In October 2023, California Governor Gavin Newsom passed Assembly Bill 1305 into law. Now, as of January 1, this law is in effect — though we’ll explore what the actual timelines are for action in this article. The new rules affect both companies that market or sell carbon credits (which this bill’s language refers to as carbon “offsets”) as well as those that purchase them or make claims about their climate action.
AB 1305 could have important implications for businesses. As such, sustainability leaders and project developers need to know what it means for them. In this article, we’ll explain what AB 1305 is, what it requires, and how carbon credit buyers can comply.
What is California AB 1305?
Assembly Bill (AB) 1305 is a bill aimed at enhancing voluntary carbon market (VCM) disclosures within the State of California. Following the state government’s passage of SB 253 and SB 261 which aim to regulate California businesses’ disclosure of their greenhouse gas emissions and their climate-related financial risks, respectively, this new law tackles both sides of the VCM — sellers and buyers of carbon credits. As such, it’s made up of two parts that address both cohorts.
The two groups of companies affected by AB 1305
There are two groups named in the new law:
- Companies that market or sell voluntary carbon credits in the State of California. These entities will be required to disclose detailed information about the credits being sold on their websites.
- Companies or entities that make claims like “net zero” or similar, as well as companies that buy or use carbon credits in support of those kinds of claims. These entities will be required to disclose certain specified information about their climate claim and about the credits they’ve purchased on their websites.
The bill doesn’t provide exact criteria for what it means to “operate” or to “make claims” within California. There’s no complete list of claims that are either specified or excluded — though “carbon neutral” and “net zero emissions” are called out by name. Likewise, there aren’t specified minimum thresholds as yet for purchases, though it’s anticipated that California lawmakers will provide clarity on these definitions in the coming months.
What do companies making climate claims need to disclose under AB 1305?
In addition to the disclosure requirements for California-based companies marketing or selling carbon credits, AB 1305 requires carbon credit buyers that are making climate claims to report no less than annually on specific details about the carbon credits they’ve purchased. AB 1305 came into effect on January 1, 2024, but for carbon credit buyers, the first disclosures are not required until January 1, 2025. This includes:
- The name of the business entity selling the offset and the offset registry or program
- The project identification number, if applicable
- The project name as listed in the registry or program, if applicable
- The offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission, or a combination of both, and site location
- The specific protocol used to estimate emissions reductions or removal benefits
- Whether there is independent third-party verification of company data and claims listed
What do companies need to disclose about their climate claims?
Here’s where the bill calls out “carbon neutral” and “net zero,” but also “similar” claims. Entities making these claims must disclose:
- How the claim was determined to be accurate or actually accomplished
- How interim progress toward that goal is being measured
- Whether there is independent third-party verification of the company data and claims listed
The bill says this information “may” include things like third-party verification and methodology for company emissions and science-based targets for emissions reductions.
What must carbon credit sellers disclose under AB 1305
Under the new bill, credit sellers — as well as companies like Patch that market carbon credits — need to disclose detailed information on each specific project, accountability measures in the case the project is not completed or doesn’t meet its targets, and “the pertinent data and calculation methods needed to independently reproduce and verify the number of emissions reduction or removal credits issued using the protocol.”
Here’s a list of the required information:
- The specific protocol used to estimate emissions reductions or removal benefits
- The location of the offset project site
- The project timeline
- The date when the project started or will start
- The dates and quantities when a specified quantity of emissions reductions or removals started or will start, or was modified or reversed
- The type of project, including whether the offsets from the project are derived from a carbon removal, an avoided emission, or, in the case of a project with both carbon removals and avoided emissions, the breakdown of offsets from each
- Whether the project meets any standards established by law or by a nonprofit entity
- The durability period for any project that the seller knows or should know that the durability of the project’s greenhouse gas reductions or greenhouse gas removal enhancements is less than the atmospheric lifetime of carbon dioxide emissions
- Whether there is independent expert or third-party validation or verification of the project attributes
- Emissions reduced or carbon removed on an annual basis
- What actions the entity, either directly or by contractual obligation, shall take if: a.) carbon storage projects are reversed, or b.) the future emissions reductions do not materialize
Where should AB 1305 information be disclosed?
Corporate buyers should disclose the relevant information on their website and ensure that it’s updated at least annually.
When does AB 1305 reporting begin?
Carbon credit buyers will need to post their first annual disclosure by January 1, 2025.
What are the penalties for non-compliance with AB 1305?
Companies that fail to report under the bill will be subject to civil penalties of up to $2,500 per day, not exceeding a total of $500,000. And while these sums may appear negligible to large corporations, we anticipate the reputational cost of non-compliance with climate transparency laws such as AB 1305 to be the real ‘cost’ of non-compliance.
What makes AB 1305 significant?
AB 1305 will be the first bill passed in the U.S. that requires detailed disclosures about a company’s voluntary carbon credit purchases. Many see this bill as executing on what the U.S. Securities and Exchange Commission (SEC) has been attempting to achieve with its still-delayed proposed climate disclosure rule.
It comes on the heels of worldwide momentum around greenwashing and transparency, including the EU’s Green Claims directive and its Corporate Sustainability Reporting Directive (CSRD).
How should buyers approach AB 1305 compliance?
The new disclosure requirements should not be a cause for concern for buyers who already have strong due diligence procurement processes in place, or who work with a reputable third-party provider like Patch. The bill may prompt leadership teams and boards to ask questions about the quality of credits the company has purchased to date and the robustness of a climate claim, and we see this as an opportunity for sustainability teams to increase engagement on climate across leadership.
For those companies that haven’t yet begun buying carbon credits, this bill should serve as a reminder to ensure you have a robust, defensible climate action strategy behind the climate claims you wish to make. Ultimately, the bill should result in greater buyer scrutiny in the voluntary carbon market, which is a positive outcome both for buyers and the planet.
How Patch makes AB 1305 compliance simple
Patch is very supportive of California’s move to increase transparency within the voluntary carbon market. AB 1305 is aligned with our mission to facilitate high-integrity carbon credit transactions.
Patch has always provided detailed and robust data to our clients as it relates to their carbon credit purchases. Now our customers will be able to easily generate personalized AB 1305-compliant reports detailing the credits they’ve purchased on our platform.
Let us help you prepare for AB 1305
If you have questions related to AB 1305 or other carbon credit compliance rules, contact our team today. We’ll make sure you’re ready to report on your carbon credit purchases in 2024 and beyond.