Under existing law, it is unlawful for a person to make an untruthful, deceptive, or misleading environmental marketing claim, whether explicit or implied.

This bill would make it unlawful for a person to certify or issue a voluntary carbon offset, to maintain on a registry a voluntary carbon offset, or to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the greenhouse gas reductions or greenhouse gas removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional.

The bill would also make it unlawful for a person to verify an offset project for the purposes of issuing a voluntary carbon offset if the person knows or should know that the greenhouse gas reductions or greenhouse gas removal enhancements of the offset project are unlikely to be quantifiable, real, and additional. The bill would make it unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the durability of the voluntary carbon offsets greenhouse gas reductions or greenhouse gas removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, except as provided. The bill would make it unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the atmospheric lifetime of the greenhouse gases associated with the voluntary carbon offsets greenhouse gas reductions or greenhouse gas removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, except as provided.

A violation of the bills provisions would not be a crime, but would be subject to enforcement by any available civil remedies.

Under existing law, it is unlawful for a person to make an untruthful, deceptive, or misleading environmental marketing claim, whether explicit or implied.

This bill would make it unlawful for a person to certify or issue a voluntary carbon offset, to maintain on a registry a voluntary carbon offset, or to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the greenhouse gas reductions or greenhouse gas removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, additional, and permanent. and additional.

The bill would also make it unlawful for a person to verify an offset project for the purposes of issuing a voluntary carbon offset if the person knows or should know that the greenhouse gas reductions or greenhouse gas removal enhancements of the offset project are unlikely to be quantifiable, real, additional, and permanent. and additional. The bill would make it unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the durability of the voluntary carbon offsets greenhouse gas reductions or greenhouse gas removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, except as provided. The bill would make it unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the atmospheric lifetime of the greenhouse gases associated with the voluntary carbon offsets greenhouse gas reductions or greenhouse gas removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, except as provided.

A violation of the bills provisions would not be a crime, but would be subject to enforcement by any available civil remedies.

Existing law, the Unfair Competition Law, establishes a statutory cause of action for unfair competition, including any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising. Existing law establishes remedies and penalties in that regard, including injunctive relief and civil penalties.

This bill would state the Legislatures intent to enact legislation that would relate to the Unfair Competition Law.

 VETO  

Bill No: SB 390

Author: Limón (D)

Amended: 4/10/23

Vote: 27

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-0, 4/19/23

AYES: Allen, Gonzalez, Limón, Menjivar, Skinner

NO VOTE RECORDED: Dahle, Nguyen

SENATE JUDICIARY COMMITTEE: 10-0, 4/25/23

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

NO VOTE RECORDED: Niello

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 33-0, 5/22/23

AYES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

NO VOTE RECORDED: Dahle, Grove, Jones, Nguyen, Niello, Ochoa Bogh, Seyarto

ASSEMBLY FLOOR: 67-0, 9/13/23 - See last page for vote

SUBJECT: Voluntary carbon offsets: business regulation

SOURCE: Author

DIGEST:

This bill adds certain claims about voluntary carbon offsets (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.

ANALYSIS:

Existing law:

1. Establishes the Unfair Competition Law and therein defines “unfair competition” 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 (False Advertising Law). (Bus. & Prof. Code (BPC) § 17200 et seq.)
2. States that anyone who violates the False Advertising Law is guilty of a misdemeanor. (BPC § 17534)
3. Defines “greenhouse gas” to include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen triflouride. (HSC § 38505)
4. Defines terms related to the cap-and-trade program, including CARB’s Compliance Offsets Program. (Title 17 CCR, Section 95802)

This bill:

1. Defines twenty-six terms pertaining to carbon offsets, generally in line with existing definitions for compliance offset protocols.
   
2. Declares the following activities unlawful for a person to do if the person knows or should know that the GHG reductions or GHG removal enhancements of the VCO are unlikely to be quantifiable, real, and additional:
   1. Verify a VCO project;
   2. Certify or issue a VCO;
   3. Maintain a VCO on a registry; or
   4. Market, offer for sale, or sell a VCO.
      
3. Declares it to be unlawful for a person to market, offer for sale, or sell a VCO—without explicitly marketing the VCO as not being physically equivalent to the climate impact of carbon dioxide emissions—if the person knows or should know either:
   1. That the durability of the VCO’s GHG reductions (or removal enhancements) are less than the atmospheric lifetime of carbon dioxide; or
   2. That the atmospheric lifetime of the GHGs associated with the VCO is less than the atmospheric lifetime of carbon dioxide emissions.

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 governments and businesses seek to increase their climate ambitions while minimizing associated costs.
   
   SB 390 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. Concerns around offsets. 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. Given the inherent difficulty of proving an impact as compared to something that did not happen, the financial incentives for expert practitioners to advocate for more lenient policies, and the huge diversity of offset-generating projects, it is no wonder the discussions of carbon offsets have been complex and fraught. The stakes are incredibly high as well; if emitting one ton of GHGs is justified because of an offset, and that offset turns out to not be real, then emissions will continue to rise unabated regardless of the accounting performed.
   
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:
   1. 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.
   2. 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.
   3. 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.

Comments

1. Purpose of bill. According to the author, “Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose. While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state. If a California consumer or business purchases a carbon offset, that offset must represent the real carbon benefits claimed by the issuer or seller of the offset.”
   
2. Buyer beware. The markets for voluntary carbon offsets lack any specific regulatory framework to protect against fraud and the sale of low-quality offsets that are unlikely to deliver purported climate benefits. This bill seeks to incentivize market actors to issue and offer for sale only those offset credits that are likely to generate quantifiable, real, and additional GHG emissions reductions or GHG removal enhancements that would not have been generated but for the financial benefit from issuing the offset.
   
   There is a chance that, fearing litigation under this act, VCO markets and providers may offer fewer VCOs for purchase. However, if the VCOs they no longer offer were not quantifiable, real, or additional, was there really any climate value in those offsets being sold in the first place?
   
