On December 9th, the California Air Resources Board ("CARB") issued draft regulations implementing SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate-related Financial Risk Act) (the "Regulations"). CARB also issued a staff report outlining CARB's rationale for the Regulations and a notice of public hearing to consider approval of the Regulations. The Regulations will be published by the California Office of Administrative Law on December 26, 2025, at which time a 45-day comment period will commence (closing February 9, 2026).
The Regulations come just a few weeks after the U.S. Court of Appeals for the Ninth Circuit granted a motion for injunction on SB 261 prohibiting CARB from enforcing SB 261 pending an appeal period. While the litigation also challenges SB 253, the injunction does not directly impact the law, and SB 253 remains in effect. An oral argument hearing is set for January 9, 2026. CARB has stated that the previous SB 261 January 1, 2026 deadline is no longer in effect, but companies may voluntarily post SB 261 reports via a public docket. Timing for the court's decision on SB 261 (and SB 253) is uncertain, as is CARB's potential new deadline for initial SB 261 reports.
Notably, the Regulations align with the guidance communicated by CARB at its most recent public workshop on November 18th (the "Workshop") summarized here. As expected, the Regulations clarify: (i) the "revenue" and "doing business in California" applicability definitions, (ii) the initial SB 253 deadline for Scope 1 and 2 emissions, and (iii) the fee program. CARB indicates that subsequent rulemaking will establish other requirements (e.g., on data assurance, deadlines beyond 2026, reporting contents and format). CARB may also convey additional substantive expectations for the laws in future guidance documents.
The Regulations do not incorporate the guidance in CARB's "Climate Related Financial Risk Disclosures: Checklist" or the "SB 253 Scope 1 and Scope 2 Greenhouse Gas (GHG) Emissions Draft Reporting Template".
Below are the key takeaways of the Regulations.
- Revenue. The definition of "revenue" in the laws mirrors the definition of "gross receipts" in the California Revenue and Taxation Code ("RTC") Section 25120(f)(2), which can be verified through California Franchise Tax Board ("FTB") tax filings.1 There are two notable updates with respect to calculating revenue:
(1) In determining whether the revenue threshold is met, an entity should use the lesser of the entity's prior two fiscal years of revenue2 and
(2) If a parent company and its subsidiaries file California taxes as a unitary business, then the revenue of the subsidiaries counts towards the revenue of the parent company as part of its gross receipts. If the entities do not file as a unitary business, then revenue should be evaluated at the individual company level. To determine revenue, i.e., gross receipts, entities should reference their corporate tax filings.
- "Doing business in California." The Regulations' proposed definition reverts back to RTC Section 23101 but omits Sections 23101(b)(3) and (b)(4) regarding property and payroll. An entity is "doing business in California" if it is (a) actively engaging in any transaction for the purpose of financial or pecuniary gain or profit (excluding wholesale sales of electricity) and (b) during any part of the reporting / taxable year, are either (i) organized or commercially domiciled in the state or (ii) have sales in the state above the inflation-adjusted thresholds of approximately $735,019 (2024) or 25% of the taxpayer's total sales.3 CARB has noted that an entity can verify whether it meets the "doing business in California" sales criteria based on California FTB tax filings, Schedule R-1, Col(b).
- SB 253 Scope 1 and 2 Reporting Deadline. Initial Scope 1 and Scope 2 emissions data must be reported on or before August 10, 2026. Each entity will have at least 6 months after the end of their fiscal year to submit a report. If an entity's fiscal year ends between January 1 and February 1, 2026, the entity will report data from the fiscal year ending in 2026. If the reporting entity's fiscal year ends between February 2 and December 31, 2026, the entity will report data from the fiscal year ending in 2025. However, reporting entities may choose to report their Scope 1 and Scope 2 emissions from their most recent preceding fiscal year notwithstanding their fiscal year ending after February 1, if such data is available. At this time, CARB has not communicated that reporting is required to be submitted via a specific reporting template, but entities may use CARB's updated Scope 1 and 2 reporting template.
- Penalties. Penalties per entity may not exceed $500,000 for violations of SB 253 per year and $50,000 for violations of SB 261 per year.
- Fees. In-scope entities will be subject to a flat fee for each law (as applicable). Beginning in 2026, every year on or by September 10, CARB will provide a fee determination notice. In-scope entities will have 60 days to submit payment following the fee determination notice. Late payments will be subject to a fee separate from noncompliance penalties.
