California regulator puts climate reporting on hold indefinitely

California has been grappling with the challenges of climate reporting requirements instituted by Senate Bill 253, authored by State Senator Scott Wiener. This legislation mandates that companies with over $1 billion in revenue that operate in the state must estimate and report their direct and indirect emission levels. The bill was signed into law last year but has faced significant hurdles regarding its enforcement. As we approach the end of 2024, California's emissions regulator has disclosed that it will not impose penalties for non-compliance during the initial report due in 2026 as companies attempt to adapt to this new law. The lack of enforcement is a response to operational difficulties that businesses have faced in adhering to the ambitious emission inventory standards set forth by SB 253, particularly given the complexity of tracking Scope 1 and Scope 2 emissions, which include direct emissions from company-owned facilities and indirect emissions related to utility consumption, respectively. In December 2024, the California Air Resources Board (CARB) issued an enforcement notice outlining its decision to provide leniency in the first reporting cycle. The notice encouraged companies to make a good faith effort to comply rather than impose strict sanctions for incomplete reporting. This strategic discretion is intended to ease the transition for businesses as they begin to navigate their new reporting responsibilities. Nonetheless, Senate Wiener has called for greater accountability and expressed concern about the enforcement of the law, emphasizing the importance of moving forward with the law's implementation to achieve meaningful reductions in emissions. Additionally, Governor Gavin Newsom has also expressed skepticism about the feasibility of the timelines for the requisite standards, prompting legislative amendments to extend deadlines for compliance. As a result, reporting entities will likely only begin full compliance testing starting in 2027, when Scope 3 emissions—comprising the emissions generated in a company’s value chain from suppliers and contractors—are also slated to be included. State officials are further assessing the extent to which smaller businesses contracting with these larger entities could be unintentionally impacted by the law as well. The forthcoming implementation guidelines scheduled for release by July 2025 will play a critical role in determining how these requirements affect a larger array of businesses operating within California. The ongoing litigation initiated by the California Chamber of Commerce against SB 253 underscores the contentious nature of these regulations and reflects a broader concern regarding the accuracy of reported emissions data. This lawsuit arose from claims of First Amendment violations, arguing that the law compels companies to report potentially inaccurate figures. Facing an evolving narrative around compliance and legalities, companies are increasingly concerned about the weight of this reporting law. Overall, CARB's recent enforcement notice signifies a pause in rigorous enforcement while still holding the legal and policy framework steady and awaiting further developments in the regulatory landscape.