California bill forces companies to report all emissions, even from contractors

Companies that fail to submit verifiable inventories or have errors in their inventories could face $500,000 fines and litigation from the California Department of Justice.

Published: September 12, 2023 11:00pm

(The Center Square) -

(The Center Square) - Under a new emissions law waiting to be signed into law by California Gov. Gavin Newsom, emissions could be counted multiple times over as companies are forced to submit costly inventories of all emissions, even commuting and emissions from contractors. Critics say this bill will drive vertical integration under larger corporations that would stop doing business with smaller companies that struggle to measure their greenhouse gas emissions.

SB 253, authored by Sen. Scott Wiener, D-San Francisco, would require companies with over $1 billion in revenue doing business in the state to count and report all emissions from the company, its subsidiaries, and every source of indirect emissions from up and down the value chain — from emissions created by the production of the energy used by the company all the way to employee commuting and emissions from the company’s contractors.

The three categories of emissions would face different deadlines for inventories based on whether they are Scope 1, 2 or 3 emissions. The verifiable counting of Scope 1 emissions from sources owned or controlled by an organization such as a factory, and Scope 2 emissions from the purchase of electricity, steam, heat, or cooling would be required in 2026. Scope 3 emissions, also called “value chain emissions” in a guide from the Environmental Protection Agency, include all company emissions not included in Scopes 1 and 2 and “often represent the majority of an organization’s total greenhouse gas emissions.”

Scope 3 emissions “upstream” of a company include those from purchased goods or services, capital goods, other fuel and energy-related activities, upstream transportation and distribution, business travel, employee commuting, and upstream leased assets. Scope 3 emissions “downstream” of a company include those from downstream transportation and distribution, processing of sold products, use of sold products, end-of-life treatment of sold products, downstream leased assets, franchises and investments.

Companies that fail to submit verifiable inventories or have errors in their inventories could face $500,000 fines and litigation from the California Department of Justice.

According to the Senate legislative staff floor analysis, “Greater transparency of full-scope emissions from billion-dollar companies will allow the public, stakeholders, and investors to understand and act upon a company’s GHG emissions and trends. However, requiring full-scope emission reporting will incur additional costs for the reporting entities.”

This assessment from staff is supported by arguments for and against the bill, with a coalition of the bill’s supporters, including the Sierra Club and the Environmental Defense Fund, saying “This mandate of comprehensive climate pollution transparency would be the first in the nation and would establish a public right to know which companies are polluting our environmental commons, how much they are emitting, and if they are decreasing - or increasing - their climate emissions, offering a transparent and public way of verifying corporate claims of climate leadership.”

An opposition coalition, meanwhile, including the California Chamber of Commerce and most statewide associations for most kinds of businesses ranging from commercial real estate developers to insurers and wine growers, stated, “requiring reporting and limiting emissions associated with a company’s entire supply chain will necessarily require that large businesses stop doing business with small and medium businesses that will struggle to accurately measure their greenhouse gas emissions let alone meet ambitious carbon emission requirements, leaving these companies without the contracts that enable them to grow and employ more workers.”

“Further, the inability to meet the emission objectives may fall outside of the sphere of influence of small and medium businesses as the technology to transition to carbon neutrality may not yet even exist for their line of business. Yet, they will be subject to increasing costs and the potential loss of market opportunity. Forcing companies to make these decisions would have the effect of consolidating market share in the largest of companies rather than fostering competition and growth of smaller industries.”

According to a corporate survey commissioned by Ceres, one of the bill’s five co-sponsors, companies spend an average of $533,000 on climate disclosure activities. While SB 253, as mentioned above, only applies to companies with over $1 billion in revenue, all companies that do business with a company with over $1 billion in revenue would be required to have their emissions calculated as well to be included in the company’s mandated Scope 3 emissions.

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