California lawmakers send carbon accounting bill to governor’s desk

California lawmakers have sent a bill to Governor Newsom’s desk that would require all large businesses in the state to provide a detailed accounting of their carbon emissions, including their Scope 3, or supply chain emissions.

Senate Bill 253, the Climate Corporate Data Accountability Act, bill passed the California Senate on Tuesday and the California Assembly on Monday and now California Governor Gavin Newsom has to sign the bill into law for it to be enacted.

The debate over emissions accounting standards in California is particularly timely because the U.S. Securities and Exchange Commission has proposed rules that would force disclosure of climate-related risks that could have a material affect on businesses. The SEC hasn’t confirmed how the rule would be implemented how strict the reporting requirements would be.

Newsom has until October 14 to act on the legislation, a spokesperson for the Governor’s office told CNBC. The bill, if adopted, would be the first of its kind in the nation to require carbon emissions reporting.

Emissions are divided into three categories: Scope 1, 2 and 3.

Scope 1 emissions are greenhouse gases released from sources that are owned by an organization, including the emissions associated with burning fuel that goes into boilers, furnaces and vehicles. Scope 2 are the indirect emissions that a company incurs from such processes as buying electricity, heating and cooling buildings.

Scope 3 emissions come from a company’s supply chain, or value chain, and are difficult to track. They tend to be the largest source of greenhouse gas emissions associated with a company.

The bill would require California to pass regulations by 2025 to require businesses with more than $1 billion in revenue to publicly disclose their scope 1 and 2 emissions to a reporting organization starting in 2026, and scope 3 data starting in 2027. The bill also requires the state to review these rules in 2029 and update them “as necessary” by 2030.

Vice President and climate activist Al Gore said requiring companies to account for their carbon emissions is an important step in pushing companies to justify their purported climate goals.

“Meaningful climate action requires accountability. If passed, this legislation has the potential to be transformative in turning pledges into action,” Gore said in a post on X, the platform formerly known as Twitter.

Apple and Google, massive technology companies headquartered in California, support the move to require carbon accounting.

On Monday, Google tweeted its support for the bill. On Thursday, Mike Foulkes, Apple’s director of state and local government affairs, sent a letter to Scott Wiener, one of the California state senators who introduced Senate Bill 253, voicing its support for the bill.

In the letter, Apple acknowledges some amount of uncertainty in reporting Scope 3 emissions due to available data at this time, but also says that it is possible to come up with a defensible metric.

“Scope 3 emissions, in particular, involve making educated assumptions and complex modeling,” Foulkes wrote. “We believe, however, that our reports attest to the feasibility of reasonably modeling, measuring and reporting on all three scopes of emissions, including scope 3 emissions, which represent the overwhelming majority of most companies’ carbon footprint and are therefore critical to include.”

Meanwhile, the California Chamber of Commerce opposes the bill, saying requiring emissions accounting will increase business operation costs for businesses and consumers.

The California Chamber of Commerce said the scope 3 emissions reporting requirement is “problematic,” according to a news bulletin published on Sept. 1, because it requires using some industry standard estimates, a process that is “inherently flawed and unreliable.”

“For example, financial accounting standards rely on a company to report the actual invoiced cost of a raw material rather than base it on an industry average. Similarly, tax authorities demand that companies report on their actual profit margins, rather than the industry average,” the Chamber of Commerce said. “This flawed method of calculating scope 3 emissions means that virtually every reporting entity could be subject to a violation.”

The California Chamber of Commerce said in a statement to CNBC on Wednesday that it opposes the bill and is requesting the Governor to veto the bill.

Paul Dickinson, the founder and chair of CDP, a non-profit that has helped companies, states, cities and other organizations with environmental disclosures for two decades, says that environmental disclosures are inherently different than financial accounting standards. In 2022, almost 19,000 large global companies reported environmental data to CDP, which then shared the data on its website and via financial information services like Bloomberg, MSCI and S&P.

“Environmental measurements are, by definition, not financial accounting standards that rely on a company to report the actual invoiced cost of a raw material rather than base it on an industry average. Nor can they be similar to tax authorities that demand that companies report on their actual profit margins, rather than the industry average,” Dickinson told CNBC.

Also, Dickinson said that carbon accounting can be a helpful process for companies.

“Measuring scope 3 emissions is a key planning tool for companies, because it helps them locate hidden costs and potential risks tied to carbon intensity and carbon burden in their production lines and supply chains,” Dickinson told CNBC.