraud. Despite the growth of the voluntary offset market in supporting advertising claims and even legal requirements, such as mitigation of GHG emissions under the California Environmental Quality Act, the market remains fairly opaque, and is not regulated by the Air Resources Board or any other state entity.

The Federal Trade Commission's "Guides for the Use of Environmental Marketing Claims," which are intended to help marketers avoid making environmental marketing claims that are unfair or deceptive, includes the following brief guidance regarding carbon offsets:

260.5 Carbon Offsets.

(a) Given the complexities of carbon offsets, sellers should employ competent and reliable scientific and accounting methods to properly quantify claimed emission reductions and to ensure that they do not sell the same reduction more than one time.

(b) It is deceptive to misrepresent, directly or by implication, that a carbon offset represents emission reductions that have already occurred or will occur in the immediate future. To avoid deception, marketers should clearly and prominently disclose if the carbon offset represents emission reductions that will not occur for two years or longer.

(c) It is deceptive to claim, directly or by implication, that a carbon offset represents an emission reduction if the reduction, or the activity that caused the reduction, was required by law.

According to the Author

The voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary. While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate additionality in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency.

Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.

Arguments in Support

According to San Francisco City Attorney David Chiu, (b)y making this (offset) information publicly available, AB 1305 will crack down on corporate greenwashing and give researchers and the public the information they need to determine the validity of these products being sold to businesses and consumers. Reducing carbon emissions is critical to the future health of our State and City. Unfortunately, we believe the voluntary carbon credit market is rife with carbon reduction promises that do not deliver the promised results. Creating additional legal standards in this market will clarify standards in this market, thus helping people and businesses purchasing carbon credits know that basic standards are being met and that legal enforcement is possible if such standards are disregarded.

Arguments in Opposition

According to the Western States Petroleum Association, the bill lacks a clear definition of business entity that will be subject to this law – it is unclear whether these requirements are only for in-state project developers and voluntary offsets purchasers. The bill would create duplicative reporting requirements for entities interested in generation and purchase of voluntary carbon credits…This is a redundant and duplicative requirement that, in case of failure to complete, carries a civil penalty. In addition, Federal Trade Commission's Green Guides for the use of environmental marketing claims provide guidance to entities purchasing voluntary carbon offsets regarding the claims they can and cannot make with regards to emission reductions. Further, Securities and Exchange Commission is currently in the rulemaking process for climate change disclosures for corporations that includes requirement to disclose use of offsets. Considering these pre-existing or future requirements regarding voluntary carbon offsets, requirements in this bill are unnecessary and duplicative.

FISCAL COMMENTS

According to the Assembly Appropriations Committee, costs of an unknown but potentially significant amount, in excess of $150,000, for the Department of Justice to bring an unknown number of enforcement actions against violators of this bill's disclosure requirements, which would require an increase in attorney hours (General Fund, Legal Services Revolving Fund, or a different special fund).

VOTES

ASM NATURAL RESOURCES: 8-1-2

YES: Luz Rivas, Addis, Friedman, Muratsuchi, Pellerin, Ward, Wood, Zbur

NO: Mathis

ABS, ABST OR NV: Flora, Hoover

ASM JUDICIARY: 8-2-1

YES: Maienschein, Connolly, Haney, Kalra, Pacheco, Papan, Reyes, Robert Rivas

NO: Dixon, Sanchez

ABS, ABST OR NV: Essayli

ASM APPROPRIATIONS: 11-4-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Ortega

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: April 18, 2023

CONSULTANT: Lawrence Lingbloom / NAT. RES. / (916) 319-2092 FN: 0000649

Date of Hearing: May 10, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1305

Author:(Gabriel) – As Amended Ver:April 18, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires disclosure of specified information by sellers and buyers of voluntary carbon offsets and imposes civil penalties on businesses that violate the disclosure rules.