   All in all, this bill represents a thoughtful approach to ensuring the VCOs sold on these markets are not deceiving well-intentioned buyers. Ultimately, this should serve to protect the state’s best interests on climate action without enforcing prescriptive governmental regulations on the non-governmental VCO markets.
   
3. Comparing atmospheric lifetimes. Besides making it unlawful to claim VCOs are quantifiable, real, and additional when a person knows (or should know) they are not, SB 390 also addresses the timescales of the GHGs associated with the VCO as compared to CO2. This is important because no two gases behave exactly the same in the atmosphere, especially when their global warming potential (GWP) versus CO2 is considered over time. One ton of methane results in warming equivalent to 86 tons of CO2 in the first 20 years after the gases are released, but only equivalent to 25 tons over the first 100 years. In other words, methane has a 20-year GWP of 86, and a 100-year GWP of 25.
   This distinction affects what one CO2 equivalent (CO2e) truly represents. For instance, when CARB reports emissions in CO2e, they use a 100-year GWP for all gases. If they were to use a 20-year GWP, the same underlying data would have a very different outcome. SB 390 would still allow projects involving different gases to generate, sell, and market VCOs, but they would require explicit explanation that the offsets are not physically equivalent to CO2 emissions. This then allows buyers to make informed decisions about the offsets they buy to support their claims.
   

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

SUPPORT: (Verified 10/9/23)

California Environmental Voters

San Francisco City Attorney David Chiu

23 academic professionals

OPPOSITION: (Verified 10/9/23)

None received

GOVERNOR'S VETO MESSAGE:

This bill makes certain actions related to voluntary carbon offsets subject to the False Advertising Law, including with respect to offsets that a person knows, or should have known, do not durably reduce greenhouse gases in an amount equal to the "atmospheric lifetime" of carbon dioxide emissions.

I support the author's intent to bring greater transparency to the verification,

issuance, and sale of voluntary carbon offsets, and to address the problem of

so-called "junk offsets." However, by imposing civil liability for even unintentional mistakes about offset quality, this bill could inadvertently capture well intentioned sellers and verifiers of voluntary offsets, and risks creating significant turmoil in the market for carbon offsets, potentially even beyond California. I encourage the author to consider an alternative approach to ensuring voluntary carbon offset quality that avoids these unintended consequences.

ASSEMBLY FLOOR: 67-0, 9/13/23

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

NO VOTE RECORDED: Alanis, Chen, Megan Dahle, Davies, Essayli, Vince Fong, Gallagher, Hoover, Lackey, Jim Patterson, Joe Patterson, Sanchez, Ta

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

10/19/23 10:40:47

**** END ****

SENATE THIRD READING

STR Bill Id:SB 390

Author:(Limón)

As Amended Ver:April 10, 2023

Majority vote

SUMMARY

This bill adds certain claims about voluntary carbon offsets (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.

Major Provisions

1. Defines 26 terms pertaining to carbon offsets, generally consistent with existing definitions for compliance offset protocols.
2. Declares the following activities unlawful for a person to do if the person knows or should know that the greenhouse gas (GHG) reductions or GHG removal enhancements of the VCO are unlikely to be quantifiable, real, and additional:
   1. Verify a VCO project;
   2. Certify or issue a VCO;
   3. Maintain a VCO on a registry; or
   4. Market, offer for sale, or sell a VCO.
3. Declares it to be unlawful for a person to market, offer for sale, or sell a VCO – without explicitly marketing the VCO as not being physically equivalent to the climate impact of carbon dioxide emissions – if the person knows or should know either:
   1. That the durability of the VCO's GHG reductions (or removal enhancements) are less than the atmospheric lifetime of carbon dioxide; or
   2. That the atmospheric lifetime of the GHGs associated with the VCO is less than the atmospheric lifetime of carbon dioxide emissions.

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 (FTC) "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.

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.

According to the Author

Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose.

While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state. If a California consumer or business purchases a carbon offset, that offset must represent the real carbon benefits claimed by the issuer or seller of the offset.

Arguments in Support

According to California Environmental Voters, SB 390 will establish legally enforceable prohibitions on the issuance and sale of voluntary carbon offsets that cannot reasonably be expected to produce the climate benefits that the offsets purportedly represent. The bill defines key concepts and actions related to voluntary carbon offsets, establishing clear expectations that people must refrain from participating in the issuance or sale of offsets that are unlikely to represent real, quantifiable, and additional climate benefits. Establishing these legal standards is a necessary step in restoring confidence to these markets, preventing Californians from being harmed by purchasing products based on false promises, and stopping poor quality offsets from undermining our fight against climate change.

Arguments in Opposition

None received.

FISCAL COMMENTS

According to the Assembly Appropriations Committee, unknown but potentially significant costs (General Fund) to the Department of Justice (DOJ) if the Attorney General brings civil actions to enforce violations of this bill’s provisions. Actual costs will depend on several factors, including, the number of potential target defendants that may violate this bill, the number of violations that arise in any given year, and the extent to which the Attorney General (and not another prosecutorial office) would enforce the law. If DOJ pursues civil remedies, it would result in a potentially significant workload increase for DOJ’s Public Resources Division, likely in excess of $150,000 annually. If DOJ chooses not to pursue civil remedies, DOJ would likely not incur any costs.

VOTES

SENATE FLOOR: 33-0-7

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

ABS, ABST OR NV: Dahle, Grove, Jones, Nguyen, Niello, Ochoa Bogh, Seyarto

ASM NATURAL RESOURCES: 9-0-2

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

ABS, ABST OR NV: Flora, Hoover

ASM JUDICIARY: 8-0-3

YES: Maienschein, Connolly, Haney, Kalra, Pacheco, Papan, Reyes, McKinnor

ABS, ABST OR NV: Essayli, Dixon, Sanchez

ASM APPROPRIATIONS: 13-0-3

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Soria, Weber, Wilson

ABS, ABST OR NV: Megan Dahle, Dixon, Sanchez

UPDATED

VERSION: April 10, 2023

CONSULTANT: Lawrence Lingbloom / NAT. RES. / (916) 319-2092 FN: 0001454

Date of Hearing: August 16, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

SBPCA Bill Id:SB 390

Author:(Limón) – As Amended Ver:April 10, 2023

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

SUMMARY:

This bill builds on existing false advertising laws and makes it illegal to market or sell a voluntary carbon offset that a person knows or should know will not achieve meaningful greenhouse gas (GHG) reduction benefits.

