California climate disclosure laws face possible delay

Source: By Anne C. Mulkern, E&E News • Posted: Wednesday, January 31, 2024

California Gov. Gavin Newsom discusses his proposed state budget for the 2024-2025 fiscal year during a Jan. 10 news conference.

California Gov. Gavin Newsom discusses his proposed state budget for fiscal 2024-2025 during a Jan. 10 news conference. Rich Pedroncelli/AP

California made history last year when it became the first state to pass new rules that force companies to divulge more information about their contributions to climate change and their risks from global warming.

The twin climate disclosure measures were hailed as a leap forward for corporate accountability, but now — as California moves to implement the new rules — several roadblocks are coming into view.

And the biggest might be Democratic Gov. Gavin Newsom.

In his initial fiscal 2024-25 budget proposal, Newsom provided no money to implement the two climate disclosure rules, which would cost roughly $16 million in the first year compared to the state’s total spending of $291.5 billion.

The lack of allotted money follows comments Newsom made last year when he signed into law one of the two climate disclosure rules, which forces the state’s biggest companies to make public their greenhouse gas emissions.

The measure “demonstrates California’s continued leadership,” Newsom wrote in an Oct. 7 signing statement on the rule requiring corporate disclosure of greenhouse gas emissions. But, he added, the “implementation deadlines in this bill are likely infeasible.

Newsom raised similar concerns when he signed the other disclosure measure, which deals with climate risk.

Under the greenhouse gas disclosure law, companies that operate in California and make more than $1 billion in revenues annually would begin reporting their emissions data in 2026. The rule would affect more than 5,300 businesses, including potentially Apple, Google and Microsoft.

Under the second climate disclosure rule, companies with more than $500 million in annual revenue would have to divulge how climate change threatens their business. Those disclosures also would begin in 2026 and would affect roughly 10,000 companies.

Whether those deadlines will stick is an open question.

Newsom’s signing statement comments — and the lack of money for the rules’ implementation in his initial budget — are raising concerns on whether a delay is forthcoming. And that’s prompting pushback from supporters.

“When you pass a law and you sign the law, the law gets implemented, period, end of story,” Democratic state Sen. Scott Wiener, who championed the emissions disclosure law, said in an interview. “I don’t think any of my colleagues think it’s OK to just not fund laws that are literally the law, the laws of the state of California.”

Newsom’s office says the governor isn’t singling out the climate disclosure laws. The state faces a $38 billion or more deficit, and his budget didn’t bankroll most new laws. In addition, the governor’s proposed budget contained cuts to many programs, including several climate-focused ones.

“With a few limited exceptions, the budget proposal defers all new discretionary spending decisions to this spring, for discussion with the Legislature,” when state revenues for the year are more clear, Newsom spokesperson Alex Stack said in an email.

Now the state Legislature gets to weigh in with its priorities and then negotiate with the administration. Newsom will release a revised budget proposal in May, with the final spending plan expected in July.

But Newsom has made clear he wants to see changes. In the Oct. 7 signing statement of the emissions disclosure rule, he directed his staff to work with the Legislature to revise the measure. That work is underway, said a person familiar with the talks, who asked not to be identified as they aren’t cleared to discuss it.

Stack declined to comment on exactly what changes Newsom wants, but Newsom allies in the Legislature and the administration said the initial lack of funding and the push to change the disclosure laws’ deadlines aren’t connected. They asked not to be identified because they’re not authorized to discuss it.

‘Wishful thinking’

There’s still time — but not much — to get money in the budget to implement the emissions disclosure rule, Wiener said.

The law directs the California Air Resources Board (CARB) to enact regulations by Jan. 1 of next year. Corporations must submit data in 2026, with CARB setting the exact date. The disclosures are then required annually.

The climate risk law has a slightly different schedule. It mandates disclosure of climate-related financial risks by Jan. 1, 2026, and then biennially afterwards.

The two laws are the first in the country to require such disclosures from publicly traded and private corporations. Under the emissions law, businesses will need to report their climate pollution from direct operations (Scope 1), energy use (Scope 2) and customers and suppliers (Scope 3).