Specifically, this bill:

1. Requires a business entity that sells voluntary carbon offsets to disclose on the business entity’s website (a) specified information about the project, such as the specific methodology used to estimate emission reductions or removal benefits, (b) specified details if a project is not completed or does not meet the projected emission reductions or removal benefits, and (c) all data and calculation methods needed to independently reproduce the number of credits issued.
2. Requires a purchaser of voluntary carbon offsets that makes claims regarding the achievement of net-zero emissions, claims to be “carbon neutral,” or other claims implying the company does not add net carbon dioxide to the climate or has made significant reductions to its carbon dioxide emissions to disclose on the purchaser’s website specified information.
3. Provides that a person who violates the disclosure requirements is subject to a civil penalty of up to $5,000 per day, for each day that information is not available or is inaccurate on the person’s website, for each violation, not to exceed a total amount of $500,000.
4. Provides that the civil penalties in 3) are to be assessed and recovered in a civil action brought by the Attorney General or by a district attorney, county counsel, or city attorney.

FISCAL EFFECT:

Costs of an unknown but potentially significant amount, in excess of $150,000, for the Department of Justice to bring an unknown number of enforcement actions against violators of this bill’s disclosure requirements, which would require an increase in attorney hours (General Fund, Legal Services Revolving Fund, or a different special fund).

COMMENTS:

1) Purpose. According to the author:

While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate accountability in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency. Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.

2) Background. Individuals and corporations purchase carbon offsets to compensate for the greenhouse gas (GHG) emissions they create or contribute to. There is growing concern, however, about the validity of emission reductions from projects sold and the potential for fraud. Despite the growth of the voluntary offset market in supporting advertising claims and even legal requirements, such as mitigation of GHG emissions under the California Environmental Quality Act (CEQA), the market remains fairly opaque, is not regulated by the Air Resources Board or any other state entity, and can result in corporate greenwashing.

A 2022 United Nations (UN) report titled “Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities, and Regions” notes that in order to meet global climate goals, “non‑state actors cannot buy cheap credits that often lack integrity instead of immediately cutting their own emissions across their value chain.” The UN recommends regulators increase corporate “assurance on their net zero pledges and mandatory annual progress reporting.” Furthermore, the report notes that accurate reporting of offsets helps regulators and industry identify the most promising projects and the most innovative means of deploying carbon offset projects to the market.

Seeking to increase transparency and accountability in the carbon offset markets, this bill specifies a series of disclosures that any business that buy or sells carbon offsets must include on their websites. The information ranges from timelines for project completion, methods for calculating carbon reductions, and disclosures about projects that did not meet their originally stated goals.

Analysis Prepared by: Nikita Koraddi / APPR. / (916) 319-2081

Date of Hearing: April 25, 2023

ASSEMBLY COMMITTEE ON JUDICIARY

Brian Maienschein, Chair

ABPCA Bill Id:AB 1305

Author:(Gabriel) – As Amended Ver:April 18, 2023

SUBJECT: Voluntary carbon offset disclosures

KEY ISSUE: should civil penalties be imposed UPon sellers and buyers of voluntary carbon offsets who fail to properly post disclosures regarding the status and efficacy of their carbon offset projects?

SYNOPSIS

In an attempt to appeal to environmentally conscious consumers many California companies are now publically touting their efforts to reduce or offset their carbon emissions. Many of these efforts are done by purchasing a carbon offset, essentially paying to support an environmentally friendly project that reduces carbon, as a means of cancelling out a company’s carbon emissions. In recent years, the United Nations, among other entities, have noticed that the unregulated carbon offset market frequently produces projects that are not as impactful as their proponents, and the companies that purchase offsets, claim. Thus, by claiming to carry out projects that do not have their intended impact corporations are engaging in “greenwashing,” or claiming to be more environmentally friendly than they actually are.

Seeking to boost transparency around carbon offsets, and reduce greenwashing, this bill would require the buyers and sellers of carbon offsets in California to disclose information regarding the efficacy and status of their projects. The bill imposes civil penalties on companies who purchase or sell offsets and fail to make these disclosures. The penalty amounts are commiserate with similar fines related to violations of the state’s Cap & Trade laws.

