California regulators tasked with implementing and enforcing the state’s two landmark climate disclosure laws released draft regulatory text on December 9, 2025, providing additional insight on key issues, including initial deadlines for reporting greenhouse gas (“GHG”) emissions and details on how regulators will determine annual fees. The release of the draft regulations is the latest development in a string of significant updates over the past few weeks concerning California’s climate disclosure laws.
The regulator, the California Air Resources Board (“CARB”), also provided notice of a public hearing to consider the proposed regulations. The hearing will be held at 9 a.m. on February 26, 2026, in person at CARB’s Sacramento office and remotely over Zoom. Interested parties may provide written public comments between December 26, 2025, and February 9, 2026.
CARB’s draft regulations are designed to implement two laws that the legislature enacted in 2023. SB 253, the Climate Corporate Data Accountability Act, requires U.S.-based entities with more than $1 billion in annual revenue doing business in California (“reporting entities”) to annually report GHG emissions, beginning with Scope 1 and 2 emissions in 2026, and Scope 1, 2, and 3 emissions in 2027. SB 261, the Climate Related Financial Risk Act, requires that by January 1, 2026, and biennially thereafter, U.S.-based entities with more than $500 million in annual revenue doing business in California (“covered entities”) make publicly available a report on climate-related financial risks and measures adopted to reduce and adapt to those risks.
For the last several months, CARB has been taking comment from stakeholders and sharing initial concepts in public workshops focused on developing its regulations. Most recently, CARB issued an enforcement advisory on December 1 stating that it would not enforce the first deadline under the laws: the requirement under SB 261 that covered entities publish climate-related financial risk reports by January 1, 2026. CARB made this decision in light of a Ninth Circuit Court of Appeals order on November 18, 2025, enjoining enforcement of SB 261 pending the appeals process in federal-court litigation challenging the laws’ constitutionality. The Ninth Circuit did not enjoin enforcement of SB 253, the GHG emissions reporting law, for which disclosure obligations arise later in 2026.
Despite the injunction, CARB has opened a public docket for entities to voluntarily submit SB 261 reports if they so choose. The agency has also shared a checklist for compliance with SB 261, and a Frequently Asked Questions (“FAQ”) document to assist regulated entities in planning for compliance and submitting reports.
Below is an overview of some key aspects of the draft regulations.
First-Year Reporting Deadline for Scope 1 and 2 GHG Emissions Reporting
CARB’s draft regulations propose that reporting entities under SB 253 would have to report Scope 1 direct emissions and Scope 2 indirect emissions from purchased electricity, steam, heat, or cooling by August 10, 2026. The statute requires such reporting in the 2026 calendar year, but does not specify a particular date. First-year submissions may be based on the best available data. CARB stated in its rulemaking documents that a subsequent rulemaking will address other program requirements, such as assurance and enforcement provisions.
CARB’s draft regulations also clarify how entities should determine the “applicable preceding fiscal year” for purposes of reporting GHG emissions. If the reporting entity’s fiscal year ends on or before February 1, the applicable preceding fiscal year is the fiscal year ending in the current calendar year. If the reporting entity’s fiscal year ends after February 1, the applicable preceding fiscal year is the fiscal year ending in the previous calendar year. However, a reporting entity may choose to report Scope 1 and Scope 2 emissions from its most recent preceding fiscal year notwithstanding its fiscal year ending after February 1, where that data is available.
Calculating Annual Fees
SB 253 and SB 261 each authorize the agency to determine and assess annual fees to cover the cost of implementing the laws. Consistent with what it shared at its recent public workshops, CARB is proposing to adopt a flat fee structure so that each entity subject to each law will pay the same amount, irrespective of revenue, emissions, or other variables. An entity subject to both laws will owe a fee for each. CARB will assess the fee on or by September 10 each year, and entities will owe the fee within 60 days or be subject to a late fee.
CARB proposes to determine the fees each year with an equation that estimates the revenue required to support the programs. That equation is based upon the sum of (1) salaries and benefits of personnel required to implement, administer, and enforce each program; (2) legal costs to support California’s defense of the programs; and (3) contracting expenses for technical, administrative, or outreach support needed to support implementation. This sum is adjusted for inflation yearly. On top of that, a 10-percent “contingency adjustment” is added to address unforeseen costs or revenue shortfalls. Finally, a debt amount is added (so CARB can recoup the cost of implementing the program before it began collecting fees) to establish the ultimate “Total Revenue Required” for a given year. CARB will then determine what proportion of that total revenue is required to administer each law, and will divide those two numbers evenly across the number of reporting and covered entities subject to each program. It is not clear how many reporting/covered entities there will be for each law. CARB released a preliminary list of 4,159 potential reporting/covered entities on September 24, 2025, but has not released updated guidance since, and the draft regulation does not address this.
CARB estimates that the programs will cost approximately $14 million by FY 2026-27. The agency anticipates hiring up to 42 permanent positions across four new sections by FY 2026-27 to support the programs. A loan from the state’s Greenhouse Gas Reduction Fund, which is financed with revenues from Cap-and-Invest auctions, is funding initial build-out of the programs. CARB intends to fully repay that loan with the fees collected in the funds for the two laws: the Climate Accountability and Emissions Disclosure Fund for SB 253, and the Climate-Related Financial Risk Disclosure Fund for SB 261.
Exempting Certain Entities from Reporting Requirements
CARB has proposed that neither law apply to the following organizations:
- Federal, state and local government entities, and companies majority-owned by government entities
- Non-profit or charitable organizations that are tax-exempt under the Internal Revenue Code
- Entities whose only business in California is the presence of teleworking employees
- Business entities whose only business within California consists of wholesale electricity transactions
Defining “Doing Business in California,” “Revenue,” and Corporate Associations
The draft regulations include definitions of “doing business in California” and “revenue” to clarify the scope of applicability of the laws. The draft also defines “parent” and “subsidiary” to help clarify applicability depending on corporate associations.
- Doing Business in California: Consistent with CARB initial concepts floated in public workshops, the draft regulations define this as doing business and being either: (a) organized or commercially domiciled in the state, or (b) having California sales that exceed $735,019 annually (2024). The draft rules further clarify that “[w]holesale sales of electricity do not count for purposes of determining an entity’s sales in California.”
- Revenue: The proposed regulations define revenue the same as “gross receipts” verifiable on Franchise Tax Board filings under section 25120(f)(2) of the California Revenue and Taxation Code.
- Parent and Subsidiary Relationships: Also in line with its initial concepts, CARB has proposed that parent and subsidiary relationships are defined consistent with the definitions used in the Cap-and-Invest Program.
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For more background on these laws, please refer to our previous posts on the 2024 minor amendments to the laws and preparing for compliance.
Covington’s Carbon Management and Climate Mitigation practice has extensive experience advising on climate mitigation strategies, regulatory frameworks, and agency engagement. Our global team is ready to assist clients with strategies to engage with regulatory agencies and prepare to comply with reporting rules in California, the EU, and other jurisdictions.