California Air Resources Board Approves Initial Regulations for Climate Disclosure Laws

The California Air Resources Board set out initial regulations specifying the Climate Corporate Data Accountability Act and Climate-Related Financial Risk Acts’ applicability to certain entities, the fee structure, and reporting deadlines. The Board is the lead agency responsible for implementing the California climate disclosure legislation that has been the subject of legal challenges and significant scrutiny since the passage of these laws in 2023.

The California Air Resources Board (CARB or the Board) approved initial implementing regulations at their February 26, 2026 public hearing. Notably, these regulations set a first-year reporting deadline based on an entity’s fiscal year, provide additional clarification regarding which entities are covered, and specify the fee structure that will be levied on regulated entities. Although these implementing regulations apply for both the Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261), CARB will not be enforcing SB 261 while the US Court of Appeals for the Ninth Circuit injunction against enforcement remains in place.

KEY TAKEAWAYS

• Entities are deemed to be doing business in California and thus covered by the regulations if they are organized or commercially domiciled in California or if their sales in California exceed an amount set by the Franchise Tax Board.
• The first reporting deadline for SB 253 is August 10, 2026, and it applies only to Scope 1 and Scope 2 emissions in the initial year.
• The regulations exempt insurance companies, nonprofits, and government entities from SB 253 reporting requirements.
• The regulations impose a flat fee on covered entities. The fee is determined by the annual program costs divided by the number of regulated entities.

BACKGROUND

In 2023, California enacted SB 253 and SB 261. These statutes reflect California’s commitment to greater transparency in corporate greenhouse gas emissions and climate risk, aligning with similar programs already established in the European Union, United Kingdom, and Japan. Other US states have followed suit, and a similar climate disclosure bill passed in the New York Legislature.

SB 253 requires US-based entities with more than $1 billion in annual revenue doing business in California to annually report Scope 1 and Scope 2 emissions starting in 2026. Reporting on Scope 3 emissions will begin in 2027.

SB 261 requires US-based entities with more than $500 million in annual revenue to report climate-related financial risks and their mitigation measures. However, the Ninth Circuit temporarily enjoined SB 261. CARB indicated in the February 26 public hearing that it intends to comply with the Ninth Circuit injunction, and the newly approved initial regulations will not be applied to SB 261 until the injunction is lifted.

CARB INITIAL REGULATIONS, APPROVED FEBRUARY 26

Scope and Applicability: Key Definitions

The regulations apply to corporations meeting the applicable revenue thresholds ($500 million or $1 billion, as applicable) that are “doing business in California,” defined as companies that (1) are organized or domiciled in California or (2) have California sales exceeding the $757,070, or 25% of total sales, threshold set by the Franchise Tax Board. Entities that do not meet the definition of “doing business” in California do not have sufficient nexus to the state and are thus not subject to the regulations.

Parent companies may submit consolidated reports and fees for their in-scope subsidiaries. CARB uses the same parent-subsidiary definition as in California’s Cap-and-Invest program. Although parent entities may submit on behalf of their subsidiaries, subsidiaries are assessed individually for the purpose of ascertaining the program’s administration fees.

Exemptions

The regulations exempt non-profits, government entities, and insurance companies from reporting requirements under SB 253. The exemption of insurance companies from SB 253 reporting requirements has generated significant debate. Senator Weiner, the bill’s drafter, spoke at CARB’s February 2026 public hearing, arguing that the legislature only intended to exempt insurance companies from reporting requirements under SB 261, not SB 253. He suggested that CARB’s regulations exceed their regulatory authority.

In response to public comments opposing the insurance company exemption, CARB officials stated that the California Department of Insurance already requires participating insurers to report Scope 1, Scope 2, and, if applicable, Scope 3 emissions under its own climate risk and exposure requirements. Insurance companies generally support CARB’s proposal to exempt them from the regulations, citing concerns about duplicative and inconsistent reporting obligations and citing the Department of Insurance’s role as their primary regulator. Climate advocates, however, continue to oppose the exemption, arguing it could create gaps in climate data transparency.

Reporting Deadlines and Assurance

For SB 253, the initial regulations set August 10, 2026, as the first-year reporting deadline, with reporting limited to Scope 1 (direct emissions from organizational sources) and Scope 2 (indirect emissions from purchased electricity, steam, heat, or cooling). Companies are required to submit reports based on their fiscal year-end. If the fiscal year ends on or before February 1, 2026, entities must report FY 2026 data; if the entity’s fiscal year ends on or after February 2, 2026, entities must report FY 2025 data.

It takes time for many entities to build up emissions data collection and reporting capabilities. Accordingly, the initial regulation excuses from the duty to submit Scope 1 and Scope 2 emissions data by the 2026 deadline entities that were not collecting data or were not planning on collecting data at the time of the December 2024 Enforcement Notice. Such entities must submit to CARB a statement on company letterhead explaining that they did not start collecting data at the time the enforcement notice was issued.

Stakeholders have expressed concerns about the August 10 reporting deadline, citing potential bottlenecks due to the limited number of third-party data assurance providers for companies seeking external verification. Some public commenters at the hearing requested rolling deadlines or extensions to December 31, 2026, for first-year reporting to accommodate these challenges. CARB representatives dismissed these concerns by focusing on good faith compliance and enforcement discretion, and CARB stated that they would consider extensions due to unforeseen circumstances on a case-by-case basis.

Fee Structure and Economic Impact

The regulations adopt a flat-rate fee structure to fund program administration. The fee charged to each entity will be determined by dividing the annual cost of the implementation by the number of regulated entities. The annual administrative costs include legal defense costs, which many public commenters heavily contested. In a public comment, a spokesperson for the California Chamber of Commerce argued that the inclusion of legal defense costs renders the fee an unauthorized tax and may have a chilling effect on judicial review. Other stakeholders opposed the flat fee structure, advocating for a tiered system considering entities’ varying sizes and abilities to pay.

Enforcement Status of SB 261

CARB is not enforcing SB 261 pursuant to a Ninth Circuit order granting a request for an injunction; reporting under SB 261 remains voluntary until the appeal is resolved.

Recommendations

Covered companies should assess the status of their data collection and reporting processes for Scope 1 and Scope 2 emissions. If a company determines that it has not collected the necessary data for reporting purposes, it should evaluate whether it can make the appropriate statement to CARB to be excused from first-year reporting requirements.

To the extent that a covered entity is required to report but is facing challenges in providing all the emissions data or securing third-party assurance, the reporting entity should document its compliance efforts and justification for good faith and/or substantial compliance. Entities that are subject to exemptions (i.e., nonprofits and insurance companies) may want to continue monitoring regulatory developments, as ongoing stakeholder feedback may affect the future and scope of the current exemptions.

CONCLUSION

While CARB’s initial regulations implementing SB 253 focus on Scope 1 and Scope 2 emissions and provide flexibility for the first year, ongoing stakeholder engagement and legal disputes may influence future requirements and enforcement priorities. And while we await the Ninth Circuit’s guidance on the timing for SB 261 implementation, companies should consider what a good faith compliance effort might look like in the event there is a relatively short window for financial risk reporting following a decision.

Law clerk Hannah Ritter contributed to this LawFlash.