This bill is supported by two regional chapters of the Climate Reality Project who contend that accurate reporting of carbon offsets helps consumer make wise choices and holds companies accountable. The bill is opposed by the Western States Petroleum Association, which contends that the bill is needlessly vague and duplicative of existing disclosure rules. The bill was previously heard and approved by the Committee on Natural Resources by a vote of 8-1.

SUMMARY: Requires businesses that sell voluntary carbon offsets to disclose specified information regarding the project and imposes civil penalties on businesses that violate the disclosure rules. Specifically, this bill:

1. Requires a business entity that sells voluntary carbon offsets to disclose on the business entity’s internet website all of the following information about the project:
   1. The specific methodology used to estimate emission reductions or removal benefits;
   2. The location of the offset project site;
   3. The project timeline;
   4. The date when the project started or will start;
   5. The date when the emission reductions or removals started or will start;
   6. The type of project; and
   7. Whether the project meets any standards established by law or by a nonprofit entity.
2. Provides that if a project is not completed or does not meet the projected emission reductions or removal benefits the business must also disclose:
   1. If carbon storage projects are reversed;
   2. If future emission reductions do not materialize; and
   3. If past reductions are reversed.
3. Provides that a business entity that is selling voluntary carbon offsets must disclose all data and calculation methods needed to independently reproduce the number of credits issued.
4. Provides that if a purchaser of voluntary carbon offsets that makes claims regarding the achievement of net-zero emissions, claims to be “carbon neutral,” or other claims implying the company does not add net carbon dioxide to the climate or has made significant reductions to its carbon dioxide emissions shall disclose on the purchaser’s internet website all of the following information:
   1. The offset registry or program;
   2. The project identification number, if applicable;
   3. The project name as listed in the registry or program, if applicable;
   4. The offset project type and site location;
   5. The specific methodology used to estimate emission reductions or removal benefits; and
   6. How a “carbon neutral,” “net-zero emission,” or other similar claim was determined to be accurate or actually accomplished.
5. Provides that a business entity that violates the disclosure requirements of 1) through 4) is subject to a civil penalty of five thousand dollars ($5,000) per day, for each day that information is not available or is inaccurate on the person’s internet website, for each violation, not to exceed a total amount of five hundred thousand dollars ($500,000).
6. Provides that the civil penalties imposed by 5) are to be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction.
7. Defines “voluntary carbon offset” to mean any product sold in the state that claims to be a “greenhouse gas emission offset,” a “voluntary emission reduction,” a “retail offset,” or any like term, that connotes that the product represents or corresponds to a reduction, not required by any law or regulation, in the amount of greenhouse gases present in the atmosphere or that prevents the emission of greenhouse gases into the atmosphere that would have otherwise been emitted.

EXISTING LAW:

