California advances Scope 3 emissions reporting with new rules and phased approach

The California Air Resources Board has stepped up work on the state’s corporate emissions reporting regime, using a public workshop on 23 March to sketch out how it expects companies to measure and disclose Scope 3 greenhouse gas emissions under California’s Climate Corporate Data Accountability Act.

The discussion marked the latest stage in CARB’s effort to turn Senate Bill 253 into a functioning reporting framework for large companies doing business in California. Under...

the law, US companies with annual revenue above $1bn and a California presence will have to report Scope 1, 2 and 3 emissions. CARB’s initial draft rules, approved in late February, defined key terms such as “doing business in California”, “revenue”, “parent” and “subsidiary”, and set 10 August 2026 as the first deadline for Scope 1 and Scope 2 reporting.

At the workshop, CARB outlined a four-step approach to emissions disclosure. Companies would first define organisational boundaries to determine which entities, assets and operations fall within the report. They would then assign emissions to Scope 1, 2 or 3, calculate those emissions, and, from 2027, obtain limited assurance for Scope 1 and 2 data. The agency also said it plans to introduce a standard reporting template from 2027, an effort designed to reduce uncertainty over what companies must submit.

Scope 3 reporting, which covers emissions across a company’s value chain and is widely viewed as the hardest to quantify, drew most of the attention. CARB said it is considering whether firms should be allowed to use either an equity-share method or a control-based approach when setting organisational boundaries. Under the equity-share model, emissions are reported in line with ownership interests, while a control approach would tie reporting to financial or operational control. Companies would need to document and explain whichever method they choose.

For calculating Scope 3 emissions, CARB floated several accounting methods: spend-based, activity-based, supplier-specific and hybrid approaches. It also proposed allowing companies to draw on established emissions-factor databases, including resources used by the US Environmental Protection Agency and the Intergovernmental Panel on Climate Change.

The agency is also weighing three different ways to phase in Scope 3 obligations. One option would require all reporting entities to disclose all Scope 3 categories, while allowing them to omit de minimis items with an explanation. Another would begin with the transportation and industrial sectors, which CARB says account for a large share of statewide emissions. A third would phase in reporting by category, starting with the easiest-to-calculate items such as business travel, purchased goods and services, fuel and energy, employee commuting and waste, while leaving more complex categories, including transportation and use of sold products, voluntary at first.

Law firms tracking the rulemaking said the workshop signalled that CARB wants flexibility, but that the final shape of the regime will depend heavily on industry feedback. Comments on the proposals are due by 13 April.

With the first Scope 1 and 2 filing deadline only months away, companies subject to SB 253 are now facing a fast-moving compliance timetable, even as the most difficult questions about Scope 3 reporting remain unresolved.

Source: Noah Wire Services