California’s pivotal role in increasing transparency in the carbon market
Introducing AB 1305: A Landmark in Carbon Transparency
Information on carbon offsets has historically remained hidden due to the lack of required reporting and standardization within the industry. Growing skepticism about the voluntary carbon market (VCM) has set the stage for growing regulations. In recent years, we have seen an increase in scrutiny on companies making climate-related goals and marketing, selling, and promoting carbon offset projects as attempts to reduce emissions. Consequently, carbon markets have seen increasing amounts of legislation working to reform the market.
California’s 2023 bill, AB 1305, was an important step towards transparency in carbon markets. The bill requires the businesses selling and purchasing carbon offsets to release several key pieces of information in both cataloguing carbon offset projects and understanding their impact. It also takes a crucial step in increased accountability in the language used by buyers, including “net-zero,” “carbon neutral,” and similar terminology.
AB 1305, which required companies to start complying on January 1, 2025, is the first measure of its kind in the United States, largely because it does not target companies of a certain size or other criteria. It applies to any company operating within California that makes climate-related claims and/or buys, uses, or sells voluntary carbon offsets. As a result of this increased oversight of sustainability claims and carbon credits, we anticipate seeing the VCM shift toward higher-quality projects with stronger documentation and transparent methodologies across the country.
California’s Far-Reaching Influence & Legacy of Climate Leadership
Historically, California has led the charge in state climate action legislation. California stands as the most populous state, host to the highest number of businesses, and holds the position of the fourth-largest economy in the world. States often copy California’s climate policies for their own frameworks. California’s regulations incentivize or force companies to adopt new standards, which often become the de facto national or international standard due to the economics of a single production line and reporting system. For example, the state’s vehicle emissions programs, originating with AB 1493, created the standards that over a dozen states have voluntarily adopted under the Clean Air Act’s Section 177 provision (known as CARB states). These rules were eventually nationalized by the EPA a few years later.
California has demonstrated that it is possible to separate economic growth from increases in GHG emissions, a key achievement that combats the argument that aggressive climate policy is detrimental to the economy.
By requiring companies to acknowledge and be transparent about their carbon offsets, CA is forcing them to take responsibility for their environmental claims and purchases. If companies successfully implement these mandatory California steps, it is anticipated that they will apply these best practices elsewhere, independent of legislative requirements.
Addressing Criticisms of VCM and Greenwashing
While the bill focuses on the clarity of transactions, this emphasis is a strategic move to address a root cause of mistrust: a lack of information. This legislation is strict on companies that greenwash with climate goals and messaging. The binding nature of “net zero” and “carbon neutral” claims forces companies to comply in order to avoid fines that can add up to $500,000. This level of enforcement incentivizes companies to not only disclose information but also to rigorously vet the quality and effectiveness of the offset projects they purchase, as non-compliance now carries a financial risk. While the bill still compels consumers to conduct their own research to find project ratings, the required transparency in other respects makes it easier for market participants to identify and praise companies that purchase high-quality credits. As a result, AB 1305 takes an important step in rewarding true environmental commitment and minimizing the potential for greenwashing.
Broader Climate Accountability Framework
California enacted AB 1305 as part of the California Climate Accountability Package, which also includes SB 253 and SB 261. The Climate Corporate Data Accountability Act, SB 253, is a California law requiring companies with over $1 billion in annual revenue to publicly disclose their greenhouse gas emissions. SB 261 is a California law requiring companies with over $500 million in annual revenue that do business in the state to biennially report their climate-related financial risks by January 1, 2026.
Early Compliance and Industry Response
By late 2025, we have seen a notable surge in the number of AB 1305 reports being published, with this early compliance proving that the necessary transparency is easy to implement. Some commendable examples include Palantir and Airbnb. Both companies have published their AB 1305 reports and disclosure detailing project information for their purchased carbon offsets in a straightforward fashion. These companies continue to use their language of carbon neutrality and net-zero claims, maintaining their same climate goals. This initial wave of disclosures by companies confirms that compliance is the market’s imminent and achievable future, signaling the rapid normalization of detailed project transparency as standard procedure.
Summary
California’s AB 1305 marks a significant shift in how companies must engage with and report their use of carbon offsets, signaling a new era of transparency in the voluntary carbon market. The bill sets a precedent for clearer communication in refining the VCM. Combined with broader measures like SB 253 and SB 261, AB 1305 positions California once again as a national leader in climate policy, using its economic influence to push companies toward more responsible environmental practices. As early compliance already shows, transparency is both achievable and increasingly expected. If other states follow California’s lead, AB 1305 may become a catalyst for nationwide improvement in carbon market transparency.
Dylan Berk is a freshman at Claremont McKenna College, majoring in Environmental Analysis on the Economics track. He is eager to address sustainability challenges through the intersection of business and policy.
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