- Recordkeeping: Reporting entities must maintain a record for five years demonstrating that they meet the revenue and ‘doing business in California' thresholds for SB 253 and SB 261 and provide these records to CARB, if requested.
- No Mention of SB 253 Flexible, "Give us what you Have", "Good-Faith" Reporting (for the first reporting cycle): The Regulations are silent with respect to what in-scope entities should report if they were not collecting data as of the December 5, 2024 Enforcement Notice. However, for the first 2026 deadline, such entities can rely on what CARB has communicated in the Workshop, in their staff report, and in their updated FAQs, i.e., that entities that were not collecting emissions data (or were not planning to collect such data) as of the date of the Enforcement Notice (i.e., December 5, 2024) are not expected to submit Scope 1 and 2 reporting data in 2026. Instead, such entities should submit a statement on company letterhead to CARB stating that they did not submit a report and that the company was not collecting data or planning to collect data at the time the Enforcement Notice was issued. CARB will open a public docket near the first year 2026 reporting deadline, which will include these statements.
- Exemptions. The Regulations exempt the following from reporting: non-profit or charitable organizations that are tax-exempt under the U.S. Internal Revenue Code; a business entity that is subject to regulation by the Department of Insurance in the state, 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 (>50.00%); 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.
- Parent Reporting. The Regulations provide a definition of "subsidiary",4 but do not clarify how such definition should be used. CARB has confirmed in the past that "[p]arent companies have the option to report on behalf of in-scope subsidiaries" or, in other words, subsidiaries that are in scope of either of the laws can report at the parent level, even if the parent is not in scope. Further, CARB has clarified that a foreign parent company that is not based in the United States (and therefore not subject to either law) may submit a consolidated report that provides the required reporting on behalf of any in-scope U.S.-based subsidiaries. CARB clarified in the Workshop that "[p]arent-subsidiary relationships do not determine which entities are regulated" and that [i]nclusion criteria should be assessed on an individual company basis".
CARB will conduct a public hearing on February 26, 2026, with an in-person and remote option, to consider approval of the Regulations. CARB will provide a public agenda ten days before the date of the public hearing. If CARB makes any revisions or updates to any of the documents in this rulemaking package prior to the Regulations' publication on December 26, 2025, it will update its rulemaking webpage and notify stakeholders. Stakeholders can be notified of CARB updates by signing up here.
This article is part of a series on the California climate disclosure laws. For more information, see our previous articles: 'California Climate Disclosure Laws: Ninth Circuit temporarily halts SB 261 and CARB provides new guidance', 'California Climate Disclosure Laws: CARB delays regulations, releases Scope 1 and 2 template, and list of covered entities,' 'California Climate Disclosure Laws: CARB releases draft guidance on SB 261,' 'California Climate Disclosure Laws: CARB Refines Applicability, Deadlines, and Scope,' 'California Climate Disclosure Laws: CARB Affirms Reporting Deadlines, but Delays Regulations that Would Clarify Applicability,' and 'California Bills to Require Greenhouse Gas Emissions Reporting From Companies Doing Business in the State.'
1 "Revenue" is "the gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest, and dividends) in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of this part. Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold." CARB indicates that specific line items on FTB tax filings will determine whether an entity meets the "revenue" threshold for SB 253 and/or SB 261. See slide 21 here of CARB's Workshop presentation slide for the specific FTB line items.
2 If in one of the two prior, complete fiscal years the revenue is below the threshold for SB 261 and/or SB 253, then the entity is not in scope and does not need to report at the next applicable reporting deadline.
3 "Sales" is defined in RTC Section 25120(e) or (f) and includes sales by an agent or independent contractor of the entity.
4 The regulations define "subsidiary" as a business entity that another business entity has ownership interest in or control of by direct corporate association (Title 17 of the California Code of Regulations Section 95833). The following list determines ownership or control: greater than 50% of ownership of any class of listed shares, the right to acquire such shares, or any option to purchase such shares of the other entity; greater than 50% of common owners, directors, or officers of the other entity; greater than 50% of the voting power of the other entity; for a partnership, greater than 50% of the interests of the partnership; for a limited partnership, greater than 50% of control over the general partner or greater than 50% of the voting rights to select the general partner; and, for a limited liability corporation, greater than 50% of ownership in the other entity regardless of how the interest is held.
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