Complying with AB1305, the Voluntary Carbon Markets Disclosure Act

Climate claims and carbon offsets must now be backed up with detailed public disclosures

Bold climate claims are under greater scrutiny than ever thanks to the passage of AB 1305, the Voluntary Carbon Markets Disclosure Act. Companies with even minimal ties to California must now back up their claims of climate neutrality or net-zero emissions, and companies who sell voluntary carbon offsets in the state must now reveal the details of their offset projects to the public.

While carbon offsets have been controversial, they’re a key tool for many companies in achieving the 1.5-degree pathway, so greater transparency and accountability is a welcome step forward.

What is AB 1305?

AB 1305 is a California state law that requires businesses that operate in California and make claims of “carbon neutrality,” “net zero emissions,” or similar climate claims to disclose how they arrived at those claims, how they are progressing toward their climate goals, and whether their claims have been verified by a third party.

Companies who market and sell carbon offsets—or buy carbon offsets as part of their climate claims—must disclose details about the offset project, including the protocol used to measure emissions reduction or removal and whether the project is being verified by a third party.

AB 1305 in context

AB 1305 is intended to improve transparency and accountability in the voluntary carbon market (as opposed to compliance carbon markets, which are mandated and already highly regulated). It complements California’s other recent climate laws, senate bills 253 and 261, which require companies to disclose their emissions and climate-related financial risks.

While no comparable federal legislation exists in the US, the FTC has provided guidance for climate-related claims and the SEC approved climate disclosure rules in early 2024 (though the SEC rules are currently paused while being challenged in court). In the EU, CSRD will require sustainability reporting starting in 2025 while the ECGT Directive bans greenwashing (exaggerated or unfounded claims regarding climate).

Who is subject to AB 1305?

Several groups of companies are subject to the requirements of AB 1305:

  • Companies that operate in California and make climate-related claims, such as carbon neutrality or net-zero emissions
  • Companies that operate in California, make climate-related claims, and buy/use voluntary carbon offsets as part of their climate-related claims
  • Companies that market and/or sell voluntary carbon offsets within California
  • Companies that operate outside of California, but:
    • make climate-related claims within the state OR
    • buy/use voluntary carbon offsets that are sold within the state and make climate-related claims

AB 1305 applies regardless of your company’s size, revenue, or status as a public/private entity.

What is the AB 1305 effective date?

AB 1305 was signed into law by California Governor Gavin Newsom on October 7, 2023 and became effective on January 1, 2024.

The author of the legislation, California District 36 Assembly Member Jesse Gabriel, intended for the first disclosures to be published by January 1, 2025. While California state law does not allow for compliance phase-in periods, it is likely that enforcement actions will begin in 2025.

How to comply with AB 1305

If your company is subject to AB 1305, you must publish detailed climate disclosures on your company’s website and update them annually. The amount and type of disclosure required depends on whether your company markets, sells, buys, or uses voluntary carbon offsets or not.

If your company does not sell or use voluntary carbon offsets, but is still subject to AB 1305 requirements because of climate claims, you must disclose these details:

  • How the claim was accomplished or determined to be accurate
  • If the claim is future-looking (for example, stating that a product will be carbon-neutral by 2030), how interim progress toward the goal is being made and measured
  • Third-party emissions verification, science-based targets, and methodology used for emissions reduction pathway
  • Whether the company’s data and claims have been verified by a third party

In order to back up climate claims, companies will need to have a robust carbon accounting and emissions management system in place. Comprehensive data and record-keeping will make disclosures easier and protect the company in the event that claims come under scrutiny.

Companies that market or sell voluntary carbon offsets must disclose:

  • Carbon offset project information, including location, emissions reduction/removal estimate protocol, timeline, project start date and emissions reduction/removal start date, project type (ie emissions reduction, removal, or avoidance), durability period, third-party validation/verification/standards met, annual emissions reduced or carbon removed
  • How the entity will respond if a project is not completed or projections are not met
  • The data and methodology required to reproduce and verify the credits issued

Companies that buy or use voluntary carbon offsets to meet their carbon claims must disclose:

  • The name of the entity who sold the offset, the offset registry, project ID number, and project name
  • The offset project type (ie emissions reduction, removal, or avoidance)
  • The protocol used to estimate emissions reduction or carbon removal
  • Whether the company’s data and claims have been verified by a third party

If offsets currently make up a large portion of your company’s climate strategy, consider moving toward decarbonization as a long-term strategy. Regulatory scrutiny of offsets is only picking up steam, and current SBTi guidance states that offsets should only cover a small amount of emissions that can’t otherwise be reduced.

Penalties for non-compliance with AB 1305

Failing to comply with AB 1305 could lead to severe penalties: up to $2500 for each day that a disclosure is unavailable or inaccurate, with a maximum penalty of $500,000.

Why AB 1305 matters

Not all carbon offsets are created equal. Without robust verification, offsets can be double-counted. Plus, many carbon offset projects remove or store carbon temporarily, and in some cases, like forestry projects, they are vulnerable to being damaged or destroyed before they meet their goals. That said, offsets are a key component of achieving net-zero emissions for many companies who cannot eliminate emissions completely, and in the short term, they are an effective way to allocate capital to reducing emissions.

When it comes to the claims that companies make about their impact on the climate, greater transparency and accountability is always welcome. From a customer’s point of view, more information helps them make intentional choices with their money. From a company’s point of view, transparency helps them prevent accusations of greenwashing.

Here’s what Optera recommends to our customers who use offsets:

Require that carbon offset projects be third-party verified, ideally using the Verified Carbon Standard. This standard is administered by many third-party partners, and ensures that all GHG emissions reductions or removals are:

  • Real and measurable
  • Additional
  • Conservative
  • Permanent
  • Independently verified
  • Uniquely numbered and transparently listed

Ensure that all relevant stakeholders are aligned on methodologies and frameworks.

Be transparent with the use of purchased offsets and the application of associated emissions reductions, especially now that transparency is required by AB 1305.

Need help with your corporate sustainability program, including carbon accounting data, offset strategy, and more? Optera software, and our team of experts, can help. Get in touch with us today.

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