On October 7th, 2023, the Governor of California approved Assembly Bill No. 1305 (“AB 1305”) the Voluntary Carbon Market Disclosures Act (the VCMDA). AB 1305 introduces disclosure requirements for organizations operating in California who buy, market, or sell voluntary carbon offsets, or organizations that make claims about achieving a carbon neutral or net zero emission status. The disclosures covered by AB 1305 are to be made on the organization’s website.

The following comments represent Climate Vault’s proprietary research and discussion with legal professionals. These findings should not be taken as a formal opinion on whether and to what degree our partners need to comply. 

Summary of AB 1305

The bill consists of the following four components:

• 44475: Disclosure requirements for organizations marketing or selling voluntary carbon offsets. 
• 44475.1: Disclosure requirements for organizations that purchase voluntary carbon offsets and use them to make climate objective-related claims. 
• 44475.2: Disclosure requirements for organizations that are making climate objective-related claims.
• 44475.3: Description of violation penalties.

The intersection of AB 1305 and Climate Vault is straightforward. AB 1305 applies to  organizations transacting and making claims based on voluntary carbon offsets. “Voluntary carbon offset,” as defined in AB 1305 4475(d)(3)(B), “does not include products that represent or correspond to legal or regulatory mandates.” This means the Compliance Carbon Market (“CCM”) emissions allowances that Climate Vault procures are not included under AB 1305’s disclosure requirements. As such, Climate Vault itself does not need to make a disclosure at this time. 

Compliance Timeframe

AB 1305 was written to take effect January 1st, 2024, however, initially there was no clear guidance on when the first disclosures were required to be publicly posted. On November 30th, 2023, the sponsor of the bill, Assembly member Jesse Gabriel, wrote a letter to the Chief Clerk of the Assembly to clarify that it was his “intent that the first annual disclosure be posted by January 1st, 2025.” Presumably, this postponement of the effective date was proposed in order to provide sufficient time for organizations to align their business practices with the bill’s requirements.

AB 2331, a bill meant to amend and “clean-up” AB 1305, failed to pass through the California legislature by the end of session on August 31, 2024. It would have clarified several questions in AB 1305 and delayed enforcement until July 1, 2025. However, given it did not pass, the current compliance timeline remains, and regulated entities should prepare to meet disclosure requirements by January 1, 2025. 

Analysis of AB 1305

44475 – Disclosure requirements for organizations marketing or selling voluntary carbon offsets. The bill states that this section applies to, “A business entity that is marketing or selling voluntary carbon offsets within the state…” in the voluntary carbon market. As per above, this does not apply to Climate Vault at this time.

44475.1 – Disclosure requirements for organizations that purchase voluntary carbon offsets and use them to make climate objective-related claims. The bill requires public disclosure of certain information for, “An entity that purchases or uses voluntary carbon offsets that makes claims regarding the achievement of net zero emissions, claims that the entity, related entity, or a product is “carbon neutral,” or makes other claims implying the entity, related entity, or a product does not add net carbon dioxide or greenhouse gasses to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions…”. 

We believe this section also does not apply to our partners who rely on Climate Vault’s purchase of emissions allowances because, as previously noted, CCMs are explicitly excluded based on 4475(d)(3)(B). However, should you choose to voluntarily make a disclosure on your website, we have provided the content we believe you would need below:

(a) The name of the business entity selling the offset and the offset registry or program:

• California’s Cap-and-Trade Program, administered by the California Air Resources Board (CARB).
• Regional Greenhouse Gas Initiative (RGGI), administered by RGGI, Inc.
• Emission allowance procurement is facilitated by Climate Vault.

(b) The project identification number, if applicable:

• Not applicable.

(c) The project name as listed in the registry or program, if applicable:

• Not applicable.

(d) The offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission, or a combination of both, and site location:

• Project Type: Emission allowance procurement from government mandated, regulated, and enforced compliance carbon markets (CCMs). Climate Vault removes allowances from cap and trade markets, effectively lowering the overall cap on permissible emissions available to regulated emitters. Thus, every emission allowance that is removed equals 1 metric ton of CO2 that will not be released into the atmosphere.
• Project Locations: California, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia.

(e) The specific protocol used to estimate emissions reductions or removal benefits:

 

• The Regional Greenhouse Gas Initiative Model Rule, administered by RGGI, Inc.

 

• California’s Cap-and-Trade Program Regulation, administered by CARB.

 

(f) Whether there is independent third-party verification of company data and claims listed:

• Climate Vault note: we find (f) to be ambiguous since it is unclear which entity’s data and/or claims should be third-party verified. (Though since we do not believe 44475.1 applies to our donors the point may be moot.) However, should your organization wish to voluntarily disclose information on third-party verification for Climate Vault, California’s Cap-and-Trade Program, and RGGI, we are happy to provide this context to you.     

If you decide to voluntarily disclose your work with Climate Vault publicly, we suggest also including the following:

• For more information on Climate Vault, please visit the Climate Vault website. For more information on the California Cap-and-Trade Program, please visit the California Air Resources Board website. For more information on the Regional Greenhouse Gas Initiative, please visit the RGGI website.

44475.2 – Disclosure requirements for organizations that are making climate objective-related claims. This section pertains to your organization’s claims about carbon neutrality or net zero emission status. Importantly, it is silent on whether those claims are based on voluntary carbon offsets or not. We find this omission curious since the bill is primarily focused on the VCM. Because of this ambiguity, we suggest that all of our partners check with their internal or outside counsel to determine whether they are affected by 44475.2.

We stand ready to help our donors address 44475.2 depending on their internal determination on relevance. 

44475.3 – Description of violation penalties.

Disclosures are required to be updated annually. AB 1305 comes with potential civil penalties of up to $2,500 per day for non-compliance (i.e. if disclosures are not available or deemed inaccurate) – with a maximum penalty of $500,000.

Carbon Dioxide Removal (CDR)

At the time of writing, Climate Vault’s Tech Chamber has approved CDR projects but there are no immediate plans to convert allowances to removals; therefore this part of our approach is not currently impacted by AB 1305. However, before we convert vaulted compliance allowances into verified removals, we will proactively reengage with our Donors on how that action might impact their compliance with AB 1305. 

In conclusion, Climate Vault welcomes this bill’s stride toward enhancing transparency and accountability in the voluntary carbon market (VCM). We hope that the above discussion has provided clarity on issues related to AB 1305. We are available any time to help our donors respond to internal questions on compliance.  If you have questions, please reach out to your Climate Vault Customer Success contact.