Over the past decade, companies have faced mounting pressure to decarbonize. In their quest to meet net zero targets, more and more businesses have turned to carbon offsets — and the voluntary carbon market (VCM) has flourished. In 2022, the market saw roughly $2B USD in trades. Yet the VCM has drawn growing scrutiny from critics who say its carbon credits are often unreliable and ineffective — and argue that the unregulated market enables greenwashing and undermines real climate progress.
Now, California is taking matters into its own hands with a new law aimed at creating greater transparency in the purchase, sale, and use of carbon offsets.
On October 7, 2023, Governor Gavin Newsom signed The Voluntary Carbon Market Disclosures Act (AB 1305), which imposes a set of disclosure requirements for entities that either market, sell, and/or purchase voluntary carbon offsets. The legislation is the first of its kind in the US.
Below, we’ll take a closer look at AB 1305 and what it means for businesses.
What is AB 1305?
The Voluntary Carbon Market Disclosures Act is a California law requiring companies to disclose details about carbon offset projects
AB 1305, also known as the Voluntary Carbon Market Disclosures Act (VCMDA), regulates companies involved in the marketing, selling, and purchasing of voluntary carbon offsets (VCOs) in California.
The law defines VCOs as: “any product sold or marketed in the state that claims to be a ‘greenhouse gas emissions offset,’ a ‘voluntary emissions reduction,’ a ‘retail offset,’ or any like term, that connotes that the product represents or corresponds to a reduction in the amount of greenhouse gases present in the atmosphere or that prevents the emission of greenhouse gases into the atmosphere that would have otherwise been emitted.”
An example of a business using a voluntary carbon offset might include an airline that purchases credits from a carbon-sequestering reforestation project to offset the emissions generated by its flights.
AB 1305 stipulates that affected entities must disclose specific information about these offset projects — or face penalties. While the bill took effect on January 1, 2024, companies are required to comply starting January 1, 2025.
AB 2331
During California’s 2024 legislative session, lawmakers introduced legislation aimed at cleaning up AB 1305. The new bill, AB 2331, would have delayed enforcement of AB 1305’s disclosure requirements until July 1, 2025. It also proposed several clarifications to the requirements and definitions in the original bill. However, despite passing in the Senate, AB 2331 failed to come up for a final vote before the end of the 2024 legislative session. A new amending bill may be introduced in the 2025 legislative session, but for now, reporting parties must plan to comply with AB 1305 as written, starting on January 1, 2025.
Requirements for businesses that market or sell carbon offsets
Under AB 1305, any company that markets or sells voluntary carbon offsets in California must disclose the following details about the carbon offset project on its website:
- The protocol used to estimate emissions reductions or removal benefits of each offset project, and any standards met, including the calculation methodology used to calculate the emissions reduction or removal credits under such protocol.
- The location of each offset project site, its timeline, including its start date, the type of project, whether it includes carbon removals or avoided emissions, the annual reduction or removal amounts, and the underlying data and calculation methods used.
- Project durability if it is less than the atmospheric lifetime of the emissions.
- Accountability measures for projects that are not complete.
- Whether there is an independent expert or third-party validation or verification of each project’s attributes.
The law also requires sellers of carbon offsets to disclose details regarding the accountability measures in place for projects that are not yet complete or that fail to meet the projected emissions reduction or removal targets.
Requirements for businesses that purchase or use carbon offsets and make claims regarding the achievement of net zero emissions, carbon neutrality, and similar claims
The law mandates that any entity that operates in California and purchases or uses voluntary carbon offsets, or any entity that purchases or uses voluntary carbon offsets sold within California, that makes claims regarding the achievement of net zero emissions, carbon neutrality, or similar claims must disclose the following information on its website:
- The name of the seller of each offset and the offset registry, project name, and ID number as listed in the registry (if applicable), along with the site location and project type — including whether it relies on carbon removal or avoided emissions
- The protocol used to estimate emissions reductions or removal benefits
- Whether each project is third-party verified
Requirements for businesses that make claims regarding the achievement of net zero emissions, carbon neutrality, and similar claims
Any entity operating in California, or making claims in the state regarding the achievement of net zero emissions, “carbon neutral” products, or similar climate claims, must disclose on its website:
- All information documenting how a “carbon neutral,” “net zero emission,” or other similar claim was determined to be accurate or actually accomplished.
- Details on how interim progress toward that goal is being measured and how these goals are progressing. This may include disclosure of independent verification of the entity’s GHG emissions, identification of its science-based targets, and sector methodologies.
- Whether there is an independent third-party verification of the company data, including GHG emissions data, and any “carbon neutral” or “net zero” claims listed.
How did it happen?
Growing skepticism about the voluntary carbon market set the stage for regulation.
Recent years have seen a spike in scrutiny of companies marketing, selling, and promoting carbon offset projects. Skepticism skyrocketed last year after a widely read investigation found that up to 90% of rainforest offset projects listed by the world’s leading carbon certifier did not represent genuine carbon reductions.
These allegations further fueled calls for transparency and accountability in the voluntary carbon market — and California lawmakers responded. On September 13, 2023, the state assembly passed AB 1305, and Governor Gavin Newsom signed the bill into law on October 7. The legislation comes on the heels of two other significant climate disclosure laws pioneered in California, SB 253 and SB 261.
By requiring companies to provide evidence of due diligence and details regarding carbon offset projects, AB 1305 aims to check the rise of misleading environmental claims based on ineffective projects — and encourage businesses to rely only on high-quality offsets that correspond to real emission reductions or removals.
Why does it matter?
Companies subject to the law will have to back up their environmental claims.
