Bill Sets Out-of-State Emissions Reporting Requirements

A California Chamber of Commerce-opposed bill that will financially impact small- and medium-sized businesses and create onerous reporting requirements on large businesses passed the Senate Judiciary Committee last week.

The bill, SB 253 (Wiener; D-San Francisco), imposes a mandatory climate tracking, and auditing on climate emissions that will fall heavily on all California businesses, impacting competitiveness and increasing costs.

Specifically, the legislation would require that businesses that meet a specified financial threshold annually report greenhouse gas (GHG) emissions data from throughout the entire supply chain, regardless of who in the supply chain produces the emissions.

Harms All Businesses

In an opposition letter submitted to legislators, the CalChamber argued that the state should not be in the business of regulating out-of-state emissions. Rather, California should continue to implement and build upon existing programs and policies to regulate and monitor emissions in-state.

Moreover, reporting emissions associated with a company’s entire supply chain will necessarily require that large businesses stop doing business with small- and medium-sized businesses. The CalChamber pointed out that those smaller businesses are likely under-resourced and will struggle to accurately measure their GHG emissions, leaving these companies without the contracts that enable them to grow and employ more workers.

A report prepared by Encina Advisors, LLC for the California Foundation for Commerce and Education estimates that a typical upstream firm will spend from $38,500 to $123,100 on calculating and documenting its emissions, resulting in a potential loss of $1.0 billion to $1.3 billion in state tax revenue.

These economic impacts will likely create inefficient supply chains that will further add costs to consumers, the CalChamber said.

Excessive Penalties

SB 253 imposes a burdensome penalty against a reporting entity, seeking penalties for violation of the legislation’s provisions. Although the applicability of the penalty itself falls on reporting entities, it is highly unlikely that a reporting entity would take sole responsibility for the risk associated with the penalty, the CalChamber said.

While contracts vary by company and sector, there likely will be indemnification clauses or shared cost recovery stipulations in contracts stemming from this measure. Under-resourced companies that cannot afford to share that risk will be left out, the CalChamber pointed out.

Additionally, the inherently flawed nature of calculating Scope 3 emissions (those resulting from activities not controlled directly by the reporting entity) means that virtually every reporting entity could be subject to a violation. And, again, reporting entities will look for ways to mitigate the risk associated with the penalty.

“This will only add to the cost of goods and services here in California as that risk mitigation makes its way through the supply chain,” the CalChamber warned.

Key Vote

SB 253 passed Senate Judiciary on April 18, 8-1:

Ayes: Allen (D-Santa Monica), Ashby (D-Sacramento), Durazo (D-Los Angeles), Laird (D-Santa Cruz), McGuire (D-Healdsburg), Min (D-Irvine), Umberg (D-Santa Ana), Wiener (D-San Francisco).

Noes: Niello (R-Sacramento).

Not voting: Caballero (D-Salinas), Wilk (R-Santa Clarita).

SB 253 is scheduled to be considered on May 1 by the Senate Appropriations Committee.

Staff Contact: Brady Van Engelen

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Brady Van Engelen joined the CalChamber in November 2022 as a policy advocate. He led CalChamber advocacy on climate change, energy, environmental regulation and transportation matters until May 31, 2024. Before joining the CalChamber policy team, Van Engelen served as a senior policy manager at Bloom Energy, representing the company before the California Legislature and California Public Utilities Commission. He previously was a gubernatorial appointee to the California Geologic Energy Management Division (CalGEM) and served as special assistant to the state oil and gas supervisor. Van Engelen also was defense legislative assistant to then-U.S. Senator John Kerry and prior to working on Capitol Hill, worked in policy and advocacy roles at Veterans For America. Van Engelen served in the U.S. Army from 2002 to 2005, and received a Purple Heart and Bronze Star. He earned a master’s degree in government from Johns Hopkins University, and has an M.B.A. from the University of California, Davis.