Specifically, this bill, among other things:

1. Makes it unlawful for a person to verify 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.
2. Makes it unlawful for a person to certify or issue, maintain on a registry, market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional.
3. Makes it unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the durability of or the atmospheric lifetime of the GHGs associated with the voluntary carbon offset’s GHG reductions or GHG removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, unless the person explicitly markets the voluntary carbon offset as not being physically equivalent to the climate impact of carbon dioxide emissions.
4. Provides that a violation of the bill’s provisions shall not be a crime but would be subject to enforcement by any available civil remedies.

FISCAL EFFECT:

Costs (General Fund) to the Department of Justice (DOJ) of an unknown but potentially significant amount if the Attorney General brings civil actions to enforce violations of this bill’s provisions. Actual costs will depend on several factors, including, the number of potential target defendants that may violate this bill, the number of violations that arise in any given year, and the extent to which the Attorney General (and not another prosecutorial office) would enforce the law. If DOJ pursues civil remedies, it would result in a potentially significant workload increase for DOJ’s Public Resources Division, likely in excess of $150,000 annually. If DOJ chooses not to pursue civil remedies, DOJ would likely not incur any costs.

COMMENTS:

1) Purpose. According to the author:

Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose. While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state.

2) Background. Individuals and corporations purchase carbon offsets to compensate for the 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.

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.

This bill builds on California’s existing false advertising laws by, generally, prohibiting any person from verifying, certifying, marketing, or selling any voluntary carbon offset credit product in this state if the person knows or should know that the offset credit is unlikely to be quantifiable, real, and provide additional GHG reduction benefits. The bill adopts an array of definitions necessary to clarify what constitutes legitimate versus illegitimate carbon offset credits. Finally, this bill clarifies that only the existing civil penalties of the state’s false advertising laws will apply to violations of this bill and that no criminal liability should apply to a violation of the bill.

Writing in support, California Environmental Voters argues:

Climate experts, academics, and investigative journalists have revealed the inflated estimates, faulty methodologies, and outright misrepresentations that plague voluntary carbon offsets markets. And these findings suggest that low-quality offsets are not simply the product of a few bad apples, but that the problem is pervasive throughout the markets. Carbon offsets that fail to live up to their promises harm purchases of offsets and harm California’s efforts to mitigate the pace of climate change. Funding that goes to poor quality projects could have been invested in more productive uses. Corporations that purchase offsets to reduce their carbon footprints could instead invest directly in measures that reduce their emissions. Without federal laws addressing the issue, California must act to clean-up these markets.

3) Related Legislation. AB 1305 (Gabriel) requires disclosure of specified information by sellers and buyers of voluntary carbon offsets and subjects violators to specified civil penalties. AB 1305 is pending in the Senate Appropriations Committee.

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

Date of Hearing: July 5, 2023

ASSEMBLY COMMITTEE ON JUDICIARY

Brian Maienschein, Chair

SBPCA Bill Id:SB 390

Author:(Limón) – As Amended Ver:April 10, 2023

SENATE VOTE: 33-0

SUBJECT: VOLUNTARY CARBON OFFSETS: BUSINESS REGULATION

KEY ISSUE: should it be illegal to market or sell voluntary carbon offsets that a person knows or should know will have little or no tangible impact on reducing greenhouse gas emissions?

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 ensure that California consumers are not mislead and that well-meaning companies are not wasting money, this bill would build upon California’s existing laws prohibiting false advertising by making it unlawful to verify, certify, market, or sells any voluntary carbon offset credit products in this state if a person knows or should know that the offset credit is unlikely to be quantifiable, real, and provide additional greenhouse gas reduction benefits. The bill would impose civil penalties not to exceed $2,500 for each violation of the bill.

This measure is supported by a coalition of environmental advocates, public prosecutors, and academics. The supporters highlight the need to prevent greenwashing and ensure that the public can have confidence in claims made about greenhouse gas reduction activities. This measure has no known opposition and was previously heard and approved by the Committee on Natural Resources by a vote of nine to zero.

SUMMARY: Makes it illegal to market or sell a voluntary carbon offset that a person knows or should know will not achieve meaningful greenhouse gas (GHG) reduction benefits. Specifically, this bill:

