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Targeting Climate Change Policies

“Many States have enacted, or are in the process of enacting, burdensome and ideologically motivated “climate change” or energy policies that threaten American energy dominance and our economic and national security,” Trump said in the order.

The order directly attacked California’s cap-and-trade system by stating that it “punishes carbon use by adopting impossible caps on the amount of carbon businesses may use, all but forcing businesses to pay large sums to ‘trade’ carbon credits to meet California’s radical requirements.”

Trump also cited state delays in reviewing permit applications to produce energy as well as states that have sued energy companies “for supposed ‘climate change’ harm under nuisance or other tort regimes that could result in crippling damages.”

The order stated that these state laws and policies “weaken our national security and devastate Americans by driving up energy costs for families coast-to-coast” and “undermine Federalism by projecting the regulatory preferences of a few States into all States.” Additionally, the order states that these state laws and policies “try to dictate interstate and international disputes over air, water, and natural resources; unduly discriminate against out-of-State businesses; contravene the equality of States; and retroactively impose arbitrary and excessive fines without legitimate justification.”

“These State laws and policies are fundamentally irreconcilable with my Administration’s objective to unleash American energy,” Trump stated. “They should not stand.”

Stopping Enforcement

The order directed Attorney General Pam Bondi to identify and stop enforcement of state or local laws and policies burdening domestic energy production that “are or may be unconstitutional, preempted by Federal law, or otherwise unenforceable.” In this process, the attorney general is required to “prioritize the identification of any such State laws purporting to address ‘climate change’ or involving ‘environmental, social, and governance’ initiatives, ‘environmental justice,’ carbon or ‘greenhouse gas’ emissions, and funds to collect carbon penalties or carbon taxes.” It also requires the attorney general to submit a report on these actions within 60 days.

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A coalition of business groups filed a lawsuit challenging SB 253 and SB 261, two new California laws that require companies to report greenhouse gas emissions (GHG) and climate risks. The lawsuit contended that the laws violate the First Amendment by compelling speech on a “politically controversial” topic and that the Clean Air Act preempts California’s “de facto regulations of greenhouse-gas emissions nationwide.”

The judge in the Central District of California granted the state’s motion in dismissing claims that the Clean Air Act preempts the two laws and that the laws burden interstate commerce. The remaining claim is that the laws compel speech about climate change in violation of the First Amendment.

The ruling noted that the California Air Resources Board (CARB) must develop regulations to implement SB 253 and require businesses with more than $1 billion in annual revenue to report their greenhouse gas emissions. The regulations were originally due on January 1, 2025 and have been delayed until July. The judge wrote that it is “not clear to the Court that any possible regulations CARB issues would impermissibly burden interstate commerce or violate the Supremacy Clause.”

For SB 261, the judge ruled that the Chamber of Commerce failed to make a claim that it violates the Constitution. The judge ruled that the law does not force actual reductions of greenhouse gas emissions but seeks to shame companies to pressure them to reduce emissions. The judge ruled that the plaintiffs failed “to cite any relevant authority to support the proposition that a disclosure regime intended to regulate emissions through third-party actions is a de facto regulatory scheme subject to preemption.”

Key Changes

SB 219 delays until July 1, 2025 the requirement that the California Air Resources Board adopt regulations on emissions reporting. The law also makes three other key changes:

• It requires that forthcoming CARB regulations will determine when Scope 3 reporting would begin, rather than no later than 180 days after its scope 1 emissions and scope 2 emissions are reported.

• It allows a parent company to consolidate the reports rather each subsidiary. Lastly, the bill also removes the requirement that the annual fee be paid upon filing the disclosure.

• It also authorizes, rather than requires, the state board to contract with an emissions reporting organization to develop a reporting program to receive and make certain required disclosures publicly available.

The reporting deadlines remain unchanged. Companies must still report Scope 1 and 2 emissions in 2026 and Scope 3 emissions in 2027.

Opposition to Delay

The laws were the first in the nation to require reporting on GHG emissions and climate risks. California lawmakers and climate advocates opposed Newsom’s delay proposal, first presented in a budget trailer bill in July.

Newsom previously supported delaying implementation of the law. In a signing statement for SB 261, Newsom stated that the “implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure.”

Newsom expressed concern “about the overall financial impact of this bill on businesses” and asked CARB to “closely monitor the cost impacts as it implements this new bill and to make recommendations to streamline the program.”

Lawsuit

Implementation of the laws still faces legal challenges. Earlier in the year, a coalition of business groups filed a lawsuit challenging the two laws as violating the First Amendment by compelling speech on a “politically controversial” topic and that the Clean Air Act preempts California’s “de facto regulations of greenhouse-gas emissions nationwide.”

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SB 253, known as the Climate Corporate Data Accountability Act, requires companies with revenues of more than $1 billion to report their greenhouse gas (GHG) emissions related to both operations and their supply chain. SB 261 requires companies with annual revenue of more than $500 million and that do business in California to disclose publicly their climate-related financial risks and how they will address them.

The laws were the first in the nation to require reporting on GHG emissions and climate risks. A coalition of business groups filed a lawsuit challenging the laws.(see Business Groups Challenge California Climate Reporting Law on Constitutional Grounds.)

