California law on reporting all greenhouse emissions said to harm small business

California Governor Gavin Newsom signed a new bill into law that will require expensive counting and reporting of all greenhouse emissions for all larger companies, even from their contractors. Critics say the costs and complexity of such reporting will drive larger companies to stop doing business with smaller companies that can’t afford such protocols, and encourage vertical integration of supply chains.

“When business leaders, investors, consumers, and analysts have full visibility into large corporations’ carbon emissions, they have the tools and incentives to turbocharge their decarbonization efforts,” Sen. Scott Wiener, D-San Francisco, said in a public statement celebrating the bill. “This legislation will support those companies doing their part to tackle the climate crisis and create accountability for those that aren’t. I applaud the Governor’s bold climate leadership — the planet needs more climate champions like Gavin Newsom.”

The law requires stringent reporting of all emissions from the company, its subsidiaries, and every source of indirect emissions from up and down the value chain. This accounting must include everything from the energy used by the company directly to even emissions from employees’ commutes.

“Senate Bill 253 is going to put a much bigger impact on businesses than intended,” said Sen. Roger Niello, R-Fair Oaks, to The Center Square about his opposition to the law. “While the supporters have emphasized that only about 5,300 U.S. corporations will be required to report, there will be small businesses that work with those corporations that will also be overly burdened to comply.”

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. It’s also not clear whether contractors would have to include the emissions from their entire value chain, including their contractors.

According to an analysis by Thompson Reuters, “Double counting may occur when a manufacturer and a retailer both account for Scope 3 emissions resulting from the third-party transportation of goods between them,” and that “Collecting data on Scope 3 emissions requires information from multiple sources, such as suppliers, customers, and other stakeholders, making it difficult to obtain accurate and reliable data.”

Reporting requirements for Scope 1 and Scope 2 emissions from companies’ direct use begins in 2026, while reporting of Scope 3 emissions throughout the value chain will begin in 2027.