1. Provides that it is unlawful for a person to verify 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.
2. Provides that it is unlawful for a person to certify or issue a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional.
3. Provides that it is unlawful for a person to maintain on a registry a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional.
4. Provides that it is unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional.
5. Provides that it is unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the durability of the voluntary carbon offset’s GHG reductions or GHG removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, unless the person explicitly markets the voluntary carbon offset as not being physically equivalent to the climate impact of carbon dioxide emissions.
6. Provides that it is unlawful for a person to market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the atmospheric lifetime of the GHGs associated with the voluntary carbon offset’s GHG reductions or GHG removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, unless the person explicitly markets the voluntary carbon offset as not being physically equivalent to the climate impact of carbon dioxide emissions.
7. Provides that a violation of 1) through 6) is to be enforced via a civil action seeking penalties authorized by the state’s false advertising laws.
8. Defines the following terms:
   1. “Activity-shifting leakage” means increased GHG emissions or decreased GHG removals that result from the displacement of activities or resources from inside the offset project’s boundary to locations outside the offset project’s boundary as a result of the offset project activity;
   2. “Additional” means greenhouse gas emission reductions or removals that exceed any greenhouse gas reduction or removals otherwise required by law, regulation, or legally binding mandate, and that exceed any greenhouse gas reductions or removals that would otherwise occur in a conservative business-as-usual scenario;
   3. “Business-as-usual scenario” means the set of conditions reasonably expected to occur within the offset project boundary in the absence of the financial incentives provided by voluntary carbon offsets, taking into account all current laws and regulations, as well as current economic and technological trends;
   4. “Carbon dioxide equivalent” means the number of metric tons of CO2 emissions with the same global warming potential as one metric ton of another greenhouse gas;
   5. “Conservative” means utilizing project baseline assumptions, emission factors, and methodologies that are more likely than not to understate net GHG reductions or GHG removal enhancements for an offset project to address uncertainties affecting the calculation or measurement of GHG reductions or GHG removal enhancements;
   6. “Durability” means the duration of time over which an offset project operator commits to maintain its GHG reductions and GHG 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;
   7. “Emissions” means the release of greenhouse gases into the atmosphere from sources and processes within an offset project boundary;
   8. “GHG emissions source” means any type of emitting activity that releases greenhouse gases into the atmosphere;
   9. “GHG reduction” means a calculated decrease in GHG emissions relative to a project baseline over a specified period of time;
   10. “GHG removal” means the calculated total mass of GHG removed from the atmosphere over a specified period of time;
   11. “GHG removal enhancement” means a calculated increase in GHG removals relative to a project baseline;
   12. “GHG reservoir” means a physical unit or component of the biosphere, geosphere, or hydrosphere with the capability to store, accumulate, or release GHG removed from the atmosphere by a GHG sink or GHG captured from a GHG emission source;
   13. “GHG sink” means a physical unit or process that removes GHG from the atmosphere;
   14. “Greenhouse gas” or “GHG” means carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, or nitrogen trifluoride;
   15. “Issue” means the creation of voluntary carbon offsets equivalent to the number of verified GHG reductions or GHG removal enhancements for an offset project over a specified period of time;
   16. “Market-shifting leakage” means increased GHG emissions or decreased GHG removals outside an offset project’s boundary due to the effects of an offset project on an established market for goods or services;
   17. “Offset project” means all equipment, materials, items, or actions that are directly related to or have an impact on GHG reductions, project emissions, or GHG removal enhancements within the offset project boundary;
   18. “Offset project boundary” is defined by and includes all GHG emission sources, GHG sinks, or GHG reservoirs that are affected by an offset project and under control of the offset project operator or authorized project designee. GHG emissions sources, GHG sinks, or GHG reservoirs not under control of the offset project operator are not included in the offset project boundary;
   19. “Offset project operator” means the entity with legal authority to implement the offset project;
   20. “Offset protocol” means a documented set of procedures and requirements to quantify ongoing GHG reductions or GHG removal enhancements achieved by an offset project and calculate the project baseline. Offset protocols specify relevant data collection and monitoring procedures, emission factors, and conservatively account for uncertainty and activity-shifting and market-shifting leakage risks associated with an offset project;
   21. “Project baseline” means, in the context of a specific offset project, a conservative estimate of business-as-usual GHG emission reductions or GHG removal enhancements for the offset project’s GHG emission sources, GHG sinks, or GHG reservoirs within the offset project boundary;
   22. “Project emissions” means any GHG emissions associated with the implementation of an offset project;
   23. “Quantifiable” means the ability to accurately measure and calculate GHG reductions or GHG removal enhancements relative to a project baseline in a reliable and replicable manner for all GHG emission sources, GHG sinks, or GHG reservoirs included within the offset project boundary, while accounting for uncertainty and activity-shifting leakage and market-shifting leakage;
   24. “Real” means that GHG reductions or GHG enhancements result from a demonstrable action or set of actions, are quantified using appropriate, accurate, and conservative methodologies that account for all GHG emissions sources, GHG sinks, and GHG reservoirs within the offset project boundary, and account for uncertainty and the potential for activity-shifting leakage and market-shifting leakage;
   25. “Verify” means to undertake a systematic, independent, and documented process for evaluation of a potential offset project against an offset protocol; and
   26. “Voluntary carbon offset” means a tradeable instrument that is issued to an offset project and that represents a GHG reduction or GHG removal enhancement of a specified amount of carbon dioxide equivalent.

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 any person who violates any provision of the state’s false advertising laws to be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which is 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 any district attorney, county counsel, or city attorney in any court of competent jurisdiction. (Business and Professions Code 17536.)
7. Defines greenhouse gas, or GHG, as any of the following gasses:
   1. Carbon dioxide.
   2. Methane.
   3. Nitrous oxide.
   4. Hydrofluorocarbons.
   5. Perfluorocarbons.
   6. Sulfur hexafluoride.
   7. Nitrogen trifluoride. (Health and Safety Code Section 38505 (g).)

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

COMMENTS: As California consumers are becoming increasingly aware of the need to reduce GHGs 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. Even worse, the existing market is filled with suspect and unreliable carbon offset products. Accordingly, this measure would make it illegal to market or sell inadequate carbon offsets in this state. In support of this measure, the author states:

Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose.

While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state. If a California consumer or business purchases a carbon offset, that offset must represent the real carbon benefits claimed by the issuer or seller of the offset.

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 GHG 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 builds on California’s existing false advertising laws by, generally, prohibiting any person from verifying, certifying, marketing, or selling any voluntary carbon offset credit product in this state if a person knows or should know that the offset credit is unlikely to be quantifiable, real, and provide additional GHG reduction benefits. The bill adopts an array of definitions necessary to clarify what constitutes legitimate versus illegitimate carbon offset credits. Finally, this bill clarifies that only the existing civil penalties of the state’s false advertising laws will apply to violations of this bill and that no criminal liability should apply to a violation of the bill.

Civil penalties track with existing penalties for violating the state’s false advertising laws. California maintains a broad array of laws seeking to protect the public from false and misleading advertising. These statutes cover nearly a dozen industry specific violations in addition to a general prohibition against making false or misleading claims. This bill would add false assertions related to carbon offset credits to the specific lists of false advertising. However, unlike several other industry-specific statutes, this bill simply reverts to the existing law’s general imposition of civil penalties for violations of the law. Accordingly, it would appear that the general penalty statute, Business and Professions Code Section 17536 would apply to this bill. Thus violations of this bill would subject a person to a civil penalty not to exceed $2,500 for each violation of the bill.