1. Requires a person who represents in advertising or on the label or container of a consumer good that the consumer good that it manufactures or distributes is not harmful to, or is beneficial to, the natural environment, through the use of such terms as “environmental choice,” “ecologically friendly,” “earth friendly,” “environmentally friendly,” “ecologically sound,” “environmentally sound,” “environmentally safe,” “ecologically safe,” “environmentally lite,” “green product,” or any other like term, or through the use of a chasing arrows symbol or by otherwise directing a consumer to recycle the consumer good, shall maintain in written form in its records all of the following information and documentation supporting the validity of the representation:
   1. The reasons the person believes the representation to be true;
   2. Any significant adverse environmental impacts directly associated with the production, distribution, use, and disposal of the consumer good;
   3. Any measures that are taken by the person to reduce the environmental impacts directly associated with the production, distribution, and disposal of the consumer good;
   4. Whether, if applicable, the consumer good conforms with the uniform standards contained in the Federal Trade Commission Guidelines for Environmental Marketing Claims for the use of the terms “recycled,” “recyclable,” “biodegradable,” “photodegradable,” or “ozone friendly;” and
   5. If the person uses the term “recyclable,” uses a chasing arrows symbol, or otherwise directs a consumer to recycle the consumer good, whether the consumer good meets all of the criteria for statewide recyclability. (Business and Professions Code Section 17580 (a).)
2. Provides that it is unlawful for a person to make an untruthful, deceptive, or misleading environmental marketing claim, whether explicit or implied. (Business and Professions Code Section 17580.5.)
3. Provides that a violation of 1) or 2) is a misdemeanor punishable by imprisonment in the county jail not to exceed six months, or by a fine not to exceed two thousand five hundred dollars ($2,500), or by both. (Business and Professions Code Section 17581.)
4. Establishes the California Global Warming Solutions Act which requires the Air Resources Board to adopt a statewide greenhouse gas emissions limit equivalent to 1990 levels by 2020, to ensure that statewide GHG emissions are reduced to at least 40% below the 2020 statewide limit no later than December 31, 2030, and declares the policy of the state to achieve net zero greenhouse gas emissions by 2045. (Health and Safety Code 38500 et seq.)
5. Provides that a violation of any rule, regulation, order, emission limitation, emissions reduction measure, or other measure adopted by the California Air Resources Board to implement the California Global Warming Solutions Act is subject to the same civil penalties as those found to have violated the existing laws prohibiting non-vehicular air pollution. (Health and Safety Code Section 38580.)
6. Provides that the penalties provided in 5), generally, start at five thousand dollars ($5,000). (Health and Safety Code Section 42400.)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: As California consumers are becoming increasingly aware of the need to reduce greenhouse gasses and stop global climate change, many corporations are beginning to tout their environmental consciousness. At times, this includes making claims about how the business offsets its carbon impacts, the process whereby a company funds a project to benefit the environment in order to help account for any environmental harms caused by the business. The author of this bill notes that the existing carbon offset market is largely unregulated and that many claims made by businesses cannot be verified. This measure would add transparency to offset claims process to help consumers better understand what efforts businesses are actually taking to help the environment. In support of this measure, the author states:

The voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary. While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate accountability in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency.

Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.

Despite California’s world-leading efforts to combat climate change, the threat grows by the year. California has long been a world leader in trying to combat the growing harms caused by climate change. Despite these efforts, human activities have already caused between .8 and 1.2 degrees Celsius of global warming and the problem is only growing. (Allen, et al., Global Warming of 1.5ºC, Intergovernmental Panel on Climate Change (2018), Chapter 1, at p. 51, available at: https://www.ipcc.ch/sr15/.) In fact, climate scientists warn that if the earth warms another .3 degrees Celsius, the planet is likely to cross a threshold where the damage will become irreversible and significant humanitarian impacts will be felt around the world. (Ibid.) In California, the state is already seeing the impacts of climate change as evidenced by two crippling droughts in a decade, record-shattering wildfires that display never-before-seen fire behavior, and more powerful Pacific storms (albeit occurring far less frequently than before).

Recognizing the growing threat of climate change, and Congress’s absolute paralysis in addressing the issue, California has enacted sweeping measures to address the issue. In 2006, the Legislature adopted AB 32 (Nunez) Chap. 488, Stats. 2006, putting California on a path to reach 1990 greenhouse gas emission levels by 2020. Not only did California achieve that goal before 2020, but in 2016, the state set a new target of reducing greenhouse gas emissions to at least 40 percent below the 1990 level by December 31, 2030, and codified the Air Resources Board’s Cap and Trade emissions reduction program. (SB 32 (Pavley) Chap. 249, Stats. 2016.) In the years since the passage of SB 32, the Legislature has also enacted policies and allocated billions of dollars to reduce the risk of wildfire, reinforce the state’s water infrastructure, harden local infrastructure for the impacts of climate change, address some of the greenhouse gas related issues posed by plastic pollution, and seek to redress the harms from shorter-lived climate pollutants.

