California Oversteps Its Borders: Forcing Energy Policies on the Rest of the United States

July 21, 2025 Clark Savage Carbon Tax, CCUS, Climate Crisis, CO2 & GHG, ENB Pub Note, Energy Crisis, Energy Policy, Energy Regulations, Energy Transition, Finance, Financial Crisis, Fossil, Industry Insights, Political, Regulations, Renewables Not Sustainable, Solar, Top News, US Energy News, Wind
Dont forget the cover sheets - Getty Images
Dont forget the cover sheets - Getty Images

In the grand theater of American federalism, states are meant to serve as laboratories of democracy, experimenting with policies that suit their unique needs without imposing them on the nation at large. Yet, California, with its aggressive push toward a “green” utopia, appears determined to export its energy mandates far beyond its borders. Through two landmark bills—Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261)—signed into law by Governor Gavin Newsom in October 2023, the Golden State is mandating extensive climate disclosures that ensnare thousands of companies nationwide, even those with minimal ties to California. These laws, set to kick in starting in 2026, require detailed reporting on greenhouse gas (GHG) emissions and climate-related financial risks, creating a bureaucratic web that critics argue amounts to an unconstitutional overreach. As highlighted in a recent analysis, these measures put companies under immense pressure to overhaul their internal structures just to comply, effectively dragging the rest of the U.S. into California’s net-zero ambitions.

Unpacking SB 253: The Climate Corporate Data Accountability ActSB 253 stands as the nation’s first mandatory climate emissions disclosure rule, compelling large businesses to report their GHG emissions across three scopes.
It applies to any partnership, corporation, limited liability company, or other business entity formed under U.S. laws with annual revenues exceeding $1 billion that “does business in California”—a vague threshold that could capture firms with as little as one employee or a fraction of sales in the state.
Reporting RequirementsCompanies must annually disclose:
  • Scope 1 emissions: Direct GHG emissions from owned or controlled sources, like fuel combustion.
  • Scope 2 emissions: Indirect emissions from purchased energy, such as electricity or heating.
  • Scope 3 emissions: All other indirect emissions in the value chain, including supplier activities, employee commutes, and product use—often the most expansive and elusive category.

These reports must conform to the Greenhouse Gas Protocol, be publicly accessible, and include third-party assurance for verification.

Disclosures begin in 2026 for Scopes 1 and 2, with Scope 3 following in 2027. By 2030, assurance levels escalate from “limited” to “reasonable,” demanding more rigorous audits.

Costs and DifficultiesCompliance isn’t cheap. Companies face annual fees to the California Air Resources Board (CARB) to cover administrative costs, potentially adjusted for inflation.

Penalties for non-compliance can reach $500,000 per year, though Scope 3 errors made in good faith are somewhat forgiven until 2030. Beyond fines, the real burden lies in operational costs: building cross-functional teams across finance, legal, and operations; hiring third-party verifiers with specialized expertise; and navigating data collection for Scope 3, which often relies on estimates from suppliers who may not cooperate.
Accuracy is a major hurdle—Scope 3 data is notoriously imprecise, prone to double-counting or gaps, leading to potential misstatements that could invite lawsuits or reputational damage.
As one analysis notes, these requirements create “convoluted filing requirements that amount to little more than make-work.”

SB 261: Greenhouse Gases and Climate-Related Financial Risk

Complementing SB 253, SB 261 targets climate-related financial risks, applying to entities with over $500 million in annual revenue doing business in California (excluding insurers).

This lower threshold pulls in even more companies, requiring biennial reports starting January 1, 2026.

Reporting RequirementsReports must follow the Task Force on Climate-related Financial Disclosures (TCFD) framework, detailing:

  • Risks from climate events (e.g., wildfires, droughts) and transitions (e.g., policy shifts to renewables).
  • Adaptation measures, such as risk mitigation strategies.

If full disclosure isn’t possible, companies must explain gaps and outline improvement plans. Reports are consolidated at the parent level and posted publicly on company websites.

Claims about emissions or mitigation need third-party verification for credibility.

Costs and Difficulties

Annual fees fund CARB’s oversight, with penalties up to $50,000 per inadequate report.

The challenges mirror SB 253: integrating TCFD into existing systems demands expertise many firms lack, and verifying financial risks involves complex modeling that’s inherently uncertain.

Biennial updates add ongoing pressure, and incomplete data could expose companies to investor scrutiny or regulatory backlash.

Ripple Effects: How California’s Mandates Impact the Nation

These bills don’t stop at California’s borders—they effectively federalize climate policy by proxy. Any U.S. company meeting the revenue thresholds and “doing business” in California (a term broadly interpreted) must comply, affecting thousands of public and private firms nationwide.

For instance, a Midwest manufacturer selling products to California retailers or a Texas energy firm with a single West Coast client could be roped in, forcing them to adopt California’s stringent standards or risk penalties.

The extraterritorial reach creates a domino effect: Non-California companies partnering with affected firms may face indirect pressure to provide emissions data for Scope 3 reporting, cascading compliance costs down supply chains.

This could stifle innovation, raise consumer prices, and disadvantage smaller players unable to afford the bureaucracy. Critics, including in the provided Doomberg newsletter, liken it to “frustrating and futile bureaucracies” that drag down economic systems, impacting “virtually every medium- and large-sized business in the US.”

Aligning with Global Agendas: Bolstering EU Net Zero and Carbon TaxesCalifornia’s laws don’t exist in isolation; they harmonize with international efforts, particularly the European Union’s Corporate Sustainability Reporting Directive (CSRD) and broader net-zero goals.
Both SB 253 and SB 261 draw on global standards like the GHG Protocol and TCFD, which underpin EU requirements for emissions and risk disclosures.
This alignment could ease compliance for multinationals but also amplifies pressure on U.S. firms to adopt EU-style reporting, potentially paving the way for carbon border adjustment mechanisms (CBAM)—taxes on high-emission imports.

By mandating Scope 3 disclosures, California indirectly supports EU net-zero tax structures, as detailed U.S. data could inform tariffs on goods entering Europe.

Proponents see this as progress toward global decarbonization, but detractors argue it subordinates American businesses to foreign agendas, raising costs without proportional benefits.

Conclusion: A Call for Federal Pushback

California’s SB 253 and SB 261 exemplify state-level overreach, imposing burdensome, error-prone reporting that extends far beyond its jurisdiction and aligns with aggressive global net-zero pushes. While aimed at transparency, these laws risk economic drag, inaccurate data, and uneven enforcement, all while forcing the rest of the U.S. to dance to California’s tune. As the 2026 deadlines loom, companies nationwide must prepare—or lobby for federal preemption to restore balance in energy policy. The energy sector, already navigating volatile markets, shouldn’t bear the weight of one state’s ideological exports.

 

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