Americas

California Budget Cuts Pause Landmark Climate Laws   

Observers say laws will likely be brought forward in May, despite continued lobbying pressure.   

Budget cuts in the US state of California are threatening landmark climate disclosure legislation signed into law last year.  

The cuts could result in a US$37.9 billion deficit for California, which would affect various state programmes – including the legislative project on climate. 

The Climate Accountability Package – which comprises Senator Scott Wiener’s Senate Bill (SB) 253 and Senator Henry Stern’s Senate Bill (SB) 261 – created the US’ first requirements for large corporations to publicly disclose information on greenhouse gas emissions, carbon embedded in supply chains, and climate risks. It was signed into law in October last year by California Governor Gavin Newsom, who touted it as a “testament to California’s global leadership on climate change” during the latest Climate Week NYC. 

But now, Newsom has released a budget proposal that would pause all funding aimed at implementing newly signed laws until May, when he said he would have a clearer picture of California’s finances.   

Speaking to ESG Investor, Emily Pierce, Chief Global Policy Officer and Associate General Counsel at climate reporting technology company Persefoni, appeared confident that the climate disclosure legislation would be brought forward in May, as the estimated budget requirements needed by the agency overseeing the project are “relatively low”.   

The senators who spearheaded SB 253 and SB 261 estimated the budget needed by the California Air Resources Board (CARB) to begin implementation at US$9 million annually for each bill.   

“These are really small amounts in the grand scheme of things,” said Pierce. “Both the laws were designed to be self-funded over time.”   

Each bill has provisions for filing fees to be submitted by reporting companies, the proceeds of which would strictly be used to fund CARB’s ongoing administrative expenses once the laws are implemented. The bills also include provisions that would enable for those funds to reimburse any intergovernmental loans used to cover initial implementation costs.    

California’s former Insurance Commissioner Dave Jones, who helped draft SB 261, told ESG Investor that while he was disappointed that Newson’s proposed budget did not include funding for SB 261 and SB 253, the legislature was likely to rectify the omission, “given the strong support there is for both bills and the relatively small cost associated with preparing regulations for them”.   

California’s legislature takes its governor’s budget as input, but passes its own budget bill, which always differs from the original proposal. “CARB can and should move forward to prepare regulations in any event, pursuant to the mandate in each bill,” said Jones. “Corporations, many of whom have already begun to do so, should prepare climate risk disclosures using the TCFD framework and disclose their greenhouse gas emissions.” 

Climate leadership   

Despite these potential roadblocks, Newsom has already earned global respect for his leadership on getting those climate laws signed, according to Pierce.   

“Because the investment costs are so minimal and the implementation that is required is relatively straightforward, I don’t see these budget issues as a major hurdle that would reverse California’s drive to reserve that leadership [on climate],” she said.   

This view also happens to be shared by SB 253’s author himself, Senator Wiener.  

“The global community is looking to California for a firm commitment to implementing [the US’] bold climate agenda, especially these world-leading climate action laws,” he said. “I have every confidence in governor [Newsom]’s commitment to climate action, and our coalition will continue to work with him to keep implementation of these laws on the timeline laid out in the law.”  

The fiscal impact of implementing the new climate laws is also expected to be negligible, especially when measured against a state budget that totalled US$310 billion last year. 

Under SB 253, all corporations doing business in California with gross annual revenues exceeding US$1 billion will have to start disclosing their greenhouse gas emissions by 2026. Before the companies can file, CARB will need to establish rules governing the details of the disclosures, which could take 18 months or more. Under SB 261, corporations with gross annual revenues over US$500 million that do business in California will need to disclose their climate-related risks.  

These climate laws originally faced intense lobbying from the oil and gas industry and various corporate lobby groups opposed to their implementation, but ultimately passed. They received support from numerous corporate leaders, including Californian economic powerhouses such as Salesforce, Apple, Google, Levi’s and Patagonia. 

“There will be continued lobby pressure,” said Pierce. “But it will not necessarily be specific to the details of California’s budget.”  

“These are entities that don’t appreciate these additional requirements and will continue to lobby against them regardless,” she said.  

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