Seeking to attract environmentally conscious customers, many companies seek to highlight their environmentally friendly practices. Recognizing that many Americans are growing increasingly concerned about climate change, many businesses are seeking to generate goodwill by promoting their efforts to reduce the impact they have on the environment. However, some reports indicate that many of these efforts are more about public perception than actual, meaningful change in corporate behavior. This marketing tactic is known as “greenwashing.” (Ro, Some of the Favorite Corporate Greenwashing Tactics of Clothing Companies, Forbes (Apr. 12, 2021), https://www.forbes.com/sites/christinero/2021/04/12/some-of-the-favorite-greenwashing-tactics-of-clothing-companies/?sh=60918e647609.) Far too often, the claims made by many companies are more about boosting their bottom line than actually addressing the impacts of climate change.

Due to the largely unregulated world of carbon credits, the United Nations noted that in order to meet the world’s necessary climate goals, “non‑state actors cannot buy cheap credits that often lack integrity instead of immediately cutting their own emissions across their value chain.” (United Nations’ High‑Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities, Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions (2022) at p. 6.) The United Nations recommends that regulators increase corporate, “assurance on their net zero pledges and mandatory annual progress reporting.” (Id. at p. 7.) Furthermore, the report continues to note that accurate reporting of offsets helps regulators and industry identify the most promising projects and the most innovative means of deploying carbon offset projects to the market.

This bill. Seeking to increase transparency and accountability in the carbon offset markets, this bill specifies a series of disclosures that any business that buy or sells carbon offsets must disclose on their public facing websites. The information ranges from timelines for project completion, methods for calculating carbon reductions, and disclosures about projects that did not meet their originally stated goals. In order to ensure compliance with the measure this bill adopts a five thousand ($5,000) civil penalty to be imposed on a business that violates the disclosure rules for each day the entity is not complying with the law. Finally, this measure provides a working definition for a “voluntary carbon offset.”

Civil penalty levels appear reasonable and commiserate with other penalties leveled for California Global Warming Solutions Act violations. This measure imposes a five thousand ($5,000) per day penalty on any business found to be violating the disclosure requirements of the bill. The Committee on Natural Resources, who previously heard this measure and evaluated the scope of the disclosures, deferred judgment on the penalty to this Committee. After discussions with the author’s office, recent amendments adopted the current penalty level. Indeed, this level appears prudent. The existing fine for most violations of the California Global Warming Solutions Act is $5,000. Accordingly, borrowing the same fine level for carbon offset disclosure, a process related to reducing and capping carbon emissions, appears reasonable.

ARGUMENTS IN SUPPORT: This measure is supported by two regional chapters of the Climate Reality Project. In support of the bill they note:

The formal Cap and Trade program in California allows certain companies to purchase carbon credits that will offset their net emissions to maintain compliance. Outside of the compliance market there also exists a voluntary market for consumers and businesses that want to offset emissions voluntarily. The goal is to invest in projects that will reduce carbon emissions such as planting trees in the rainforest or investing in renewable energy companies.

Because there are no regulations for the voluntary carbon offset market, significant opportunity for greenwashing exists. It is entirely possible that the voluntary market investments do not represent real reductions or removals of carbon emissions.

AB 1305 would establish disclosure standards for both buyers and sellers of voluntary offset credits. Sellers of voluntary carbon offsets would be required to disclose specific information about the carbon offset project to include projected emission reductions, the type of project and its timeline, and all data and calculation methods used determine the number of credits issued. Purchasers of voluntary carbon offsets shall disclose information such as they project type and site, the specific methodology to estimate emissions reductions or removals, and how a claim of “carbon-neutral or “net-zero emission” is achieved.

The information that would be disclosed as per AB 1305 ensures accurate information to evaluate the validity and effectiveness of the volunteer carbon offset market.

ARGUMENTS IN OPPOSITION: The bill is opposed by the Western States Petroleum Association. They contend portions of the bill are unclear and duplicative. They write:

The bill lacks a clear definition of business entity that will be subject to this law – it is unclear whether these requirements are only for in-state project developers and voluntary offsets purchasers. The bill would create duplicative reporting requirements for entities interested in generation and purchase of voluntary carbon credits – a business entity who is interested in development of a project to generate high quality and verified voluntary carbon credits must follow rigorous protocols developed by carbon registries such as the American Carbon Registry or Climate Action Reserve. Protocols developed by these registries ensure that the project is delivering promised carbon dioxide (CO2) reduction or removal benefits by ensuring high standards are followed in measurement, monitoring, verification, and reporting of avoided or removed CO2 emissions from the project. This ensures project developers are accountable during and after generation of credits. In addition, once the project is verified, it is listed on the respective registry’s website for public view and includes all the information that Ab 1305 is asking project developing entities to list on their internet website (Section 1 Part 10 44475 (a) 1-7). This is a redundant and duplicative requirement that, in case of failure to complete, carries a civil penalty.

