CARB Issues Proposed Regulations Implementing SB 253 And SB 261

I. Recap of where we are with SB 253 and SB 261

a. SB 253 and SB 261

In 2023, California passed Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261).

• SB 253 requires U.S. companies with annual revenues over $1 billion that do business in California to report their greenhouse gas (GHG) emissions each year. The first report, covering Scope 1 and Scope 2 emissions, is due by August 10, 2026, with Scope 3 emissions reporting beginning in 2027.¹
• SB 261 requires U.S. companies that do business in California (excluding insurance companies) with total annual revenues exceeding $500 million to prepare and publicly disclose a climate-related financial risk report. These reports must be published every two years.² However, the original January 1, 2026, deadline is currently unenforceable due to an injunction.³ The California Air Resources Board (CARB) will set a new deadline following the resolution of the litigation.

The legislation requires CARB to promulgate implementing regulations that will define key terms (such as "doing business in California" and "revenue"), establish fee structures to fund program administration, set initial reporting deadlines, and create enforcement mechanisms.

b. Legal Challenges

Both laws faced significant opposition from a broad range of stakeholders concerned about the scope and impact of the new disclosure requirements. A coalition led by the U.S. Chamber of Commerce challenged the constitutionality of SB 253 and SB 261, arguing that the laws violate the First Amendment.⁴ The U.S. District Court for the Central District of California denied the coalition's motion for a preliminary injunction.⁵ However, on appeal, the U.S. Court of Appeals for the Ninth Circuit granted an injunction pending appeal on November 18, 2025, in a one-page order, thereby suspending enforcement of SB 261.⁶

The Ninth Circuit declined to enjoin SB 253, leaving its implementation on track.⁷ Accordingly, companies must prepare to comply with SB 253's reporting requirements, including the first Scope 1 and Scope 2 emissions report due August 10, 2026.

The Ninth Circuit will hear oral arguments on January 9, 2026. If the Ninth Circuit affirms the district court's denial of a preliminary injunction for SB 261, it will dissolve its appellate injunction, allowing CARB to reinstate enforcement of SB 261's obligations.

c. CARB Workshops

In response to the obvious need to clarify key compliance concepts for regulated entities before promulgating regulations, CARB held numerous public workshops to solicit stakeholder feedback and provide guidance on implementation. These workshops aimed to explain statutory requirements, outline proposed rulemaking, speculate which companies are subject to reporting, and refine definitions critical for determining applicability and compliance obligations.

II. CARB Draft Rules

On December 1, 2025, CARB issued proposed regulations that reinforce certain clarifications made in its workshops and provide more granularity on applicable thresholds, key definitions, fee calculation methodology, payment and enforcement procedures, recordkeeping requirements, and the initial reporting deadline for Scope 1 and Scope 2 emissions under SB 253.⁸

The draft regulatory package issued by CARB includes a notice of public hearing scheduled for February 26, 2026, where the Board will consider adopting the proposed regulations, along with a Staff Report: Initial Statement of Reasons detailing the rationale behind the proposal. In that report, CARB explains that this initial rulemaking is narrowly focused on three objectives: (i) establishing the fee structure to fund program administration, (ii) clarifying which entities are subject to those fees, and (iii) setting the first-year reporting deadline for Scope 1 and Scope 2 emissions under SB 253.⁹ The report further notes that other program elements – such as detailed reporting requirements, assurance standards, and enforcement provisions – will be addressed in subsequent rulemakings.¹⁰

a. Key Definitions

The following are paraphrased definitions; for precise language and full detail, please refer to the official text of the proposed regulatory definitions and referenced California codes.

