Diving into the complex world of climate disclosure laws, I’m thrilled to speak with Christopher Hailstone, a seasoned expert in energy management, renewable energy, and electricity delivery. With his deep knowledge of grid reliability and utilities, Christopher offers a unique perspective on California’s groundbreaking efforts to hold corporations accountable for their greenhouse gas emissions. In this conversation, we explore the implications of the state’s new climate disclosure rules, the challenges of implementation, and the broader tension between state and federal approaches to environmental regulation. We also unpack the confusion surrounding the preliminary list of regulated entities and the potential impact on utilities and other businesses.
Can you walk us through what the California Air Resources Board is trying to achieve with their preliminary list of entities for climate disclosure rules?
Absolutely. The California Air Resources Board, or CARB, released this preliminary list to give companies, including electric utilities, a heads-up about who might be subject to new reporting requirements under two major laws passed in 2023. The idea is to create transparency by identifying businesses that will need to disclose their greenhouse gas emissions and climate-related financial risks starting next year. It’s a way to prepare the ground before final regulations are set, ensuring that companies with significant operations in California—especially those with high revenues—know they’re on the radar. It’s not a final mandate, but more of a starting point for dialogue and feedback.
Why do you think CARB decided to release this list so early, before the regulations are finalized?
I believe CARB’s early release is a strategic move to engage stakeholders from the get-go. By putting out a preliminary list now, they’re giving companies time to assess their status and start preparing for compliance. It also allows CARB to test the waters—see who agrees or disagrees with being included and refine their approach based on real-world input. With laws as ambitious as these, there’s a risk of pushback or confusion, so getting ahead of that with an early draft helps smooth the process. Plus, it signals to the business community that California is serious about enforcement.
What do these two laws—the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act—actually demand from companies doing business in California?
These laws are game-changers. The Climate Corporate Data Accountability Act targets companies with over $1 billion in annual revenue, requiring them to report their greenhouse gas emissions across Scope 1, 2, and 3 categories. That means direct emissions from their operations, indirect emissions from purchased energy, and even emissions from their supply chains or product use. The Climate-Related Financial Risk Act, on the other hand, applies to businesses with over $500 million in revenue and mandates biennial reporting on how climate change poses financial risks to their operations. Together, these laws push for unprecedented transparency, forcing companies to confront their environmental footprint and the economic threats tied to climate change.
Can you break down what Scope 1, 2, and 3 emissions mean in practical terms for businesses?
Sure, let’s make it simple. Scope 1 emissions are the direct emissions a company produces—like exhaust from their own vehicles or factories. Scope 2 covers indirect emissions, mainly from the electricity or heat they buy; think of the carbon footprint of the power grid they rely on. Scope 3 is the broadest and often the trickiest—it includes everything else in their value chain, like emissions from suppliers, employee commuting, or even how customers use their products. For a utility, Scope 3 could mean emissions from the fuel burned by their customers. These categories force businesses to look beyond their own walls and account for their wider impact, which can be a real eye-opener.
There’s been some buzz about confusion with this preliminary list. What are you hearing from companies about being included or left off?
Oh, there’s definitely a mix of reactions. Some companies, including utilities, were caught off guard by seeing their names on the list, while others expected to be there and weren’t. There’s a sense of uncertainty because the list isn’t final, and CARB has made it clear that inclusion—or exclusion—doesn’t exempt anyone from compliance. The confusion often stems from how CARB determined who’s in scope, especially for businesses with complex structures or operations that span multiple states. It’s created a bit of a scramble as companies try to figure out where they stand and what’s coming next.
Some law firms have flagged issues like duplicates or inconsistencies in the list. How do you see these errors playing out for businesses?
Those observations are spot on. With a list of over 4,000 entities, it’s no surprise there are duplicates or outdated entries—think of companies that have merged, rebranded, or restructured. These inconsistencies can create real headaches for businesses trying to prepare. If a company is listed twice or under an old name, it might not know which entry applies to them. Worse, if a business is wrongly included or left out, it could misjudge its obligations and either over-prepare or be caught off guard when final rules drop. It underscores the need for CARB to clean up the data with input from stakeholders.
CARB is seeking feedback through a voluntary survey. How critical is this step in shaping the final list and regulations?
This feedback process is hugely important. It’s a chance for CARB to hear directly from companies and other stakeholders about inaccuracies or concerns with the preliminary list. They’re likely looking for details on corporate structures, revenue thresholds, or operational nuances that might affect who should be covered. It’s also a way to build trust—showing they’re open to input before locking in the rules. I think many companies will participate, especially those surprised by their inclusion, because it’s their best shot to influence the outcome and avoid costly missteps down the line.
How do California’s climate disclosure efforts stack up against what’s happening at the federal level right now?
There’s a stark contrast. California is pushing forward aggressively with these laws, aiming for detailed emissions and risk reporting. At the federal level, though, we’re seeing a pullback. The current administration has stepped away from defending climate disclosure rules and supporting key tools for tracking emissions, creating a patchwork of expectations. This gap means companies operating across states face different standards, which can be a logistical nightmare. California’s approach might set a precedent for others, but without federal alignment, enforcement and compliance could get messy.
What’s your forecast for the future of climate disclosure laws in California and beyond, given these challenges?
I’m cautiously optimistic about California’s trajectory. These laws have already survived early legal challenges, which is a big win, and I expect they’ll continue to move forward, even if there are hiccups with implementation. The state’s commitment to climate transparency is strong, and it could inspire other states to follow suit. However, the divergence with federal policy might slow national progress and create uneven pressure on businesses. Over the next few years, I think we’ll see more states carve their own paths, but true impact will depend on whether a cohesive framework emerges—either through federal action or broader state collaboration. It’s a space to watch closely.