REGISTERED SUPPORT / OPPOSITION:

Support

Climate Reality Project, Los Angeles Chapter
Climate Reality Project, San Fernando Valley

Oppose

Western States Petroleum Association

Analysis Prepared by: Nicholas Liedtke / JUD. / (916) 319-2334

Date of Hearing: April 10, 2023

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Luz Rivas, Chair

ABPCA Bill Id:AB 1305 (

Author:Gabriel) – As Introduced Ver:February 16, 2023

SUBJECT: Voluntary carbon offset disclosures

SUMMARY: Requires disclosure of specified information by sellers and buyers of voluntary carbon offsets. Subjects violators to an unspecified civil penalty.

EXISTING LAW:

1. The California Global Warming Solutions Act requires the Air Resources Board (ARB) to adopt a statewide greenhouse gas (GHG) emissions limit equivalent to 1990 levels by 2020, to ensure that statewide GHG emissions are reduced to at least 40% below the 2020 statewide limit no later than December 31, 2030, and declares the policy of the state to achieve net zero greenhouse gas emissions by 2045. (Health and Safety Code 38500 et seq.)
2. The Act requires ARB, among other things, to:
   1. Adopt rules and regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions;
   2. Ensure any direct regulation or market-based compliance mechanism achieves GHG reductions that are real, permanent, quantifiable, verifiable, and enforceable by ARB;
   3. Limit offsets used in the cap and trade regulation to 4% of a covered entity’s compliance obligation from 2021 to 2025 and 6% from 2026 to 2030, of which no more than one-half may be sourced from projects that do not provide direct environmental benefits in state; and,
   4. Adopt methodologies for the quantification of voluntary GHG emission reductions.
3. Generally prohibits the use of false or misleading statements in advertising, including any untruthful, deceptive, or misleading environmental marketing claim. Provides that a violation is a misdemeanor punishable by imprisonment in the county jail not to exceed six months, or by a fine not to exceed $2,500, or by both. Provides an affirmative defense when an environmental marketing claim conforms to voluntary guidelines published by the Federal Trade Commission (FTC). (Business and Professions Code 17580-17581)
   

THIS BILL:

1. Requires a business entity that is selling voluntary carbon offsets to disclose on the business entity’s internet website all of the following information:
   1. Details regarding the applicable carbon offset project including all of the following information:
      1. The specific methodology used to estimate emission reductions or removal benefits;
      2. The location of the offset project site;
      3. The project timeline;
      4. The date when the project started or will start;
      5. The date when the emission reductions or removals started or will start;
      6. The type of project; and,
      7. Whether the project meets any standards established by law or by a nonprofit entity.
   2. Details regarding accountability if a project is not completed or does not meet the projected emission reductions or removal benefits, including, but not limited to, details regarding what happens under all of the following circumstances:
      1. If carbon storage projects are reversed;
      2. If future emission reductions do not materialize; and,
      3. If past reductions are reversed.
   3. All data and calculation methods needed to independently reproduce the number of credits issued.
2. Requires a purchaser of voluntary carbon offsets that makes claims regarding the achievement of net-zero emissions, claims to be “carbon neutral,” or other claims implying the company does not add net carbon dioxide to the climate or has made significant reductions to its carbon dioxide emissions to disclose on the purchaser’s internet website all of the following information:
   1. The offset registry or program;
   2. The project identification number, if applicable;
   3. The project name as listed in the registry or program, if applicable;
   4. The offset project type and site location;
   5. The specific methodology used to estimate emission reductions or removal benefits; and,
   6. How a “carbon neutral,” “net-zero emission,” or other similar claim was determined to be accurate or actually accomplished.
3. Subjects a person who violates the bill’s disclosure requirements to an unspecified civil penalty for each violation, assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by a district attorney, county counsel, or city attorney in a court of competent jurisdiction.
4. Defines “voluntary carbon offset” as any product sold in the state that claims to be a “greenhouse gas emission offset,” a “voluntary emission reduction,” a “retail offset,” or any like term, which connotes that the product represents or corresponds to a reduction, not required by any law or regulation, in the amount of GHGs present in the atmosphere or that prevents the emission of GHGs into the atmosphere that would have otherwise been emitted. Excludes any GHG reduction measures, including voluntary GHG emission reduction measures or market-based compliance mechanisms, used to comply with GHG emission limits established by any law or regulation, including, but not limited to, limits established pursuant to the California Global Warming Solutions Act, the California Environmental Quality Act (CEQA), or federal law or regulation.