ARGUMENTS IN SUPPORT: This bill is supported by a coalition of environmental advocates, academics, and the San Francisco City Attorney. In support of the bill California Environmental Voters writes:

High-quality carbon offsets have the potential to channel financing to important projects that can deliver climate benefits, as well as additional environmental and conservation co-benefits. But the lack of a legal structure to serve as a foundation of these markets has led to the issuance of offsets that fail to live up to their purported value.

When a business or consumer purchases a carbon offset, they expect that offset to represent a reduction of greenhouse gases in the atmosphere that would not have occurred but for the financing generated by the offset. A large ecosystem of project developers, verifiers, standard-setting bodies, offset registries, and brokers has sprung up to support this growing industry that generated $2 billion of offsets sold in 2021. These industry actors make claims about the quality of projects to provide assurances that the related offsets represent real, quantifiable, additional, and permanent climate benefits. The reality, unfortunately, is that too many of these offsets simply do not live up to the promises made by the entities who issue, market, and sell them.

Climate experts, academics, and investigative journalists have revealed the inflated estimates, faulty methodologies, and outright misrepresentations that plague voluntary carbon offsets markets. And these findings suggest that low-quality offsets are not simply the product of a few bad apples, but that the problem is pervasive throughout the markets.

Carbon offsets that fail to live up to their promises harm purchases of offsets and harm California’s efforts to mitigate the pace of climate change. Funding that goes to poor quality projects could have been invested in more productive uses. Corporations that purchase offsets to reduce their carbon footprints could instead invest directly in measures that reduce their emissions. Without federal laws addressing the issue, California must act to clean-up these markets.

SB 390 will establish legally enforceable prohibitions on the issuance and sale of voluntary carbon offsets that cannot reasonably be expected to produce the climate benefits that the offsets purportedly represent. The bill defines key concepts and actions related to voluntary carbon offsets, establishing clear expectations that people must refrain from participating in the issuance or sale of offsets that are unlikely to represent real, quantifiable, and additional climate benefits. Establishing these legal standards is a necessary step in restoring confidence to these markets, preventing Californians from being harmed by purchasing products based on false promises, and stopping poor quality offsets from undermining our fight against climate change.

REGISTERED SUPPORT / OPPOSITION:

Support

Academic Researchers (a coalition of 23 professors)
California Environmental Voters
San Francisco City Attorney's Office
The Climate Center

Opposition

None on file

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

Date of Hearing: June 19, 2023

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Luz Rivas, Chair

SBPCA Bill Id:SB 390

Author:(Limón) – As Amended Ver:April 10, 2023

SENATE VOTE: 33-0

SUBJECT: Voluntary carbon offsets: business regulation

SUMMARY: This bill adds certain claims about voluntary carbon offsets (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.

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.) 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.
2. Establishes the Unfair Competition Law, which defines “unfair competition” 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 the False Advertising Law. Business and Professions Code (BPC) 17200 )
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). (BPC 17580-17581)

THIS BILL:

1. Defines 26 terms pertaining to carbon offsets, generally consistent with existing definitions for compliance offset protocols.
   
2. Declares the following activities unlawful for a person to do if the person knows or should know that the GHG reductions or GHG removal enhancements of the VCO are unlikely to be quantifiable, real, and additional:
   1. Verify a VCO project;
   2. Certify or issue a VCO;
   3. Maintain a VCO on a registry; or
   4. Market, offer for sale, or sell a VCO.
      
3. Declares it to be unlawful for a person to market, offer for sale, or sell a VCO—without explicitly marketing the VCO as not being physically equivalent to the climate impact of carbon dioxide emissions—if the person knows or should know either:
   1. That the durability of the VCO’s GHG reductions (or removal enhancements) are less than the atmospheric lifetime of carbon dioxide; or
   2. That the atmospheric lifetime of the GHGs associated with the VCO is less than the atmospheric lifetime of carbon dioxide emissions.

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, this bill would have negligible state costs.

COMMENTS:

1. Author’s statement:

Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose.

While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state. If a California consumer or business purchases a carbon offset, that offset must represent the real carbon benefits claimed by the issuer or seller of the offset.

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 the California Environmental Quality Act, 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. Related legislation. AB 1305 (Gabriel) 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. AB 1305 is pending in the Senate Environmental Quality Committee.
2. Double referral. This bill has been double referred to the Assembly Judiciary Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Environmental Voters
San Francisco City Attorney's Office

Opposition

None on file

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

 THIRD READING  

Bill No: SB 390

Author: Limón (D)

Amended: 4/10/23

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-0, 4/19/23

AYES: Allen, Gonzalez, Limón, Menjivar, Skinner

NO VOTE RECORDED: Dahle, Nguyen

SENATE JUDICIARY COMMITTEE: 10-0, 4/25/23

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

NO VOTE RECORDED: Niello

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Voluntary carbon offsets: business regulation

SOURCE: Author

DIGEST:

This bill adds certain claims about voluntary carbon offsets (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.

ANALYSIS:

Existing law:

1. Establishes the Unfair Competition Law and therein defines “unfair competition” 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 (False Advertising Law). (Bus. & Prof. Code (BPC) § 17200 et seq.)
2. States that anyone who violates the False Advertising Law is guilty of a misdemeanor. (BPC § 17534)
3. Defines “greenhouse gas” to include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen triflouride. (HSC § 38505)
4. Defines terms related to the cap-and-trade program, including CARB’s Compliance Offsets Program. (Title 17 CCR, Section 95802)

This bill:

1. Defines twenty-six terms pertaining to carbon offsets, generally in line with existing definitions for compliance offset protocols.
   