Newsom previously supported delaying implementation of the law. In a signing statement for SB 261, Newsom stated that the “implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure.”

Newsom expressed concern “about the overall financial impact of this bill on businesses” and asked CARB to “closely monitor the cost impacts as it implements this new bill and to make recommendations to streamline the program.”

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The U.S. Chamber of Commerce, the American Farm Bureau Federation, California Chamber of Commerce, Central Valley Business Federation, Los Angeles County Business Federation and Western Growers Association filed the suit in federal court, asking the court to block California from implementing or enforcing the laws.

A Constitutional Challenge

SB 253 requires companies with revenues of more than $1 billion to report their greenhouse gas (GHG) emissions related to both operations and their supply chain starting in 2026. SB 261 requires companies with annual revenue of more than $500 million and that do business in California to disclose publicly their company’s climate-related financial risks and plan to address them. The report will be due on a biennial basis with the first report due on or before January 1, 2026. (See GHG Emissions Reporting Bill Signed into Law and Climate-Related Financial Risk Act Enacted.)

The plaintiffs argued the reporting requirement violates the First Amendment. The law “forces thousands of companies to engage in controversial speech that they do not wish to make, untethered to any commercial purpose or transaction,” the complaint states. “And it does all this for the explicit purpose of placing political and economic pressure on companies to ‘encourage’ them to conform their behavior to the political wishes of the State.”

The plaintiffs also argued that, by requiring reporting on out-of-state emissions, California is attempting to act as a national emissions regulator. “Because the new disclosure requirements of S.B. 253 and 261 operate as de facto regulations of greenhouse-gas emissions nationwide,” the complaint states, “they are precluded by the Clean Air Act and are invalid under the Dormant Commerce Clause and principles of federalism.”

The California Effect

SB 253 is the first mandatory climate emissions reporting rule in the United States.[1] Legislators in New York have introduced similar reporting requirements and other states are expected to follow.[2] There is concern that a growing number of state laws could produce a patchwork of reporting requirements for businesses that operate in multiple states. Nonetheless, large companies that operate in multiple states could adopt the California requirements nationwide. The so-called “California effect” in which the size of the California market gives its laws extraterritorial reach, would make California’s law the de factor standard.

The California laws also come as the U.S. Securities and Exchange Commission (SEC) is developing a proposed rule to require publicly traded companies to report climate and emissions information in securities filings.[3] Similarly, U.S. multinational companies could face carbon reporting rules from the European Union that include additional types of disclosures.

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Overall, the proposed budget would reduce the state’s multiyear climate budget from the $54 billion over five years in the 2021-2022 and 2022-2023 budgets, as outlined in the California Climate Commitment, to $48.3 billion over seven years. Lauren Sanchez, Newsom’s senior climate advisor, said “$48.3 billion is a world-leading figure that exceeds [that of] many nations.” She also noted that the proposed budget protects 89% of the $54 billion climate budget. Newsom projected that California would receive more than $10 billion in federal climate spending and that spending on climate change programs “actually will grow because of the support of the federal government.”

The key cuts in climate programs in the proposed budget include the following:

ZEV Program Cuts

The 2021 and 2022 budgets committed $10 billion over five years to the state’s zero-emission vehicles (ZEV) programs. The proposed budget maintains $10 billion in ZEV spending and extends it over seven years. The proposed budget includes $38.1 million of General Fund reductions, $475.3 million in fund shifts to the GGRF, which is funded by the cap-and-trade program, and $600 million in delays across various programs.

• Spending cuts: The proposed budget cuts $38.1 million General Fund for various programs including the Drayage Trucks and Infrastructure Pilot Project ($23.5 million), ZEV Manufacturing Grants ($7.3 million), and Emerging Opportunities ($7.3 million). The budget maintains $477 million previously allocated for these programs.

• Funding shifts: The proposed budget shifts $475.3 million from the general fund to the GGRF in the current year for various programs, including ZEV Fueling Infrastructure Grants ($218.5 million); Drayage Trucks and Infrastructure ($157 million); Transit Buses and Infrastructure ($28.5 million); and Clean Trucks, Buses and Off-Road Equipment ($71.3 million).

• Funding delays: The proposed budget also delays $600 million in spending from 2024-25 to 2027-28 across various programs. These include Clean Cars 4 All and Other Equity Projects ($45 million), ZEV Fueling Infrastructure Grants ($120 million), Equitable At-home Charging ($80 million), Drayage Trucks and Infrastructure ($98 million), Clean Trucks, Buses and Off-Road Equipment ($137 million), Community-Based Plans, Projects and Support/Sustainable Community Strategies ($100 million), and Charter Boats Compliance ($20 million). This delay enables a shift of $600 million in expenditures from the general fund to the GGRF for other programs.

Transportation Program Cuts

The proposed budget maintains the $13.6 billion in the 2022 budget for transportation programs and projects that align with the state’s climate goals, but proposes to delay $1 billion in funding for public transit improvements for one year.[2] The budget also proposes a $200 million cut to the Active Transportation Program.

