Audit, Compliance and Risk Blog

California begins to regulate carbon offset claims

Posted by Jon Elliott on Fri, Nov 24, 2023

pexels-pixabay-257775Regulatory and market-based programs are steadily increasing opportunities for entities to contract with projects that reduce emissions of carbon dioxide and other greenhouse gases (GHGs), and to claim credit for those “carbon offsets.” Some such claims are used to satisfy formal air quality and GHG reduction requirements, while others are touted to enhance entities’ “green” credentials. Programs around the globe compile such claims, and some provide third party validations – but possible “greenwashing” of unjustified claims remains a significant concern. To address these concerns, California has just enacted legislation to regulate Voluntary Cabon Market Disclosures and penalize noncompliance (Assembly Bill (AB) 1305, Gabriel). These requirements synthesize the most thorough voluntary disclosure programs, and are intended not only to protect California consumers but to codify disclosure standards. The rest of this note summarizes carbon offsets, and AB 1305 requirements.

What are carbon offsets, and how are claims about them made?

“Carbon offsets” represent contractual agreements under which one entity conducts a project that reduce GHG emissions—upgrading equipment, changing fuels or process inputs, planting trees, etc. These may be “voluntary offsets” created without regulatory coercion – to make demonstrable contributions to climate change prevention goals, for example. In addition, another entity may secure the “right” to an otherwise voluntary reduction by buying a quantified “credit” for the claimed reduction. All such reductions raise critical methodological questions, as entities attempt to quantify emission reductions in present and future periods. They may also raise but-for questions about whether the claimed reductions result from the project being assessed or might/would have occurred anyway.

A variety of organizations provide assessments of carbon offsets and offer third party validation of claims (e.g., the Climate Action Reserve (initially California Climate Action Reserve)). Some also sell offsets (e.g., the United Nations Carbon Offset Platform provides certified emission reductions (CERs)). Regulators such as the California Air Resources Board (ARB) evaluate methodologies and direct and third-party claimants, and count qualifying offsets in regulatory compliance measurements. Potentially qualified offsets include those that are produced as voluntary offsets by third parties.

Governmental agencies are developing requirements for validation of such claims, and of the claimants who make them. For example, ARB has established provisions for the accreditation of individuals and organizations that make such verifications, as part of the agency’s administration of the state’s extensive GHG reduction programs including cap-and-trade mechanisms covering reductions and offsets. As another example, the US Federal Trade Commission (FTC) has proposed to include “carbon offsets” under its pending revisions to its longstanding Green Guides governing environmental advertising claims (I wrote about this proposal HERE ).

What does AB 1305 require?

Beginning January 1, 2024, AB 1305 requires any “business entity” (undefined term) that markets or sells voluntary carbon offsets within California to provide the following information on its website:

  • Details regarding the applicable carbon offset project, including all of the following 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.
  • Details regarding accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, including, but not limited to, details regarding what actions the entity, either directly or by contractual obligation, shall take under both of the following circumstances:
    • If carbon storage projects are reversed.
    • If future emissions reductions do not materialize.
  • The pertinent data and calculation methods needed to independently reproduce and verify the number of emissions reduction or removal credits issued using the protocol.

An entity which purchases or uses voluntary carbon offsets to support its own claims about being “carbon neutral” must post comparable information on its own website, identifying which offset(s) and provider(s) it uses. Each provider or user under this law must update its posted information at least annually.

AB 1305 also provides for a penalty of up to $2,500 per day for any missing or inaccurate information, up to a total of no more than $500,000.

What happens next?

The AB 1305 requirements take effect on January 1, 2024, so entities that make claims about GHG reductions used in carbon offset claims in California should be hastening to comply. Entities without California operations should consider these requirements carefully; they are generally aligned with voluntary third-party validations and verifications, and so I expect that they are or will be comparable to regulatory requirements in other jurisdictions worldwide.

Self-evaluation checklist

Does the organization undertake projects that produce reductions in emissions of carbon dioxide and other GHGs?

  • Does the organization calculate such reductions, using a formal methodology(ies)?
  • Does the organization use a third party to verify and validate the calculated reductions?
  • Does the organization publicize these calculated reductions?
  • Does the organization use these calculated reductions to provide compliance with regulatory requirements?

Does the organization provide verification and/or validation services, coving projects that produce reductions in emissions of carbon dioxide and other GHGs?

  • Does the organization calculate such reductions, using a formal methodology(ies)?
  • Does the organization or its clients publicize these calculated reductions?
  • Does the organization or its clients use these calculated reductions to provide compliance with regulatory requirements?

Does the organization buy or sell “carbon offsets” or other tradable indicators of GHG emission reductions?

  • Are any such offsets calculated using formal methodologies, approved by competent authorities and/or regulators?

If the organization does business in California, is it preparing to comply with new state requirements adopted by AB 1305?

Where can I go for more information?

About the Author

jon_f_elliottJon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:

Tags: Environmental, Greenhouse Gas, greenhouse, California, Environment, Environmental Policy, environmental protection