A person in the state Legislature familiar with the laws’ rollout, who asked not to be identified in order to speak freely, said the governor is hearing that the California Air Resources Board is pushing back on rapid implementation of the disclosure measures. The agency has indicated, the person said, that they create new work when they have other priorities, that they lack expertise to implement the laws and that legal action is likely against the measures.

When asked about that statement, CARB spokesperson Lys Mendez said in an email that the agency is assessing “implementation needs and scoping out potential workstreams to deliver on the tasks and actions required by both measures.”

Dan Sperling, an agency board member from 2007 through last year, said writing and passing the rules on greenhouse gas disclosures could take more time than expected.

It’s a very complex problem, and there isn’t much available to base language on it, he said. The European Union is requiring disclosures, but it’s in the process of working with companies now on what they’ll need to file, he said.

“They’re basically starting from scratch,” he said of CARB. It’s “much more complicated, much harder,” than crafting the type of regulations CARB already has, including those dealing with the state carbon cap-and-trade market or rules promoting lower carbon fuels.

In terms of staff experts, Sperling said, “you’ve got to find the right staff. You’ve got to train them. They’ve got to learn, and then you start the process.”

To get regulations written and approved in “two years is probably wishful thinking,” he said.

Roadblocks could come from the courts too. The U.S. Chamber of Commerce, the California Chamber of Commerce and several business trade groups announced Tuesday that they’ve filed a lawsuit challenging the climate disclosure laws.

The measures compels speech in violation of the First Amendment, they say. In addition, they argue the issue is a federal one because many of the affected businesses operate in several states.

Other businesses want the law implemented quickly.

For large companies affected by the measures, “there is a strong interest to move forward with the legislation as quickly as possible, because they want the certainty,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets.

That project aims to transform practices and policies of capital markets to soften the impact of climate change.

Lawmakers defend the deadlines

Wiener, the senator who carried the emissions disclosure bill, said he’s not eager to change deadlines on his measure, as Newsom wants.

“We already have delayed implementation,” in the existing law, he said, explaining that it includes “a five-year phased implementation that is beyond reasonable.”

State Sen. Henry Stern, a Democrat who carried the climate risk disclosure measure, said he and Wiener were in “lockstep” agreement.

“There are various ways to stage and phase implementation, and we think CARB has flexibility to align various compliance timetables with other jurisdictions in Asia, Europe and beyond,” he said in a text message sent by his spokesperson.

Part of the law on corporate greenhouse gas emissions disclosures is supposed to happen automatically, said Ken Alex, director of Project Climate at University of California, Berkeley’s law school. The law requires companies to post that data publicly, such as potentially on their websites, by 2026.

The funding is needed for the state agency to review the disclosures and also make it available publicly, he said.

Funding shouldn’t be an obstacle because there’s language in the emissions disclosure measure that allows borrowing money for implementation, said Ceres’ Rothstein.

That loan then would be repaid by filing fees charged to corporations. CARB would set that fee.

“We are in the process” of highlighting the loan provision “for the Legislature to make sure that they know that there isn’t any reason for this to not be funded,” said Melissa Romero, deputy legislative director at California Environmental Voters.

The money potentially could be borrowed out of revenues from the state’s carbon cap-and-trade program, advocates said.

For the emissions disclosure law, CARB needs $9 million this fiscal year and $2 million in the next one to write the rules, Wiener’s office said.

“It’s a very small amount of money in the big scheme of things,” Wiener said. He added that he’s “very confident” the laws would get funded.

The climate risk disclosure law needs $13.7 million in the next two fiscal years for CARB to identify covered entities, write regulations, develop and maintain a verification program, and conduct other tasks, according to an analysis by the state Department of Finance.

State Assemblymember Steve Bennett, chair of the Budget Subcommittee on the Climate Crisis, Resources, Energy and Transportation, said the disclosure laws are important and need funding. But he cautioned that he hasn’t yet identified funding priorities.

“Part of what makes this important” is that it’s a “pathfinding bill” other states might follow, he said in an interview, referring to the greenhouse gas disclosure mandate.

“If we don’t implement it timely or we don’t implement it appropriately, we could be causing some challenges … for everybody else that’s trying to do this,” he said.

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