Other Climate Program Cuts

Other proposed cuts to climate programs and projects, according to the Sacramento Bee, include:

• $475 million to support clean energy and climate technology development;

• $100.7 million for wildfire and home hardening programs;

• $50 million for the Regional Climate Resilience Program at the Office of Planning and Research

• $40.1 million for the Extreme Heat and Community Resilience Program;

• $15 million from the Low Carbon Economy grant program in the CA Workforce Development Board;

• $6.75 million for Forecast Informed Reservoir Operations for snowpack runoff predictions; and

• $283 million from incentives for heat pumps and building emissions reduction programs.

Funding for New Climate Reporting Laws

The budget also proposes to delay funding to implement new laws until there is greater clarity on the state’s finances further in the budget process. This could delay implementation of the state’s new Climate Accountability Package, which implements climate-related reporting requirements on thousands of businesses doing business in California. This includes SB 253, which requires companies to report their greenhouse gas (GHG) emissions related to both operations and their supply chain, and SB 261, which requires companies to disclose their climate-related financial risks. (See GHG Emissions Reporting Bill Signed into Law and Climate-Related Financial Risk Act Enacted.)

A First Step in Budget Negotiations

Newsom’s spending cuts and delays are only the first step in the budget process. The California Constitution requires the governor to submit a balanced budget proposal to the legislature in January. The revision to the proposed budget in May could include significant changes in response to new economic and budget forecasts. The legislature is required to budget bill by June 15.

The following chart provides a quick comparison of the requirements in each bill:

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Individuals and corporations can purchase carbon offsets to compensate for their greenhouse gas (GHG) emissions. With a carbon offset, an individual or business pays another entity to reduce or remove emissions rather than to reduce their emissions themselves. Nonetheless, there is growing concern about the validity of emission reductions from offsets and the potential for fraud.

• Offset Details: The law requires businesses to report details regarding the project generating the offset. These include the location, timeline, dates, quantities of offset GHG emissions, total project emissions, type of project, durability of the project, compliance with voluntary standards, and whether there is independent validation or verification of the project.

• Accountability Measures: The law also requires offset sellers to report details on accountability measures if a project is not completed or does not meet the projected emission reductions or removal benefits.

• Calculation Methods: Businesses are also required to report pertinent data and calculation methods that are needed to independently reproduce and verify the number of offsets issued.

• Net Zero Claims: The bill also requires an entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions or similar claims to disclose on the entity’s internet website specified information. This includes information on how a claim was determined to be accurate or actually accomplished, how interim progress toward that goal is being measured, and whether there is independent third-party verification of the company data and claims listed.

• Penalties: The bill also makes a person who violates these provisions subject to a civil penalty of not more than $2,500 per day for each violation up to a total of $500,000.

• Annual Updates: The bill requires disclosures to be updated no less than annually.

Veto of Other Carbon Offset Legislation

On the day he signed AB 1305, Newsom vetoed SB 390, which would have added certain claims about voluntary carbon offsets to the False Advertising Law for offsets that are known or should be known to not be quantifiable, real, and additional. In his veto message, Newsom said the bill “could inadvertently capture well-intentioned sellers and verifiers of voluntary offsets, and risks creating significant turmoil in the market for carbon offsets, potentially even beyond California.”

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More than 5,000 companies large companies, both public and private, will be required to report their emissions, but the cost of compliance will likely impact smaller suppliers as well. Notably, the final version of the bill eliminated penalties for any misstatements in Scope 3 emissions reporting until 2030. Penalties between 2027 and 2030, however, will be assessed up to $500,000 for failure to file the report.

Calculating and Reporting Emissions

The bill requires the California Air Resources Board (CARB) to develop and adopt regulations requiring U.S. partnerships, corporations, limited liability companies, and other business entities that do business in California and have total annual revenues of more than $1 billion to disclose their scope 1, 2, and 3 GHG emissions publicly. CARB must develop the regulations by January 1, 2025, and disclosure of scope 1 and 2 emissions will begin during 2026 and disclosure of scope 3 emissions will begin by 2027. The bill also requires CARB, on or before January 1, 2030, to review these deadlines, evaluate trends in scope 3 emissions reporting, and to consider changing the deadlines.

Reporting entities must disclose their GHG emissions in a manner that is easily understandable and accessible. They will have to measure and report their emissions using the Greenhouse Gas Protocol standards and guidance. This includes the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard that were developed by the World Resources Institute and the World Business Council for Sustainable Development. They will also have to use Scope 3 emissions calculations that detail an “acceptable use of both primary and secondary data sources, including the use of industry average data, proxy data, and other generic data in its scope 3 emissions calculations.”

Third-Party Assurances

Reporting entities must also ensure that their public disclosures have been independently verified by the emissions registry or a third-party auditor that is approved by CARB. The third-party auditor must have “significant experience” in measuring, analyzing, reporting, or attesting to the emission of GHGs and sufficient competence and capabilities. Reporting entities must also pay an annual fee.

Companies will have to report Scope 1 and Scope 2 emissions with a “limited assurance level” beginning in 2026. They will then have to report with a “reasonable assurance level” beginning in 2030. Companies will have to report Scope 3 emissions at a “limited assurance” level beginning in 2030.

