California Provides Enforcement Relief on Greenhouse Gas Emissions Law

In an Enforcement Notice released on December 5, 2024, the California Air Resources Board (“CARB”) announced that it will not take enforcement action against companies subject to California’s Climate Corporate Data Accountability Act (“CCDAA”) for inaccurate or incomplete reporting of Scope 1 and 2 greenhouse gas (“GHG”) emissions for the first reports due in 2026, covering the reporting entity’s prior fiscal year. While this provides some breathing room in the near term, companies subject to the reporting obligations under California’s sweeping new climate disclosure law still must comply with the reporting requirements of the CCDAA.

In fall 2023, California enacted the CCDAA (SB 253), which requires public and private U.S. companies with annual revenues exceeding $1 billion and that “do business” in California to annually report all Scope 1, 2 and 3 GHG emissions. The first reports of Scope 1 and 2 GHG emissions data are due by January 2026 for a company’s 2025 data. Scope 3 GHG emissions reports are due in 2027.

The law has faced challenges from California and the business community alike. Business groups sued California in January 2024 seeking to block the law on constitutional grounds, but in November 2024, the U.S. District Court for the Central District of California denied the groups’ motion for summary judgment. Litigation remains ongoing, and the law is likely to take effect before the lawsuit is resolved. Also, Governor Gavin Newsom also expressed apprehension at the implementation timelines for the law when it first passed, stating that deadlines for the CCDAA were “likely infeasible.”

On August 31, 2024, the California legislature passed SB 219 giving CARB until July 1, 2025 to adopt regulations implementing the CCDAA, rather than the original January 1 deadline, though it did not defer the reporting compliance deadlines, as some had hoped.

The Enforcement Notice issued by CARB on December 5 effectively seeks to give some respite to companies, acknowledging that GHG emissions collection and disclosure is a nascent practice at most companies, and subject companies, for the most part, will simply not ready for the strictures of reporting compliance (and any resulting penalties) by 2026. In its Enforcement Notice, CARB stated that companies subject to the CCDAA may submit Scope 1 and 2 GHG emissions data for 2026 based on information that the company “already possessed or is already collecting at the time this Notice was issued.” CARB further stated that for the first enforcement cycle in 2026, it will “not take enforcement action for incomplete reporting” against companies, so long as the companies “make a good faith effort to retain all data relevant to emissions reporting for the entity’s prior fiscal year.” As such, companies will not be penalized for inaccurate or incomplete reports so long as they act in good faith.

Despite CARB’s display of leniency with respect to its enforcement discretion, companies are still obligated to make reports in accordance with the deadlines set forth under the law. Companies can therefore breathe a cautious sigh of relief in the sense that any penalties for non-compliance will not be levied in the first year of reporting, so long as good faith efforts are taken, but reporting  is not being delayed. Companies should proceed with internal development of data collection and assurance processes that they may have already had underway. While the final SEC climate rule is almost certain to be tossed in some fashion under the new presidential administration, companies should remain well informed of the developments of California climate laws like the CCDAA, those that may impact them internationally, and the handful of climate laws being considered in other U.S. states.

We will continue monitoring developments regarding climate-related disclosure laws. Please reach out to your Vinson & Elkins team to discuss these matters and their implications for your business.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.