Fight Extraterritorial Overreach Act

California recently passed bills requiring companies to report an array of greenhouse gas emissions, regardless of whether those emissions occurred in California. Similarly, the European Union is implementing a Corporate Sustainability Reporting Directive (CSRD), which requires disclosure of emissions generated outside of the EU. The European Union recently went even further and adopted a Cross-Border Adjustment Mechanism (CBAM), which will impose substantial fees on goods imported from the United States based on reported emissions.

States can combat this burdensome overreach from other states and possibly other countries by prohibiting companies that do business in their states from tracking greenhouse gas (GHG) emissions generated in their states.

Summary: AN ACT relating to the tracking of greenhouse gas emissions.

SECTION 1. Legislative Findings
The State of [state name] makes the following findings.
  1. In October 2023, the California adopted Senate Bill 253, which is titled the Climate Corporate Data Accountability Act and which requires that certain businesses report all of their direct and indirect greenhouse gas (GHG) emissions to California, regardless of where those emissions took place. This requirement includes “Scope 3” GHG emissions. These are “indirect upstream and downstream” emissions related to suppliers, customers, employees, and more—including emissions as remote as those from employee commutes.1
  2. In October 2023, California also adopted Senate Bill 261, which requires certain businesses to disclose their climate-related financial risks and measures they have adopted related to those risks.2 Disclosures must comply with the Task Force on Climate-Related Disclosure (TCFD) framework or use another framework that is consistent with the TCFD.
  3. Pursuant to the European Union’s (EU) “European Green Deal,” since the beginning of 2023, the EU’s Corporate Sustainability Reporting Directive (CSRD) has been imposed on certain businesses, requiring extensive GHG emissions reporting according to the European Sustainability Reporting Standards (ESRS).3
  4. In addition, the EU is implementing a Cross-Border Adjustment Mechanism (CBAM). Since October 2023, certain importers within the EU have had to obtain GHG emissions data from their suppliers, and soon will have to pay for carbon certificates based on the emissions data from countries without a carbon price, such as the United States.4
  5. The requirement to pay for carbon certificates described in the preceding paragraph is likely to lead to a carbon tax that would harm economic activity within this state, and harm the state as a consumer of energy.5
  6. These increasingly expansive and varied emissions requirements also create heavy compliance burdens for businesses, resulting in increased costs for companies and increased prices for consumers.
  7. The costs of calculating emissions for activities in this state are a substantial burden that far outweighs any benefits to California, including because such calculations are not limited to goods or services sold in California but rather must be made firmwide and because such calculations are likely to be inexact and misleading. For example, the SEC recently rejected requiring Scope 3 emissions disclosures, stating that it is “mindful of the potential burdens such a requirement could impose on registrants and other parties as well as questions about the current reliability and robustness of the data associated with Scope 3 emissions.”6 The same is true for any other state that may establish requirements similar to California’s requirements.
  8. Requiring disclosure of Scope 3 emissions, including both upstream and downstream activities, also seeks to “directly regulate transactions that take place wholly outside [California] and have no connection to it.” 7For example, the emissions generated by a customer who purchases natural gas in this state and uses it in this state has no connection to California. The same is true for many Scope 1 and Scope 2 emissions. For example, if a company in this state operates a pipeline that transports oil or natural gas east (away from California), the emissions from that pipeline have nothing to do with transactions in California. The same is true for any other state that may establish requirements similar to California’s requirements.
  9. Other states or countries should not force businesses operating in this state to track emissions in this state.

1https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253
2https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB261
3https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
4https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
5David Stanway, EU carbon border tax will do little to cut emissions, ADB study says, Reuters.com (Feb. 25, 2024), https://www.reuters.com/sustainability/eu-carbon-border-tax-will-do-little-cut-emissions-says-adb-study-2024-02-26/.
6U.S. Securities & Exchange Commission, The Enhancement and Standardization of Climate-Related Disclosures for Investors, 89 Fed. Reg. 21668, 21736 (Mar. 28, 2024).
7Ass’n for Accessible Medicines v. Ellison, No. 23-CV-2024 (PJS/JFD), 2023 WL 8374586, at *3 (D. Minn. Dec. 4, 2023) (citing National Pork Producers Council v. Ross, 598 U.S. 356, 376 n.1 (2023)); accord Nat’l Shooting Sports Found. v. Bonta, No. 23-CV-0945-AGS-KSC, 2024 WL 710892, at *7 (S.D. Cal. Feb. 21, 2024).

SECTION 2. Definitions
As used in this Act, the following terms are defined as follows.
  1. “Company” means a for-profit organization, association, corporation, partnership, joint venture, statutory trust, limited partnership, limited liability partnership, or limited liability company, including a wholly owned subsidiary, majority-owned subsidiary, parent company, or affiliate of those entities or business associations that produces any tangible goods for sale and is not primarily in the business of reporting news to the public.
  2. “Greenhouse gas emissions data collection” means a company, directly or indirectly, expending any resources to track, calculate, measure, assess, or estimate in any way the company’s greenhouse gas emissions, including Scope 1, Scope 2, or Scope 3 emissions in order to comply with any law or regulation of this state, the federal government, or any other state or country.
  3. “Greenhouse gas” means carbon dioxide, hydrofluorocarbons, methane, nitrous oxide, perfluorocarbons, or sulfur hexafluoride.
  4. “Party,” means any company, non-profit entity, or any government agency or political subdivision of this state or of any other state or country.

SECTION 3. Emissions Tracking

  1. Except as required by controlling federal law, no company that does business in this state shall participate in greenhouse gas emissions data collection regarding the company’s direct or indirect greenhouse gas emissions in this state.

SECTION 4: Interference with State Contracts

  1. No party may take action to penalize or threaten to penalize any company for compliance with Section 3 of this Act.
  2. Any party taking action in violation subsection A of this section shall have caused harm to this state, including by interfering with the state’s sovereign interests in administering its programs and with the state’s commercial, regulatory, and fiscal relationships with companies doing business in this state, including this state’s legitimate interest in procuring electricity for its own use at the lowest possible cost.

SECTION 5: Enforcement

  1. This Act may be enforced by the attorney general. The attorney general may investigate violations of Sections 3 and 4 of this Act according to the investigative authority provided in [state statute describing investigative authority under state UDAP or UDAAP law].
  2. The Attorney General may institute an action for declaratory and injunctive relief for any violation of this Act. In addition to any other remedies available at law or equity, a company that violates Section 3 of this Act shall be obligated to pay a penalty of the greater of $10,000 or an amount equal to twice all monies paid by the company or a third person for greenhouse gas emissions data collection regarding greenhouse gas emissions that the company directly or indirectly produces in this state.

SECTION 6: Severability

Each section, paragraph, and portion of each paragraph of this Act is severable. If one or more sections, paragraphs, or portions of one or more paragraphs of this Act are held invalid on their face or as applied to particular facts, then the remaining portions and applications of the Act shall be given full effect to the greatest extent practicable.

SECTION 7. Effective Date

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