CARB Reporting

CARB must also contract with an emissions reporting organization to develop a reporting program to receive and make publicly available disclosures. CARB must then, on or before July 1, 2027, contract with the University of California, the California State University, a national laboratory, or another equivalent academic institution to prepare a report on the public disclosures made by reporting entities to the emissions reporting organization and the regulations. The report must then be submitted to the emissions reporting organization to be made publicly available on the digital platform required to be created by the emissions reporting organization.

Scope of Emissions

• Scope 1 emissions are all direct greenhouse gas emissions that stem from sources that a covered entity owns or directly controls, including, but not limited to, fuel combustion activities.

• Scope 2 emissions are indirect greenhouse gas emissions from electricity purchased and used by a covered entity.

• Scope 3 emissions are indirect greenhouse gas emissions, other than scope 2 emissions, from activities of a covered entity that stem from sources that the covered entity does not own or directly control and may include, but are not limited to, emissions associated with the covered entity’s supply chain, business travel, employee commutes, procurement, waste, and water usage.

Doing Business in California

The law does not define what it means to “do business” in California, but the California Franchise Tax Board states that a company is doing business in California if it (1) engages in any transaction for the purpose of financial gain within California; (2) is organized or commercially domiciled in California; or (3) its California sales, property or payroll exceeds certain amounts. The California tax code under Regs. Tit. 18, § 23101 defines “doing business” for a corporation as “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.”

Criticism

Mary Nichols, former chair of CARB, issued a letter to legislative leaders in support of the bill and CARB’s ability to implement it. Several corporate leaders also registered support. The CalChamber and the Western States Petroleum Association, however, opposed it. They cited the impact on small and medium sized businesses, the “inherently inaccurate” data, and the likelihood of double counting in Scope 3 data. Others noted that spending time and resources on reporting will reduce emissions.

Additionally, there were concerns over the uncertainty over Scope 3 emissions. The calculations for Scope 3 are not accurate, as companies need information from third parties, including suppliers and customers, to assess their emissions. The third-party requirement also places additional costs on smaller companies that are part of a larger company’s supply chain. These companies would have to determine the impact of their emissions to the larger company’s Scope 3 emissions.

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Reporting Requirement

SB 261 requires companies to prepare a report disclosing the entity’s climate-related financial risks and measures adopted to reduce and adapt to these risks. The first reporting is due on or before January 1, 2026, and reports will be biennial thereafter. The company is required to make a copy of the report available to the public on its own internet website. Reports can be consolidated at the parent company level.

Reports are to be in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and its measures adopted to reduce and adapt to climate-related financial risks.

Climate-Related Financial Risks

The bill defines a “climate-related financial risk” as a material risk of harm to immediate and long-term financial outcomes due to physical and transition risks. This includes risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.

Applicability

Companies subject to the requirements are corporations, partnerships, limited liability companies, or other business entities that:

• Were formed under the laws of California, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States;

• have total annual revenues of more than $500 million; and

• do business in California.

The law excludes business entities subject to regulation by the Department of Insurance in California or that is in the business of insurance in any other state.

Penalties

The bill requires the California Air Resources Board (CARB) to adopt regulations that authorize it to seek administrative penalties from covered entities for failing to make the report publicly available on its internet website or publishing an inadequate or insufficient report.

CARB Public Report

The bill also requires CARB to contract with a climate reporting organization to biennially prepare a public report that contains specified information. This information includes a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sector-wide climate-related financial risks facing the state.

Climate-Related Financial Risk Disclosure Fund

Companies must pay an annual fee for CARB’s actual and reasonable costs to administer and implement the bill. Proceeds from the fees will fund the newly created Climate-Related Financial Risk Disclosure Fund. The money from the fund will fund CARB for purposes of the bill.

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Reporting Requirements

The bill would require CARB to develop and adopt regulations requiring U.S. partnerships, corporations, limited liability companies, and other business entities that do business in California and have total annual revenues of more than $1 billion to disclose their scope 1, 2, and 3 GHG emissions publicly. CARB would be required to develop the regulations by January 1, 2025, disclosure would begin during 2026. The bill would also require CARB, on or before January 1, 2030, to review, and update as necessary, these deadlines to evaluate trends in scope 3 emissions reporting and to consider changes to the deadlines.

The bill would require reporting entities to disclose their GHG emissions in a manner that is easily understandable and accessible to residents of the state. Reporting entities must also ensure that their public disclosures have been independently verified by the emissions registry or a third-party auditor, approved by the state board, with expertise in GHG emissions accounting.

In developing the regulations, CARB would also be required to consulting with the Attorney General, other government stakeholders, investors, stakeholders representing consumer and environmental justice interests, and reporting entities that have “demonstrated leadership in full-scope greenhouse gas emissions accounting and public disclosure and greenhouse gas emissions reductions.”

CARB would be required to establish auditor qualifications and a process for approval of auditors that ensures sufficient auditor capacity, as well as timely reporting implementation. CARB would also be required to contract with an emissions registry to develop a reporting and registry program to receive and make publicly available the required disclosures.