2. Declares the following activities unlawful for a person to do if the person knows or should know that the GHG reductions or GHG removal enhancements of the VCO are unlikely to be quantifiable, real, and additional:
   1. Verify a VCO project;
   2. Certify or issue a VCO;
   3. Maintain a VCO on a registry; or
   4. Market, offer for sale, or sell a VCO.
      
3. Declares it to be unlawful for a person to market, offer for sale, or sell a VCO—without explicitly marketing the VCO as not being physically equivalent to the climate impact of carbon dioxide emissions—if the person knows or should know either:
   1. That the durability of the VCO’s GHG reductions (or removal enhancements) are less than the atmospheric lifetime of carbon dioxide; or
   2. That the atmospheric lifetime of the GHGs associated with the VCO is less than the atmospheric lifetime of carbon dioxide emissions.

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 governments and businesses seek to increase their climate ambitions while minimizing associated costs.
   
   SB 390 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. Concerns around offsets. 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. Given the inherent difficulty of proving an impact as compared to something that did not happen, the financial incentives for expert practitioners to advocate for more lenient policies, and the huge diversity of offset-generating projects, it is no wonder the discussions of carbon offsets have been complex and fraught. The stakes are incredibly high as well; if emitting one ton of GHGs is justified because of an offset, and that offset turns out to not be real, then emissions will continue to rise unabated regardless of the accounting performed.
   
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:
   1. 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.
   2. 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.
   3. 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.

Comments

1. Purpose of bill. According to the author, “Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose. While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state. If a California consumer or business purchases a carbon offset, that offset must represent the real carbon benefits claimed by the issuer or seller of the offset.”
   
2. Buyer beware. The markets for voluntary carbon offsets lack any specific regulatory framework to protect against fraud and the sale of low-quality offsets that are unlikely to deliver purported climate benefits. This bill seeks to incentivize market actors to issue and offer for sale only those offset credits that are likely to generate quantifiable, real, and additional GHG emissions reductions or GHG removal enhancements that would not have been generated but for the financial benefit from issuing the offset.
   
   There is a chance that, fearing litigation under this act, VCO markets and providers may offer fewer VCOs for purchase. However, if the VCOs they no longer offer were not quantifiable, real, or additional, was there really any climate value in those offsets being sold in the first place?
   
   All in all, this bill represents a thoughtful approach to ensuring the VCOs sold on these markets are not deceiving well-intentioned buyers. Ultimately, this should serve to protect the state’s best interests on climate action without enforcing prescriptive governmental regulations on the non-governmental VCO markets.
   
3. Comparing atmospheric lifetimes. Besides making it unlawful to claim VCOs are quantifiable, real, and additional when a person knows (or should know) they are not, SB 390 also addresses the timescales of the GHGs associated with the VCO as compared to CO2. This is important because no two gases behave exactly the same in the atmosphere, especially when their global warming potential (GWP) versus CO2 is considered over time. One ton of methane results in warming equivalent to 86 tons of CO2 in the first 20 years after the gases are released, but only equivalent to 25 tons over the first 100 years. In other words, methane has a 20-year GWP of 86, and a 100-year GWP of 25.
   This distinction affects what one CO2 equivalent (CO2e) truly represents. For instance, when CARB reports emissions in CO2e, they use a 100-year GWP for all gases. If they were to use a 20-year GWP, the same underlying data would have a very different outcome. SB 390 would still allow projects involving different gases to generate, sell, and market VCOs, but they would require explicit explanation that the offsets are not physically equivalent to CO2 emissions. This then allows buyers to make informed decisions about the offsets they buy to support their claims.

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

SUPPORT: (Verified 5/9/23)

San Francisco City Attorney David Chiu

23 academic professionals

OPPOSITION: (Verified 5/9/23)

None received

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

5/10/23 15:29:10

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 390 (Author:Limón)

Version: April 10, 2023

Hearing Date: April 25, 2023

Fiscal: Yes

Urgency: No

Consultant: CK

SUBJECT

Voluntary carbon offsets: business regulation

DIGEST

This bill makes it unlawful to engage in certain conduct related to voluntary carbon offsets.

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 use existing deceptive practices law to explicitly outlaw fraudulent claims and other misconduct in this industry and subject it to the civil enforcement mechanisms that already exist. The bill also painstakingly defines key terms related to voluntary offset markets. The ultimate aim of the bill is to incentivize greater self-regulation within the offsets markets and improve the overall quality of offsets being offered to Californians.

This bill is author sponsored. There is no known support or opposition. The bill passed out of the Senate Environmental Quality Committee on a 5 to 0 vote.

PROPOSED CHANGES TO THE LAW

Existing law:

1. 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.)
2. 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.)
3. 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.)
4. 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.)
5. 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.)
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. (Title 17 CCR, Section 95802)

This bill:

1. Makes it unlawful for a person to do the following:
   1. verify 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;
   2. certify or issue a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional;
   3. maintain on a registry a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional;
   4. market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the GHG reductions or GHG removal enhancements of the offset project related to the voluntary carbon offset are unlikely to be quantifiable, real, and additional;
   5. market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the durability of the voluntary carbon offset’s GHG reductions or GHG removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, unless the person explicitly markets the voluntary carbon offset as not being physically equivalent to the climate impact of carbon dioxide emissions; or
   6. market, make available or offer for sale, or sell a voluntary carbon offset if the person knows or should know that the atmospheric lifetime of the GHGs associated with the voluntary carbon offset’s GHG reductions or GHG removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions, unless the person explicitly markets the voluntary carbon offset as not being physically equivalent to the climate impact of carbon dioxide emissions.
2. Specifies that violations are not a crime but are subject to all available civil remedies applicable to a violation of the article in which it is found within the Business and Professions Code.
3. Defines the relevant terms.

COMMENTS

1. California’s consumer protection laws

The Legislature has long considered consumer protection to be a matter of high importance. State law is replete with statutes aimed at protecting California consumers from unfair, dishonest, or harmful market practices. These consumer-protection laws authorize consumers to enforce their own rights and seek remedies to make them whole.

