CARB Issues Proposed Climate Disclosure Regulations

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On December 9, 2025, the California Air Resources Board (“CARB”) issued proposed regulations and a staff report for California’s comprehensive climate disclosure laws, the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). These proposed regulations come less than a month after the Ninth Circuit issued an injunction temporarily halting enforcement of SB 261, at least until a January 9, 2026, hearing on the plaintiffs’ requested longer-term injunction through the remainder of the First Amendment challenge to the laws. The draft regulations would adopt some, but not all, of the provisions proposed by CARB in its public workshops on the laws to date, and notably would scale back applicability to those companies above a threshold level of sales in the state. The proposed regulations also define key terms, establish the program fee structures, explain fee enforcement and set initial reporting timelines. The written comment period begins on December 26, 2025, and ends on February 9, 2026. CARB will hold a public hearing on the proposed regulations on February 26, 2026 at 9 a.m. PST.

Background on California Climate Disclosure Laws
As we have discussed in previous alerts on this topic, California enacted two comprehensive climate disclosure laws in 2023. SB 253 and SB 261 impose greenhouse gas emissions and climate-related financial risk reporting requirements applying to thousands of public and private companies formed under U.S. law and “doing business in California.” The laws initially required CARB to adopt implementing regulations by no later than January 1, 2025, but were amended in September 2024 (SB 219) to postpone the regulatory deadline to July 1, 2025. Even with that extension, CARB’s proposed draft regulations come more than five months after that extended deadline and less than a month before the initial January 1, 2026, deadline in SB 261 for entities to publish climate-related financial risk reports.

The draft regulations propose to implement SB 253 and SB 261 by defining key applicability terms, establishing exemptions, creating a fee structure and setting other foundational administrative requirements.

Proposed Regulations
The proposed regulations set out general requirements for California climate disclosures and clarify key definitional questions that have been the subject of prior CARB FAQs and workshops.

Revenue Thresholds and “Doing Business in California”
A “reporting entity” under SB 253 is defined as a business entity doing business in California with total annual revenues in excess of $1 billion. A “covered entity” under SB 261 is defined as a business entity doing business in California with total annual revenues in excess of $500 million. The revenue threshold for both reporting and covered entities is determined using the lesser of the entity’s two preceding fiscal years.

“Revenue” is defined by reference to “gross receipts” under Section 25120(f)(2) of the California Revenue and Taxation Code, which broadly covers total revenue from business activities before expenses, with specified exclusions for certain financing, tax, litigation and treasury-related receipts. The regulations appear to consider the revenue and sales of affiliated companies separate from each other for purposes of applicability, even if a company is majority or wholly owned by another entity. While CARB had proposed in public workshops that the revenue of parent and subsidiary businesses might be aggregated for purposes of applicability if the companies effectively functioned as a unitary business, this proposal does not appear in the draft regulations.

“Doing business” is defined by reference to Section 23101(a) of the California Revenue and Taxation Code, which is “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” “Doing business in California” means meeting both the “doing business” definition above and either of the following:

  • The taxpayer is organized or commercially domiciled in this state; or
  • Sales, as defined in subdivision (e) or (f) of Section 25120 as applicable for the taxable year, of the taxpayer in this state exceed the lesser of five hundred thousand dollars ($500,000) or 25% of the taxpayer’s total sales. For purposes of this definition, “sales” include sales by an agent or independent contractor of the taxpayer.

CARB borrowed the sales criterion from Revenue and Taxation Code Section 23101(b), but declined to adopt alternative criteria for in-state business from the Section 23101(b) definition (i.e., based on holdings of real property or compensation paid in the state).

The proposed regulations also define “parent” and “subsidiary” by reference to CARB’s cap-and-trade regulations, treating an entity as a “parent” if it holds more than 50% ownership or control over another entity, including voting rights, board control or contractual authority. A “subsidiary” is any owned or controlled entity meeting that test.