On or before July 1, 2027, CARB would be required to contract with the University of California, the California State University, a national laboratory, or another equivalent academic institution to prepare a report on the public disclosures made by reporting entities to the emissions registry.

Scope of Emissions

The bill applies to Scope 1, 2, and 3 emissions:

• Scope 1 emissions are all direct greenhouse gas emissions that stem from sources that a covered entity owns or directly controls, including, but not limited to, fuel combustion activities.

• Scope 2 emissions are indirect greenhouse gas emissions from electricity purchased and used by a covered entity.

• Scope 3 emissions are indirect greenhouse gas emissions, other than scope 2 emissions, from activities of a covered entity that stem from sources that the covered entity does not own or directly control and may include, but are not limited to, emissions associated with the covered entity’s supply chain, business travel, employee commutes, procurement, waste, and water usage.

National Impact

The reach of the reporting requirement would have a national impact. Companies without a physical presence in California would have to determine whether they “do business” in the state. Additionally, smaller companies that are part of a larger company’s supply chain would have to determine the impact of their emissions to the larger company’s Scope 3 emissions.

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California has set the statutory goal to reduce GHG emissions by 40% below 1990 levels by 2030 and to reduce GHG emissions by 85% below 1990 levels in the goal to achieve carbon neutrality. (see California Implements More Ambitious Climate Agenda) AB 32, the Global Warming Solutions Act of 2006, requires CARB to update the scoping plan at least every five years to meet these goals. (California’s Final 2022 Scoping Plan Adds New Climate Strategies.) The LAO’s report on CARB’s reported the following:

CARB Plan Lacks a Clear Strategy for Meeting 2030 GHG Goals

The LAO reports that the “plan does not identify which specific policies it will implement” and is “unclear regarding how much the state will rely on financial incentives, sector‑specific regulatory programs, or cap‑and‑trade.” The LAO states that the reduction estates are “driven primarily by assumptions developed by CARB, without specifying how those assumed outcomes might be achieved.” The LAO concludes that the lack of focus on policy options “is a missed opportunity that has important ramifications for California’s overall GHG reduction efforts.” More specifically, the LAO reports:

• The lack of specificity likely will lead to delayed action, as it defaults to state departments to identify necessary implementation steps. This increases the risk that the state will not meet its statutory 2030 GHG goal, much less CARB’s more ambitious target.

• If the state needs to adopt policy changes in a relatively short period of time to meet its goal, this could be costlier and/or disruptive for private businesses and households.

• The plan does not provide the Legislature with sufficient information—such as about cost‑effectiveness, distributional impacts, or other environmental impacts—to evaluate the merits of new policies that might be needed to meet the 2030 goal.

• Failing to develop a credible plan to meet statewide GHG goals could adversely affect California’s ability to serve as an effective model for other jurisdictions or demonstrate global leadership.

Cap‑and‑Trade Program Is Not Currently Positioned to Close 2030 Emissions Gap

The LAO reports that the cap‑and‑trade is “not currently positioned to ensure the state meets it statutory 2030 GHG goal, much less CARB’s more ambitious target.” The LAO concludes that the program is “not stringent enough” to drive the needed additional emission reductions as “there will be more than enough allowances available for covered entities to continue to emit at levels exceeding the 2030 target.”

Legislature Should Require CARB to Clarify 2030 Plan and Consider Cap‑and‑Trade Changes

The LAO recommends that the legislature require CARB to clarify its plan for reducing GHG emissions to meet the 2030 statutory goal by July 31, 2023. The LAO also recommends that the legislature consider changes to the cap‑and‑trade program to make the program more stringent. It identifies potential changes to include reducing supply of allowances issued in future years, limiting the use of offsets, and extending the program beyond 2030.

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The plan includes:

• $1.7 billion for medium- and heavy-duty ZEV infrastructure.

• $900 million for light-duty EV charging infrastructure.

• $118 million for ZEV manufacturing.

• $90 million for hydrogen refueling infrastructure.

• $97 million for emerging opportunities such as aviation, locomotive, marine vessels and vehicle-grid integration.

• $15 million zero- and near-zero-carbon fuel production and supply.

• $15 million for low-carbon fuels.

• $10 million for workforce development.

CARB Clean Transportation Incentives

In November, the California Air Resources Board (CARB) approved a plan for $2.6 billion in clean transportation incentives, including consumer vehicle rebates and heavy-duty and off-road equipment investments. The plan includes:

• $2.2 billion for clean trucks and buses, and off-road equipment. This includes more than $2 billion for zero-emission trucks and buses and off-road equipment including school buses, transit buses, and drayage trucks, $33 million for financing for small truck fleets transitioning to cleaner technologies, and $135 million for demonstration and pilot projects, including commercial harbor craft.

• $381 million for clean transportation equity projects. This includes $326 million for vehicle purchase incentives and $55 million for clean mobility investments.

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The final Scoping Plan includes a number of changes from the May draft scoping plan, which outlined the state’s commitment to reduce oil use by 91 percent. The final plan represents a more ambitious climate agenda and includes the targets set in a number of climate and energy bills Governor Gavin Newsom signed into law in September.