AB 1305 is the first measure of its kind in the United States. It is expected to help reform a voluntary carbon market that critics say is deeply flawed. The bill's author, California Assemblymember Jesse Gabriel (D-Encino), says the measure was designed to help consumers and companies navigate a morass of advertisements from companies touting their sustainability efforts.
Businesses that claim to be carbon neutral or net zero will now need to back up those assertions and publish details on their websites about any carbon offsets and other strategies used to achieve carbon neutrality. AB 1305 seeks to ensure that businesses use high-quality offsets that lead to genuine emission reductions and removals. It is expected to spur more thorough due diligence by companies before they make claims related to carbon offsets — with the anticipated outcome of more effective climate action and less greenwashing.
Other goals of the legislation include:
- Improved transparency and increased trust. Standardized disclosures are expected to boost the credibility of carbon offset projects. You’ll now have to independently verify emissions reductions and back up climate claims with data.
- Enhanced accountability: The legislation will force companies to show their work. You’ll need to disclose details about carbon projects that aren’t completed or don’t meet your projected emissions targets, along with information about actions your company will take under these circumstances.
- Informed decisions for businesses and consumers: With sustainability claims increasingly influencing purchasing decisions and market growth, reliable data is critical. Under the law, affected companies must document how they have determined carbon offset claims to be accurate, along with how they’re measuring progress.
When does AB 1305 go into effect?
The bill is now in effect, and businesses should plan to disclose starting as of January 1, 2025.
AB 1305 technically went into effect on January 1, 2024. A deadline extension was proposed as part of AB 2331, but since that bill failed to pass, affected parties will have to post their first annual disclosures by January 1, 2025. Those who fail to disclose the required information about offset projects will face penalties of up to $2,500 USD per day for each violation (not to exceed $500,000 USD).
How can companies prepare for AB 1305?
Starting now, companies need to take an inventory of any carbon offsets they use. They should also be ready to take a closer look at their climate plans and marketing claims related to sustainability to ensure that they’re accurate and aligned with reporting requirements.
There are several immediate steps you can take to ensure compliance with the law:
- Develop a solid understanding of the law. Now is the time to review the legislation text and make sure you understand how its requirements apply to your business.
- Stay up-to-date on official reporting timelines. Though the bill’s author has requested a January 2025 reporting deadline, AB 1305 is technically in effect now. You can check with the California Assembly Clerk’s office for updates on timing.
- Cultivate buy-in. By educating your team and internal stakeholders on the bill's requirements, you can help ensure more accurate and efficient disclosures.
- Identify your voluntary carbon offsets. Examine the carbon offset projects that your business entity is selling, marketing, or purchasing, and make sure you’ve collected the data and provided evidence on the details of each project as outlined in the law.
- Assess your climate claims. If you’re making statements relating to net zero goals or carbon neutrality, you need to be able to provide documentation as to how you measure, verify, and track progress on projects.
- Prepare to publish. The law stipulates that companies must publish details about their climate claims and carbon offsets on their websites, so be ready to show your receipts.
- Establish a process for updating disclosures. AB 1305 will require annual reporting, so it’s a good idea to assemble a long-term team and process for gathering the necessary data and ensuring your website is up-to-date.
Navigating Carbon Accountability in a Changing Climate Disclosure Landscape
If your company buys or sells carbon offsets — or advertises sustainability measures that rely on them — you need to be ready to show your receipts. California’s Voluntary Carbon Market Disclosures Act (AB 1305) kicked in at the beginning of this year and requires affected businesses to publicly disclose details about their climate claims and carbon offsets starting as of January 1, 2025.
The legislation is part of a wave of new measures — including California’s Corporate Climate Data Accountability Act — that call on businesses to disclose details about their climate measures and carbon inventory. In this atmosphere of heightened demand for climate accountability, it’s more important than ever to ensure that your carbon data is reliable, transparent, and traceable.
Find out how Persefoni can help you adapt to a rapidly changing climate disclosure landscape.
Frequently Asked Questions
1. What does it mean to "operate" in California? Is this different from the term "doing business" as it’s used in SB 253 and SB 261?
The meaning of “operating within the state” is not clearly defined in the language of the law. However, California has a track record of requiring companies with even limited business in the state to follow its laws. AB 1305 explicitly applies to companies that market, sell, purchase, or use carbon offsets in California, and could, therefore, affect businesses outside the borders of the state or even the country.
It is advisable to consult with a legal professional to determine whether your business entity is subject to the bill's requirements.
2. Does the bill apply to statements concerning the achievement of interim goals shy of “net zero”?
The bill does not explicitly address statements concerning the achievement of interim goals shy of “net zero.” It requires disclosure of specified information on the carbon offset project on the business entity’s website if the entity “makes claims regarding being net zero or carbon neutral.”
3. Does the law apply to RECs (Renewable Energy Certificates) as well as offsets?
The bill defines a “voluntary carbon offset” as “a reduction or removal of greenhouse gas emissions that is not required by law or regulation and that is verified by an independent third party.” The bill does not explicitly address renewable energy certificates (RECs).
4. Is there a private right of action under the law?
AB 1305 does not provide for a private right of action. The law can be enforced by the Attorney General and any district attorney, county counsel, or city attorney in the state. Businesses that fail to comply are subject to penalties of $2,500 per day, up to a maximum of $500,000 per violation.
5. What is AB 2331?
AB 2331 was a bill intended to clarify the requirements of AB 1305. It would have delayed enforcement of disclosure requirements until July 1, 2025. AB 2331 failed to come up for a final vote before the end of the 2024 legislative session. As a result, parties must comply with AB 1305 as written starting as of January 1, 2025.