Applicability and Exempt Entities
The proposed regulations explain that the climate disclosure laws apply to reporting entities and covered entities, but expressly exempt the following:

  • Non-profit or charitable organizations that are tax-exempt under the Internal Revenue Code;
  • A business entity that is subject to regulation by the California Department of Insurance, or that is in the business of insurance in any other state;
  • Federal, State and local government entities, and companies that are majority-owned by government entities;
  • A business entity whose only activity within California consists of wholesale electricity transactions; and
  • A business entity whose only business in California is employee compensation or payroll expenses, including teleworking employees.

Fee Structure
The proposed regulations create a two-tier annual fee system to fund administration of SB 253 and SB 261, including a separate Climate Accountability and Emissions Disclosure Fund and a Climate-Related Financial Risk Disclosure Fund. CARB provides a formula for calculating a flat fee that would be divided evenly among businesses subject to SB 253 and SB 261. The fee would cover what CARB estimates will be $14 million in annual staffing and resources to oversee enforcement.

The fee would be updated annually, and CARB would issue fee determination notices by Sept. 10 each fiscal year, with 60 days to remit payment. Late payment would trigger a late fee and failure to pay would be treated as a separate violation for each day after the due date. Entities subject to SB 253 and SB 261 must maintain records demonstrating they meet revenue and “doing business in California” thresholds for a period of five years. CARB may seek penalties under the Health and Safety Code. CARB may also audit fee payments and consult with outside entities, including the Franchise Tax Board or other agencies.

Reporting Timeline
The deadline for reporting Scope 1 and 2 emissions under SB 253 will be August 10, 2026. The company’s fiscal year will dictate which year of emissions data will be reported:

  • If an entity’s fiscal year ends on or before Feb. 1, the “applicable preceding fiscal year” is the fiscal year ending in the current calendar year.
  • If the fiscal year ends after Feb. 1, the “applicable fiscal year” is the fiscal year ending in the prior calendar year.

However, entities may elect to report the most recent fiscal year if data is available.

Although the draft regulations do not specify any formal exemption from SB 253 reporting for companies that were not collecting emissions data before December 5, 2024, CARB’s Enforcement Notice of that date has specified that, for 2026 reporting only, companies not collecting Scope 1 and 2 greenhouse gas emissions data before December 5, 2024, can comply with SB 253 simply by submitting a letter stating that fact and that they will not be submitting a Scope 1 and 2 emissions report.

The proposed regulations do not reset the statutory January 1, 2026, deadline for SB 261 climate-related financial risk reports. However, in light of the Ninth Circuit injunction temporarily halting enforcement of the two laws, CARB issued an Enforcement Advisory confirming it would not enforce the January 1, 2026 deadline for SB 261 reports, though CARB has also opened a docket for those entities choosing to voluntarily submit SB 261 reports during the period of the injunction. CARB is expected to update its enforcement advisory and impose a new reporting deadline upon resolution of the injunction in the Ninth Circuit.

Implications
While the ultimate fate of the draft regulations continues to hinge on the outcome of the Ninth Circuit litigation, many affected companies are continuing to prepare for submittal of SB 261 risk reports in early 2026 and eventual submittal of emissions disclosures under SB 253 by August 10, 2026.

Potentially covered companies should reassess applicability and exemption status under the new definitions provided in the proposed regulations, as some of the draft provisions differ notably from CARB’s proposals from even a month ago. Companies should also continue planning for SB 253’s August 10, 2026, deadline by working with legal and technical advisors to build the systems needed to account for and report Scope 1 and 2 emissions. Potentially regulated entities also should consider participating in CARB’s rulemaking process in order to provide input on the proposed regulations as they move toward the scheduled February 26, 2026, CARB final public hearing. Issues such as fee design allocation, recordkeeping and audit provisions, timing and phasing of reporting obligations, and treatment of certain corporate entities may continue to see changes based on public comment in advance of that hearing. Public comments also will be important to preserve issues for any potential future legal challenge to the final regulations.

As the rulemaking and public comment period progresses, Pillsbury will continue to actively monitor developments on the regulations and the concurrent Ninth Circuit litigation, and will be available to advise clients on any questions that may arise.