The UCL (Bus. & Prof. Code § 17200) provides remedies for “anything that can properly be called a business practice and that at the same time is forbidden by law.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [citations omitted].) The UCL provides that a court “may make such orders or judgments . . . as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” (Bus. & Prof. Code § 17203; see also Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1146 [“An order for restitution, then, is authorized by the clear language of the [UCL.”]].) The law also permits courts to award injunctive relief and, in certain cases, to assess civil penalties against the violator. (Bus. & Prof. Code §§ 17203, 17206.)

The FAL 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.) Violators are subject to a civil penalty not to exceed $2,500 for each violation in an action brought by the Attorney General or by any district attorney, county counsel, or city attorney. (Bus. & Prof. Code § 17536.) Similar to the UCL, the FAL provides that a person may bring an action for an injunction or restitution if the person has suffered injury in fact and has lost money or property as a result of a violation of the FAL. (Bus. & Prof. Code § 17535.)

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.

According to the author:

Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose. While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state. If a California consumer or business purchases a carbon offset, that offset must represent the real carbon benefits claimed by the issuer or seller of the offset.

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]

As the author points out, 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 defines all the relevant terms involved in these markets. It then makes it unlawful, within the Business and Professions Code, to engage in unfair, deceptive, or fraudulent practices in the market. For instance, the bill makes it unlawful for a person (1) “to verify an offset project for the purposes of issuing a voluntary carbon offset,” (2) “to certify or issue a voluntary carbon offset,” (3) “to market, make available or offer for sale, or sell a voluntary carbon offset,” or (4) “to maintain on a registry 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.”

These are key characteristics of a legitimate carbon offset, quantifiable, real, and additional. “Quantifiable” means the ability to accurately measure and calculate GHG reductions or GHG removal enhancements relative to a project baseline in a reliable and replicable manner for all GHG emission sources, GHG sinks, or GHG reservoirs included within the offset project boundary, while accounting for uncertainty and activity-shifting leakage and market-shifting leakage. “Real” means that GHG reductions or enhancements result from a demonstrable action or set of actions, are quantified using appropriate, accurate, and conservative methodologies that account for all GHG emissions sources, GHG sinks, and GHG reservoirs within the offset project boundary, and account for uncertainty and the potential for activity-shifting leakage and market-shifting leakage. “Additional” means GHG emission reductions or removals that exceed any GHG reduction or removals otherwise required by law, regulation, or legally binding mandate, and that exceed any GHG reductions or removals that would otherwise occur in a conservative business-as-usual scenario.

The goal of the bill is make regulation of these offsets more efficient and therefore more likely. It clearly defines the key terms and then provides the bases for enforcement action. While many of these targeted practices can already be enforced under existing UCL and FAL law, this makes their prohibition explicit. Public prosecutors are then able to more adequately enforce the corruption in this industry.

A group of academic researchers submitted a letter in support:

Although extensive academic research and investigative reporting5 have identified serious problems with carbon offsets, many market participants continue to sell carbon offset credits that are based on flawed technical methodologies or questionable project claims. These false and misleading claims make their way to consumers, who might be offered an opportunity to offset their own greenhouse gas emissions or pay more for a “climate-friendly” product or service. This unfortunate outcome is possible because voluntary carbon market credit quality standards are largely unregulated, with limited accountability for false or misleading statements.

SB 390 would clarify that it is a violation of the state’s false advertising laws to transact in carbon credits if the person “knows or should know” that standard marketing claims made about those credits are unlikely to be true. SB 390 would make violations subject to civil penalties, which would create an important yet measured incentive to encourage voluntary carbon markets to follow the best available science — one that is missing in today’s under-regulated system.

SUPPORT

23 individuals

OPPOSITION

None known

RELATED LEGISLATION

Pending Legislation: AB 1305 (Gabriel, 2023) requires a business entity that is selling voluntary carbon offsets to disclose 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. AB 1305 is currently in the Assembly Judiciary 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 0)

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

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 April 18, 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

Bill No: SB 390

SUBJECT: Voluntary carbon offsets: business regulation

DIGEST: This bill adds certain claims about voluntary carbon offsets (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.

ANALYSIS:

Existing law:

1. Establishes the Unfair Competition Law and therein defines “unfair competition” 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 (False Advertising Law). (Bus. & Prof. Code (BPC) § 17200 et seq.)
2. States that anyone who violates the False Advertising Law is guilty of a misdemeanor. (BPC § 17534)
3. Defines “greenhouse gas” to include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen triflouride. (HSC § 38505)
4. Defines terms related to the cap-and-trade program, including CARB’s Compliance Offsets Program. (Title 17 CCR, Section 95802)

This bill:

1. Defines twenty-six terms pertaining to carbon offsets, generally in line with existing definitions for compliance offset protocols, including but not limited to:
   1. “Quantifiable” to mean the ability to accurately measure and calculate GHG reductions or GHG removal enhancements relative to a project baseline in a reliable and replicable manner for all GHG emission sources, GHG sinks, or GHG reservoirs included within the offset project boundary, while accounting for uncertainty and activity-shifting leakage and market-shifting leakage;
   2. “Real” to mean that GHG reductions or GHG enhancements result from a demonstrable action or set of actions, are quantified using appropriate, accurate, and conservative methodologies that account for all GHG emissions sources, GHG sinks, and GHG reservoirs within the offset project boundary, and account for uncertainty and the potential for activity-shifting leakage and market-shifting leakage;
   3. “Additional” to mean GHG emission reductions or removals that exceed any GHG reduction or removals otherwise required by law, regulation, or legally binding mandate, and that exceed any GHG reductions or removals that would otherwise occur in a conservative business-as-usual scenario; and
   4. “Durability” to mean the duration of time over which an offset project operator commits to maintain its GHG reductions and GHG removal enhancement, 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. Declares the following activities unlawful for a person to do if the person knows or should know that the GHG reductions or GHG removal enhancements of the VCO are unlikely to be quantifiable, real, and additional:
   1. Verify a VCO project;
   2. Certify or issue a VCO;
   3. Maintain a VCO on a registry; or
   4. Market, offer for sale, or sell a VCO.
      
