California’s climate disclosure laws will devastate interstate commerce

This week, on behalf of the Competitive Enterprise Institute, I submitted a public comment to the Department of Justice’s (DOJ) notice for state regulations that significantly burden interstate commerce. This welcome pushback is part of the Trump DOJ’s broader push to combat harmful regulations stifling commercial growth and economic opportunity.

My comment targets California’s controversial climate disclosure laws. This tripartite mandate, set to go into effect next June, imposes severe burdens on large companies doing business in California. The Climate Corporate Data Accountability Act (Accountability Act) requires all firms that generate $1 billion or more to file a costly and complicated greenhouse gas (GHG) report on their annual emissions.

The Voluntary Carbon Market Disclosure mandates that all firms participating in the carbon credit market report their trading activities to California with an explanation of their associated decarbonization efforts. And the Climate-Related Financial Risk Act requires all big firms to disclose—every two years—their perceived risks related to climate change and its effects on business.

Last December, I wrote a policy report comparing California’s three-part mandate with the mandatory climate disclosures of two other entities, the Securities and Exchange Commission (SEC) and the European Union (EU). These environmental, social, and governance (ESG) mandates threaten to impose a triple climate reporting burden on thousands of US businesses. While the SEC’s climate rule has been largely abandoned in court and the EU Commission later absolved the lion’s share of firms from reporting, California’s aggressive requirements are proceeding full steam ahead.

My comment detailed the economic damage posed by California’s Accountability Act, particularly as it pertains to interstate commerce. The Act will negatively affect 5,300 public and private firms in the state, forcing them to capture, quantify, and report their carbon-emitting activities.

This must be accomplished through firms reporting their direct GHG emissions (Scope 1), indirect emissions from purchased energy (Scope 2), and value-chain emissions (Scope 3). In particular, the law’s Scope 3 provision undermines commerce between California and other states because it requires many outside manufacturers, suppliers, farmers, and ranchers to comply with this burdensome ordinance. These partnered entities must supply the reporting firm with requisite data on how their carbon-intensive activities contributed to the primary firm’s products and services.

This is problematic for multiple reasons. First, the California Air Resources Board (CARB) violates the Constitution’s Commerce Clause by setting itself up as an unofficial climate regulator with no jurisdictional boundaries. Because of Scope 3 requirements, all partner firms, no matter their location in the US, will need to comply with the law’s GHG data reporting expectations. This excessive burden will undoubtedly cause some businesses to sever partnerships with California-area firms, creating an incentive for large firms to leave the state, while burdening third-party firms’ ability to continue their partnerships. The Framers recognized that only Congress possesses the ability to regulate commerce across state lines, not a state-level entity like the California legislature.

Second, the Accountability Act will impose a significant compliance cost for large firms and their small-business partners. My December 2024 report estimates that companies will collectively need to expend $3.6 billion to implement CARB’s disclosures and billions more to remain compliant. Companies that refuse will face up to $1 million for each violation. The compliance costs for this will also be exceedingly high for small businesses who lack the in-house knowledge to gather and quantify their GHG emissions for Scope 3.

Lastly, California’s climate disclosure laws are spearheading two multi-state decarbonization initiatives in the US. These are the 2007 Western Climate Initiative (WCI), which seeks to decarbonize GHG emissions along the West Coast, and the 2009 Regional Greenhouse Gas Initiative (RGGI), which aims to lower power plant emissions in the East Coast. The goal of California’s Accountability Act is to pressure firms in the state to lower or fully eliminate their GHG emissions. This goal aligns with the stated aims of the WCI, of which California is a leading signatory. Additionally, Washington state, another member of WCI, is actively pursuing its own climate disclosure policy in its legislature that is a carbon copy of California’s Accountability Act. Congress never recognized nor approved of these compacts, leaving them in direct violation of the Treaty Clause and the Compact Clause.

Washington’s climate disclosure policy is evidence of a snowball effect in the region spurred by California’s laws, seeking to inspire additional states to adopt similar decarbonization mandates. Similarly, New York and New Jersey are cosignatories of RGGI’s push to decarbonize power plants on the East Coast. Both states are pursuing similar climate reporting mandates to that of California.

My public comment calls on the DOJ and the Environmental Protection Agency to marshal its resources to combat California’s climate disclosure crusade before serious damage is made to interstate commerce. Businesses of other states shouldn’t be subject to one state’s constitutionally rogue regulations. Similarly, the regional compacts of WCI and RGGI in tandem with the multi-state push to codify decarbonization requirements violate the Compact Clause of the Constitution. These collusive agreements also raise serious anti-competitive concerns that may warrant intervention from the Federal Trade Commission.

The DOJ must not allow California’s renegade push for disclosure to undermine the economic interests of surrounding states. The federal government must uphold the Constitution and do all that is necessary to strike these state laws down in court.