• "Doing business in California" means actively engaging in any transaction for the purpose of financial gain or profit and meeting either of the following conditions during any part of a reporting year: (1) the entity is organized or commercially domiciled in California; or (2) the entity's sales in California, as defined in Revenue and Taxation Code §25120(e) or (f), exceed the inflation-adjusted threshold of $735,019 (for 2024). Sales include those made through agents or independent contractors and are determined using the assignment rules under §§25135–25136 and related regulations, as modified by §25137. Wholesale electricity transactions are excluded from this calculation.¹¹
• "Revenue" means 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, as recognized (or that would be recognized if the transaction occurred in the United States) under the Internal Revenue Code. 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. This definition aligns with 'gross receipts' as set forth in California Revenue and Taxation Code §25120(f)(2).¹²
• "Parent" means a business entity that has ownership interest in or control of another business entity through direct corporate association, as specified in Title 17, California Code of Regulations §95833.¹³
• "Subsidiary" means a business entity controlled by another entity (the parent) through direct corporate association. Control is generally established when the parent holds more than 50% ownership, voting power, or governance authority, including majority interests in partnerships or LLCs.¹⁴

b. Fee Administration/Payment and Collection

• Fee Formula – The proposed regulations set out a formula for calculating reporting fees under SB 253 and SB 261, based on the total funds required to administer the programs – including personnel costs, legal expenses, contracting, a contingency allowance, and repayment of CARB loans – with annual adjustments for inflation.¹⁵
• Annual Fees – Beginning in 2026, CARB will issue fee notices to in-scope entities by September 10 each year, and entities will have 60 days to remit payment.¹⁶
• Late Fees – Late payments will incur additional fees.¹⁷
• Recordkeeping – Entities must keep records proving they meet the "doing business in California" and revenue thresholds for five years.¹⁸

c. Fee Enforcement

• Penalties/Payment Violation – CARB may impose penalties for nonpayment. Each day a fee remains unpaid after its due date counts as a separate violation under the proposed regulations.¹⁹
• Injunctions – The proposed regulations authorize CARB to seek injunctions against entities that violate fee payment requirements.²⁰

d. Deadline for Reporting

The proposed regulations affirm that reporting entities must report their Scope 1 and 2 emissions by August 10, 2026.²¹

III. What's Next in the Process

Comments – A 45-day public comment period on the proposed regulations will run from December 26, 2025, through February 9, 2026.²²

Public Hearing – A public hearing will be held at CARB's Sacramento office on February 26, 2026, with a remote participation option available.²³ The agenda will be posted 10 days in advance, and stakeholders may provide oral or written comments at the hearing or submit written comments beforehand. After the public hearing, CARB may adopt the proposed regulations as drafted or with revisions. If significant changes are made, an additional 15-day comment period will be opened for the modified text.

Footnotes

1. CA Health & Safety Code § 38532.

2. CA Health & Safety Code § 38533.

3. US Chamber of Com., et al. v. Randolph, No. 25-5327 (9th Cir. Nov. 18, 2025) (order granting injunction pending appeal in part).

4. See Complaint for Declaratory and Injunctive Relief, US Chamber of Com., et al. v. Randolph, No. 2:24-cv-00801 (C.D. Cal. Jan. 30, 2024).

5. US Chamber of Com., et al. v. Randolph, No. 2:24-cv-00801-ODW (PVCx) (C.D. Cal. Sept. 11, 2025) (order denying plaintiffs' motion for preliminary injunction).

6. US Chamber of Com., et al. v. Randolph, No. 25-5327 (9th Cir. Nov. 18, 2025) (order granting injunction pending appeal in part).

7. Id.

8. Cal. Code Regs. tit. 17, §§ 96200–96207 (proposed Dec. 1, 2025).

9. Cal. Air Res. Bd., Initial Statement of Reasons for Proposed Rulemaking: California Corporate Greenhouse Gas Reporting and Climate-Related Financial Risk Disclosure (Dec. 9, 2025), available at chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://ww2.arb.ca.gov/sites/default/files/2025-12/200s%20initial%20regulation_staff%20report.pdf.

10. Id.

11. Cal. Code Regs. tit. 17, § 96202(a)(8) (proposed Dec. 1, 2025).

12. Id. § 96202(a)(13).

13. Id. § 96202(a)(10).

14. Id. § 96202(a)(16).

15. Id. § 96203.

16. Id. § 96204.

17. Id.

18. Id.

19. Id. § 96205(a), (c).

20. Id. § 96205(b).

21. Id. § 96206.

22. Cal. Gov't Code § 11340 et seq. (2025).

23. Cal. Air Res. Bd., Initial Statement of Reasons for Proposed Rulemaking: California Corporate Greenhouse Gas Reporting and Climate-Related Financial Risk Disclosure (Dec. 9, 2025).

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