3. Declares it to be unlawful for a person to market, offer for sale, or sell a VCO—without explicitly marketing the VCO as not being physically equivalent to the climate impact of carbon dioxide emissions—if the person knows or should know either:
   1. That the durability of the VCO’s GHG reductions (or removal enhancements) are less than the atmospheric lifetime of carbon dioxide; or
   2. That the atmospheric lifetime of the GHGs associated with the VCO is less than the atmospheric lifetime of carbon dioxide emissions.
      

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 governments and businesses seek to increase their climate ambitions while minimizing associated costs.
   
   SB 390 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. Concerns around offsets. 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. Given the inherent difficulty of proving an impact as compared to something that did not happen, the financial incentives for expert practitioners to advocate for more lenient policies, and the huge diversity of offset-generating projects, it is no wonder the discussions of carbon offsets have been complex and fraught. The stakes are incredibly high as well; if emitting one ton of GHGs is justified because of an offset, and that offset turns out to not be real, then emissions will continue to rise unabated regardless of the accounting performed.
   
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:
   1. 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.
   2. 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.
   3. 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.

Comments

1. Purpose of Bill. According to the author, “Junk carbon offsets undermine our climate goals, defraud purchasers of offsets, and contribute to the greenwashing of corporate operations. These voluntary offsets are purchased by consumers and businesses to counterbalance their carbon footprints. But unfortunately, some offsets are created by projects that fail to provide quantifiable and additional carbon benefits, which completely undermines their purported purpose. While California has a regulatory framework for compliance offsets as part of our cap-and-trade program, there are no state or federal laws that provide clarity or establish standards for voluntary carbon offsets. SB 390 will establish baseline standards that participants in voluntary carbon offset markets must meet in order to offer their products for sale in our state. If a California consumer or business purchases a carbon offset, that offset must represent the real carbon benefits claimed by the issuer or seller of the offset.”
   
2. Buyer beware. The markets for voluntary carbon offsets lack any specific regulatory framework to protect against fraud and the sale of low-quality offsets that are unlikely to deliver purported climate benefits. This bill seeks to incentivize market actors to issue and offer for sale only those offset credits that are likely to generate quantifiable, real, and additional GHG emissions reductions or GHG removal enhancements that would not have been generated but for the financial benefit from issuing the offset.
   
   By defining key terms related to voluntary offset markets and making certain activities unlawful, the aim of this bill is to incentivize greater self-regulation within the offsets markets and improve the overall quality of offsets being offered to Californians.
   
   There is a chance that, fearing litigation under this act, VCO markets and providers may offer fewer VCOs for purchase. However, if the VCOs they no longer offer were not quantifiable, real, or additional, was there really any climate value in those offsets being sold in the first place?
   
   All in all, this bill represents a thoughtful approach to ensuring the VCOs sold on these markets are not deceiving well-intentioned buyers. Ultimately, this should serve to protect the state’s best interests on climate action without enforcing prescriptive governmental regulations on the non-governmental VCO markets.
   
3. Comparing atmospheric lifetimes. Besides making it unlawful to claim VCOs are quantifiable, real, and additional when a person knows (or should know) they are not, SB 390 also addresses the timescales of the GHGs being reduced as part of the VCO as compared to carbon dioxide. This is important because
   no two gases behave exactly the same in the atmosphere, especially when their global warming potential (GWP) versus CO2 is considered over time. For example, one ton of methane results in warming equivalent to 86 tons of CO2 in the first 20 years after the gases are released, but only equivalent to 25 tons over the first 100 years. Put another way, methane has a 20-year GWP of 86, and a 100-year GWP of 25.
   
   This distinction affects what one CO2e truly represents. For instance, when CARB reports emissions in CO2e, they use a 100-year GWP for all gases. If they were to use a 20-year GWP, the same underlying data would have a very different outcome.
   
   So, what does this mean for SB 390? Recent amendments to the bill included two stipulations involving the atmospheric lifetime of CO2 and the durability of VCOs. Specifically, the bill now makes it illegal for a person to market, offer for sale, or sell a VCO—without explicitly marketing the VCO as not being physically equivalent to the climate impact of carbon dioxide emissions—if the person knows or should know either: 1) That the durability of the VCO’s GHG reductions (or removal enhancements) are less than the atmospheric lifetime of carbon dioxide; or 2) That the atmospheric lifetime of the GHGs associated with the VCO is less than the atmospheric lifetime of carbon dioxide emissions. These are sensible requirements that ensure buyers of VCOs know if the emissions they are offsetting are truly being replaced with equivalent emission reduction.
   
   Consider an example of an airline claiming its flights are carbon neutral, where a given flight produces 1,000 tons CO2e of GHGs, and they buy 1,000 VCOs to offset those emissions. The veracity of their “carbon neutral” claim entirely depends on where those offsets are generated. Are the offsets from growing or maintaining forests that are likely to burn before the airplane’s CO2 leaves the atmosphere? Are the offsets from mitigating methane (a gas which has huge upfront impacts, but less over the timescale CO2 remains in the atmosphere) releases from a dairy or landfill?
   
   All of these projects may be meritorious on their own, but the fact of the matter is those tons of carbon are not directly equivalent to the CO2 emissions they are intended to negate. SB 390 would still allow those types of projects to generate, sell, and market VCOs, but they would require explicit explanation that the offsets are not physically equivalent to CO2 emissions. This then allows buyers, like the airline in the example above, to make informed decisions about the offsets they buy to support their claims.
   

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

AB 1305 (Gabriel, 2023) requires a business entity that is selling VCOs to disclose 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. AB 1305 is currently in the Assembly Natural Resources Committee.

SB 343 (Allen, Chapter 507, Statutes of 2022) tightened the requirements around the permissible use of the “chasing arrows” recycling symbol, including but not limited to amending the False Advertising Law to define “environmental marketing claims.”

SOURCE:

Author

SUPPORT:

None received

OPPOSITION:

None received

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