The bills implemented an ambitious climate policy that sets a more aggressive net-zero GHG emissions target, sets interim goals on the course to achieve 100% renewable energy by 2045, establishes a carbon removal and storage program, and establishes natural carbon removal targets. (see California Implements More Ambitious Climate Agenda.)

Increased Electrification

The plan calls for increased electrification of the state’s energy demand, including increased use of zero-emissions vehicles (ZEVs), including for passenger and freight trains and electric appliances in new and existing buildings. It also calls for increased green hydrogen and biomethane for energy uses that are difficult to electrify.

Carbon Capture and Storage

The final plan raised some controversy, as it relies on carbon capture and storage to address the remaining 15 percent of greenhouse gas emissions that will remain in 2045. This includes actions to capture and store carbon through the state’s natural and working lands.

Accelerated GHG Reduction Targets

The final modeling for the Scoping Plan projects a 48% reduction of GHG emissions below 1990 levels in 2030, surpassing the minimum statutory emissions reduction goal of 40% below 1990 levels in 2030. The updated modeling includes no new fossil gas capacity in the electricity sector and 20 gigawatts of offshore wind capacity by 2045.

With the goal to reach carbon neutrality by 2045, the plan proposes to reduce greenhouse gas (GHG) emissions by 85% below 1990 levels, reduce air pollution by 71%, and reduce fossil fuel consumption by 94%.

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More Ambitious Climate Agenda

The Scoping Plan reflects the targets set in a number of climate and energy bills Governor Gavin Newsom signed into law in September. The bills followed much of the enhanced climate program that Newsom presented to the state legislature in August. The bills implement an ambitious climate policy that sets a more aggressive net-zero GHG emissions target, sets interim goals on the course to achieve 100% renewable energy by 2045, establishes a carbon removal and storage program, and establishes natural carbon removal targets. (see California Implements More Ambitious Climate Agenda.) Newsom earlier outlined this climate policy in a letter to the Chair of CARB and presented the state legislature with a set of proposals to address climate change. The carbon removal projects remain the most controversial aspect of the GHG reduction strategy, as no projects currently exist in California.

Key Changes in the Scoping Plan

There are several key changes to the final scoping plan that were implemented in response to Newsom’s letter.

1. More ambitious targets for vehicle miles traveled (VMT) reductions that align with Alternative 1 (near complete phase-out of internal combustion engines).

2. Electricity sector changes, including no new natural gas plant capacity for reliability needs and an offshore wind target of 20 GW by 2045 (see also Offshore Wind Makes Initial Advancements in California).

3. Community Vulnerability Metric to indicate how climate change will impact frontline communities. The social cost of carbon is a general metric on climate damages, but not all communities have the same resiliency in the face of climate change.

4. Table of household impacts by income level brackets and race, if possible

5. Climate ready buildings. 3 million all electric ready homes by 2030 and 7 million by 2035

6. 6 million heat pumps deployed by 2030

7. Increase the aviation clean fuel targets from 10% non-combustion to 20% in 2045

8. Increased stringency for Low Carbon Fuel Standards (LCFS)

9. Delay start of any carbon capture and sequestration (CCS) in modeling until 2028 and continue to not apply to enhanced oil recovery. Add text on safety needs around pipelines, injection sites, CCS technology 

10. Carbon removal target of 20 million metric tons in 2030 and 100 million metric tons in 2045, with focus on natural and working lands first

Scoping Plan Updates

AB 32, the Global Warming Solutions Act of 2006, requires CARB to update the scoping plan at least every five years. In 2018, Governor Jerry Brown issued Executive Order B-55-18, which set a new target for the state to achieve carbon neutrality by 2045 and ordered future scoping plans “identify and recommend measures to achieve the carbon neutrality goal.”

The 2022 draft is the third update since the initial 2008 Scoping Plan, which provided the first economy-wide approach to reducing greenhouse gas (GHG) emissions to 1990 levels by 2020. The 2014 update measured progress toward the 2020 goal. The 2017 update also assessed progress toward the 2020 goal and provided an approach to achieving the goal of SB 32 to reduce GHG emissions by 40% below 1990 levels by 2030. The state met its initial target of reducing GHG emissions to 1990 levels by 2020 in 2016.

In signing the legislation, Newsom emphasized the state’s global climate leadership. “There’s no other jurisdiction in the world, think about that, that’s doing what the state of California’s doing,” he said. “This is about law, this is not about ambition, this is not an executive order, this is not a promotion, this is a promise that we now need to deliver,” he said.

“This month has been a wake-up call for all of us that later is too late to act on climate change. California isn’t waiting any more,” Newsom said. “Together with the Legislature, California is taking the most aggressive action on climate our nation has ever seen. We’re cleaning the air we breathe, holding the big polluters accountable, and ushering in a new era for clean energy,” he said. “That’s climate action done the California Way – and we’re not only doubling down, we’re just getting started.”

Net-Zero GHG Emissions by 2045

A.B. 1279, known as the California Climate Crisis Act, establishes a target of net-zero greenhouse gas (GHG) emissions as soon as possible but no later than 2045 and net negative GHG emissions after 2045. The act also sets the goal to reduce statewide anthropogenic GHG emissions at least 85% below the 1990 level by 2045. (For more details, see California Sets More Aggressive Net-Zero Emissions Target.) Newsom had proposed establishing a “clear and legally binding” goal for California to achieve statewide carbon neutrality no later than 2045 along with a GHG reduction target of 55% below 1990 levels by 2030. A.B. 2133, legislation to set that GHG reduction target passed the senate but failed to pass the assembly.

