Carbon Claims:  what you need to know about the latest regulations

By Nicole DeNamur, Esq., Owner, Sustainable Strategies

March 8, 2024

Consumers are increasingly looking to purchase goods and services with reduced climate impacts, which means that marketers are making a variety of climate-driven claims, such as “net zero” and “carbon neutral.”  However, these claims can often be confusing, misleading, and in some instances, inaccurate; this is especially true in the nascent and largely unregulated world of carbon offsets.

This has led to increased regulation of these types of claims, including a focus on offsets, which are often used to support “net zero” and related claims.  So what do practitioners need to know?

What is the context?

As carbon-related claims face increased regulatory scrutiny, it is important to understand the latest requirements and guidance, to manage risk and avoid potential penalties.  Both regulation and litigation present significant risks to entities making carbon-driven claims, including contractors, designers, engineers, consultants, and developers.

For building design and construction professionals, these types of claims could come up in a variety of contexts, including websites advertising projects, promotional materials, jobsite banners, statements about their own operations, claims regarding areas of expertise, and in the context of tools, certifications, and assessments used to achieve high performance goals.

California has largely led the way with respect to climate-disclosure focused regulations.  This includes SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act), as well as California’s Voluntary Carbon Market Disclosures Act, AB 1305, which was implemented in October, 2023.

AB 1305:  Voluntary Carbon Market Disclosures Act

The Voluntary Carbon Market Disclosures Act (VCMDA) requires entities making certain claims within California to disclose information about those claims and the basis for those claims.  It is important to note that unlike SB 253, for example, AB 1305 does not have annual dollar threshold requirements; it applies to any entity (public or private) that operates in or makes claims within California.

AB 1305 applies to essentially three types of claims: (1) marketing/selling carbon offsets, (2) the use of offsets to make or support certain types of claims, and (3) general carbon-related claims.  The information that must be disclosed for each type of claim varies, but generally focuses on transparency, validation, and consumer protection.

Carbon Offsets:

Entities that market or sell carbon offsets in California must disclose certain information on their website.  This includes (with more specific requirements within each bullet):

  1. Details regarding the carbon offset project;
  2. Details regarding accountability measures if there are issues with the project; and
  3. Data and calculation methods needed to independently verify emissions reduction or removal credits.

Offsets that support Net Zero or Carbon Neutral Claims:

Entities that purchase or use voluntary carbon offsets and use those offsets to support or make claims such as “net zero,” “carbon neutral,” or “other claims implying the entity, related entity, or a product does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions,” must also disclose certain information.

This information includes, but is not limited to, the name of entity selling the offset and the offset registry/program; project ID number; project name; offset project type; specific protocol used to estimate emissions reductions; and whether there is third-party verification of data and claims.

Net Zero and Carbon Neutral Claims generally:

Regardless of whether an entity uses offsets or not, if that entity makes claims regarding “net zero” emissions, or that an entity or product is “carbon neutral,” or “other claims implying the entity, related or affiliated entity, or a product does not add net carbon dioxide or greenhouse gases, as defined in Section 38505 (California Global Warming Solutions Act of 2006), to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions, as described in Section 38505,” the entity must disclose certain information.

This information includes, but is not limited to:  how the claim was determined to be accurate or accomplished; how interim progress is being measured; and whether there is third-party verification.

AB 1305 also outlines civil penalties for non-compliance of up to $2,500 per day, for each day information is unavailable or inaccurate, not to exceed $500,000.  AB 1305 went into effect on January 1, 2024, and it was subsequently clarified by the bill’s author in the Assembly Daily Journal (see page 3766) that the intent was for disclosure requirements to begin on January 1, 2025, “While the bill does not specify the date on which the first set of disclosures must be posted to a company’s internet website, it was my intent that the first annual disclosure be posted by January 1, 2025. This deadline provides reporting entities with sufficient time to align their business practices with the stated objectives of AB 1305 prior to being subject to potential civil fines.”  Disclosures must be updated no less than annually, and some companies are already posting disclosures on their websites.

Other Guidance and Best Practices

California has taken the lead regarding climate-disclosure regulations, and we expect similar legislation, focused on consumer protection, data transparency, and assurance/validation of “green” claims, in other states.   This state-level legislation will hopefully be supplemented by forthcoming updates to the Federal Trade Commission’s “Green Guides” (after an extension, public comment closed on April 24, 2023).

Practitioners in the built environment disciplines should look to regulatory guidance and industry best practices, and closely examine any public facing claims to ensure they are data-driven, verifiable, and compliant with all current regulations.

Nicole DeNamur is an attorney and sustainability consultant, based in Seattle, WA.  Her company, Sustainable Strategies, helps clients identify and manage the risks of sustainable innovation so they can pursue robust sustainability goals.  She is also an award-winning contributing author and has developed and taught graduate-level courses at the University of Washington and Boston Architectural College. Nicole was named Educator of the Year by the International WELL Building Institute, and Sustainable Strategies hosts an online course, Accelerated WELL AP Exam Prep.

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AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.