California Governor Gavin Newsom signed the Voluntary Carbon Market Disclosures Act (VCMDA) on October 7, imposing disclosure obligations on businesses that market, sell, or purchase voluntary carbon offsets in California and businesses that make net-zero or carbon-neutral claims, effective on January 1, 2024.
Business entities subject to the disclosure obligations will be required to provide specified information on their websites and update that information at least annually. Violations of the disclosure obligations will be subject to civil penalties of up to $2,500 per day and up to $500,000 per violation.
Business Entities That Market or Sell Voluntary Carbon Offsets Within California
Business entities that market or sell voluntary carbon offsets within California will need to disclose details regarding the applicable carbon offset project on their websites. This information includes the applicable protocol, the commencement and completion date of the project, the dates and quantities of emissions reductions, removals, modifications, or reversals, and independent expert or third-party validation or verification of the project attributes.
In addition to disclosing information specific to applicable carbon offset projects, they will also need to disclose details on accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits, as well as the pertinent data and calculation methods needed to independently reproduce and verify the number of emissions reduction or removal credits issued using the protocol.
Business Entities That Purchase or Use Voluntary Carbon Offsets
On the other hand, business entities that purchase or use voluntary carbon offsets to meet net-zero or carbon-neutral claims must also make disclosures on their websites. The information that must be disclosed is more limited than the information that must be disclosed by marketers or sellers and includes the seller of the offset and the offset registry or program, the type of offset project, the applicable protocol, and whether there is independent third-party verification of company data and claims listed. These disclosure requirements will apply to business entities that operate within California and purchase or use voluntary carbon offsets sold within California.
Business Entities Making Net-Zero or Carbon-Neutral Claims
Business entities that make claims regarding the achievement of net-zero emissions or claims that the entity, a related or affiliated entity, or a product is “carbon neutral,” does not add net carbon dioxide or greenhouse gases to the climate, or made significant reductions to its emissions must disclose information on the basis of such claims.
In particular, these entities will need to disclose all information documenting how the claim was determined to be accurate or actually accomplished and how interim progress toward that goal is being measured. They must also disclose whether there is independent third-party verification of the company data and claims listed. This disclosure requirement applies to entities that operate within California or make claims within California.
Key Takeaways
Unlike the Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261), which Governor Newsom signed into law the same day, the VCMDA does not include a revenue threshold that limits applicability of the disclosure obligations to larger companies with revenues in excess of a specified amount (i.e., $1 billion and $500 million, respectively). Instead, the VCMDA directly impacts a broad range of business entities, including entities both within and outside of California.
Given the upcoming January 1, 2024 compliance deadline, business entities that may be subject to the disclosure obligations of the VCMDA should identify and review all voluntary carbon offset transactions that they have entered into and all climate-related claims they have made to assess the scope and extent of the required disclosures. Violations of the disclosure obligations will be subject to civil penalties of up to $2,500 per day and up to $500,000 per violation.
The voluntary carbon offset markets and climate-related disclosures are expected to continue to garner significant attention and scrutiny. Business entities that enter into voluntary carbon offset transactions and business entities that make net-zero or carbon-neutral claims must ensure that they stay apprised of the latest rules and regulations that may apply to them as they continue their decarbonization efforts.