Interim Targets on Course to 100% Clean Energy by 2045

S.B. 1020, known as the Clean Energy, Jobs, and Affordability Act, establishes that renewable and zero carbon sources make up 90% of the state’s electricity by 2035 and 95% by 2040. These are interim targets toward achieving the existing state policy that requires 100% renewable electricity by the end of 2045. Newsom had proposed to create clean electricity targets of 90% by 2035 and 95% by 2040. (For more details, see California Sets Interim Clean Energy Targets on Path to 2045 Goal.)

Carbon Removal and Storage Program

S.B. 905 establishes a Carbon Capture, Removal, Utilization, and Storage Program. Among several provisions, the bill requires CARB to adopt regulations by January 1, 2025 for a unified permit application for the construction and operation of carbon dioxide capture, removal, or sequestration projects to expedite the issuance of permits or other authorizations for the construction and operation of those projects. The bill also requires state agencies to use the unified permit application when issuing permits or other authorizations for a carbon dioxide capture, removal, or sequestration project. Newsom had proposed establishing a regulatory framework for carbon capture projects. (For more details, see California Establishes Program to Support Carbon Removal and Storage Technologies.)

Natural Carbon Removal Targets

A.B. 1757 requires the state to set targets for natural carbon removal and storage in vegetation and soils and through restoration and conservation. This bill requires CARB to develop standard methods for state agencies to consistently track greenhouse gas emissions and reductions, carbon sequestration, and, where feasible, additional benefits from natural and working lands over time. The bill also requires CARB to take into account, where feasible, greenhouse gas emissions and reductions of carbon dioxide, methane, and nitrous oxide related to natural and working lands and the potential impacts of climate change on the ability to reduce greenhouse gas emissions and sequester carbon from natural and working lands. Newsom had proposed developing carbon removal target for natural and working lands.

Under current law, renewable energy resources and zero-carbon resources must supply 100% of California electricity sales to retail customers and state agencies by December 31, 2045. S.B. 1020 requires that renewable energy resources and zero-carbon resources must supply 90% of all retail sales of electricity to California end-use customers by December 31, 2035, 95% by December 31, 2040, and 100% by December 31, 2045. Additionally, the law moves up the target for state agencies by 10 years to December 31, 2035.

State Agency Procurement Requirements

The law requires each state agency, except for procurement for the State Water Project by the Department of Water Resources (DWR), to meet its 100% clean energy policy by (1) installing behind-the-meter resources on state-owned or state-leased buildings to serve the state agency's onsite load; (2) procuring appropriate resources through the local publicly owned electric utility or load-serving entity providing retail service to the state agency; and (3) participating in a voluntary shared renewable or green pricing program comprised of the appropriate resources.

The law also requires any new procurement requirements made on behalf of a state agency, except for the State Water Project, to satisfy all of the following criteria:

• The resource must be newly developed as a result of contracting and reach initial commercial operations on or after January 1, 2023;

• The resources meet the category types applicable to the Renewable Portfolio Standard (RPS) Program and commonly referred to as buckets one, two and three;

• The resource must be located in California;

• The retail seller or local publicly owned electric utility must require its contractors to use a multicraft project labor agreement for construction;

• The retail seller or local publicly owned electric utility must exclude the retail sales to a state agency customer from any compliance obligations relating their 100% zero-carbon targets;

• The retail seller or publicly owned electric utility must retire any renewable energy credits or environmental attributes associated with the state agency customer; and

• They must also give preference to resource options expected to yield maximum long-term employment, stimulate new economic activity.

Additional provisions

The bill includes several additional provisions:

• Disclosure of confidential information: The bill authorizes the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) to disclose to the California Independent System Operator (CAISO), upon request, confidential information relating to power purchase agreements with electric generation and energy storage projects for purposes of transmission planning.

• Progress report: The bill also requires the CPUC, CEC, and California Air Resources Board (CARB) to issue a joint reliability progress report by December 1, 2023 and annually thereafter. The report must have a particular focus on summer reliability, identify challenges and gaps to achieving system and local reliability, and identify the amount and cause of any delays to achieving compliance with all energy and capacity procurement requirements set by the CPUC.

• Energy affordability definition: The bill requires the CPUC to develop a definition of “energy affordability” and to use energy affordability metrics to guide the development of any protections, incentives, discounts, or new programs to assist residential customers facing hardships or disconnections due to electricity or gas bills and to assess the impact of proposed rate increases on different types of residential customers.

• Disclosure protections: The bill specifies that a disclosure made through the sharing of information between the CAISO and a state agency does not constitute a waiver of the existing exemptions. It also authorizes an officer or employee of the CPUC to share information with the CAISO pursuant to an agreement to treat the shared information as confidential.

• Scoping plan workshops: The bill includes regions of the state that have the most significant exposure to air pollutants as federal extreme nonattainment areas. This affects the requirement that a portion of the scoping plan workshops be conducted in these areas.