FISCAL EFFECT: Unknown

COMMENTS:

1. Author’s statement:

The voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary. While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over-crediting and lack of legitimate additionality in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency.

Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.

1. The voluntary offset market. Individuals and corporations purchase carbon offsets to compensate for the GHG emissions they create or contribute to. As more people purchase these reductions to compensate for their carbon footprint, questions arise as to what is being done to ensure that they are purchasing genuine carbon offsets. There is growing concern about the validity of emission reductions from projects sold and the potential for fraud. Despite the growth of the voluntary offset market in supporting advertising claims and even legal requirements, such as mitigation of GHG emissions under CEQA, the market remains fairly opaque, and is not regulated by ARB or any other state entity.

The FTC’s “Guides for the Use of Environmental Marketing Claims,” which are intended to help marketers avoid making environmental marketing claims that are unfair or deceptive, includes the following brief guidance regarding carbon offsets:

260.5 Carbon Offsets.

(a) Given the complexities of carbon offsets, sellers should employ competent and reliable scientific and accounting methods to properly quantify claimed emission reductions and to ensure that they do not sell the same reduction more than one time.

(b) It is deceptive to misrepresent, directly or by implication, that a carbon offset represents emission reductions that have already occurred or will occur in the immediate future. To avoid deception, marketers should clearly and prominently disclose if the carbon offset represents emission reductions that will not occur for two years or longer.

(c) It is deceptive to claim, directly or by implication, that a carbon offset represents an emission reduction if the reduction, or the activity that caused the reduction, was required by law.

1. Exclusions from the definition of “voluntary carbon offset” may be too broad. This bill includes a sweeping exclusion from its disclosure requirements for offsets used to comply with GHG emission limits established by any law or regulation. It may be appropriate to draw a distinction between voluntary offsets and compliance offsets used to comply with ARB’s cap and trade regulation or a similar GHG emissions reduction requirement, as compliance offsets are subject to more stringent standards and an existing enforcement scheme. However, it is not clear why the bill’s disclosure requirements should not apply to voluntary offsets used for CEQA mitigation or to any future law that may be captured by the bill’s broad exclusion, such as a law that requires a large corporation to disclose its GHG emissions.
2. What is the civil penalty cap? This bill establishes a new civil penalty for violations of its provision, with a blank limit on the amount recoverable per violation. The bill has been referred to the Judiciary Committee due to the civil penalty provision, so it may be prudent to defer resolution of the civil penalty amounts to the Judiciary Committee.
3. Prior legislation. AB 376 (Nava, 2009) required a person selling a GHG emission offset for voluntary purposes to disclose specified information in advertising materials and ensure the offset has a unique serial number and is tracked by a registry, and included a civil penalty up to $10,000 for each violation. AB 376 passed this committee, but was held in the Assembly Appropriations Committee.
4. Double referral. This bill has been double referred to the Assembly Judiciary Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Climate Reality Project, Los Angeles Chapter
Climate Reality Project, San Fernando Valley

Opposition

Western States Petroleum Association

Analysis Prepared by: Lawrence Lingbloom / NAT. RES. /