Governor Gavin Newsom is expected to sign the bill into law, as it largely follows his proposal to establish a “clear and legally binding” goal for California to achieve statewide carbon neutrality no later than 2045 and a GHG reduction target of 55% below 1990 levels by 2030. A critic of the bill, however, noted that accelerated emission reductions targets will depend on regulatory reform to accelerate permitting for decarbonization projects and well as the extension of the state’s cap-and-trade program.

California Carbon Neutrality

Carbon neutrality has been a long-term goal in California but has been established only through Governor Jerry Brown’s 2018 Executive Order B-55-18, which set a goal for carbon neutrality by 2045. A.B. 1279 codifies this goal.

The carbon neutrality goal is a step further than earlier executive and legislative efforts to implement a carbon reduction policy. In 2005, Governor Arnold Schwarzenegger issued Executive Order S-3-05, which set a target for GHG reduction of 80% below 1990 levels by 2050. Similarly, in 2016, SB 32 set a target for GHG reduction of 40% below 1990 levels by 2030. A Senate analysis of A.B. 1279 stated that the bill’s goal is in addition to the emissions reduction targets under SB 32.

Carbon Removal

The bill defines “net zero greenhouse gas emissions” as GHG emissions that are “balanced by removals of greenhouse gas emissions over a period of time.” The bill requires the California Air Resources Board (CARB) to identify and implement “policies and strategies” that enable carbon dioxide removal solutions and carbon capture technologies. Additionally, A.B. 1279 is contingent on the enactment of S.B. 905, which implements a carbon capture and storage program and was passed by the legislature on September 2, 2022. An Assembly analysis of the bill, however, noted that the bill “aims to ensure that negative emissions strategies cannot replace aggressive strategies to reduce GHG emissions.”

Scoping Plan and CARB Reports

A.B. 1279 requires CARB to update the scoping plan to identify and recommend measures to achieve these policy goals. CARB must also provide a series of reports on the policy to the legislature and evaluate the feasibility and tradeoffs of achieving the 85% emissions reduction goal by December 31, 2035.

More Aggressive Net-Zero Emissions Target

The legislature passed A.B. 1279, known as the California Climate Crisis Act, which establishes a target of net-zero greenhouse gas (GHG) emissions as soon as possible but no later than 2045 and net negative GHG emissions after 2045. The act also sets the goal to reduce statewide anthropogenic GHG emissions at least 85% below the 1990 level by 2045. A similar bill, AB 1395, would have codified the reduction of GHG emissions by 90% below the 1990 level by 2045. The bill requires the California Air Resources Board (CARB) to ensure that updates to the scoping plan identify and recommend measures to achieve these policy goals. CARB is also tasked with identifying and implementing a variety of policies and strategies that enable carbon dioxide removal solutions and carbon capture, utilization, and storage technologies. The operation of A.B. 1279 is contingent on the enactment of S.B. 905, which implements a carbon capture and storage program.

Newsom had proposed establishing a “clear and legally binding” goal for California to achieve statewide carbon neutrality no later than 2045. He also proposed a GHG reduction target of 55% below 1990 levels by 2030. Legislation to set that target, A.B. 2133, passed the senate but failed to pass the assembly.

100% Renewable Energy Sources by 2045

The legislation passed S.B. 1020, known as the Clean Energy, Jobs, and Affordability Act, which modifies the existing state policy that requires eligible renewable energy resources and zero-carbon resources to supply 100% of all retail sales of electricity to California end-use customers by the end of 2045. The bill also allows retail sellers of electricity to utilize the Department of Water Resources (DWR) as a central procurement entity for eligible renewable energy resources and zero-carbon resources. The bill establishes the Climate Equity Trust Fund to help pay for the state’s decarbonization efforts. Newsom had proposed to create clean electricity targets of 90% by 2035 and 95% by 2040.

Carbon Removal and Storage Program

The legislature also passed S.B. 905, which establishes a Carbon Capture, Removal, Utilization, and Storage Program. Among several provisions, the bill requires CARB to adopt regulations by January 1, 2025 for a unified permit application for the construction and operation of carbon dioxide capture, removal, or sequestration projects to expedite the issuance of permits or other authorizations for the construction and operation of those projects. The bill also requires state agencies to use the unified permit application when issuing permits or other authorizations for a carbon dioxide capture, removal, or sequestration project. Newsom had proposed establishing a regulatory framework for carbon capture projects.

Natural Carbon Removal Targets

The legislature also passed A.B. 1757, which requires the state to set targets for natural carbon removal and storage in vegetation and soils and through restoration and conservation. This bill requires CARB to develop standard methods for state agencies to consistently track greenhouse gas emissions and reductions, carbon sequestration, and, where feasible, additional benefits from natural and working lands over time. The bill also requires CARB to take into account, where feasible, greenhouse gas emissions and reductions of carbon dioxide, methane, and nitrous oxide related to natural and working lands and the potential impacts of climate change on the ability to reduce greenhouse gas emissions and sequester carbon from natural and working lands. Newsom had proposed developing carbon removal target for natural and working lands.