Does California's AB 1305 carbon-offset disclosure law cover renewable energy certificates (RECs) that businesses buy on the voluntary market?

Plain-English summary

In 2023, California enacted Assembly Bill 1305, which requires any business marketing or selling a "voluntary carbon offset" in the state, or claiming carbon-neutrality based on offsets, to publish detailed disclosures about the underlying offset project: location, timeline, methodology, annual tons of CO2 reduced, and so on. The Legislature was reacting to reporting that the voluntary offset market had become a "wild west" of unverifiable promises.

Two state legislators asked the AG whether AB 1305 also reaches renewable energy certificates (RECs) that businesses buy on the voluntary market. RECs represent the "non-power attributes" of one megawatt-hour of renewable electricity generation. A business that wants to claim its operations run on clean power can buy RECs in addition to (or matched with) the electricity it consumes.

The AG said no. The statute defines a "voluntary carbon offset" as a product that "claims" to reduce atmospheric greenhouse gases or to prevent emissions that would otherwise have occurred. A REC makes neither claim. It conveys ownership of renewable-electricity attributes, measured in megawatt-hours, not in tons of CO2 avoided. Whether adding renewable electricity to the grid actually displaces fossil-fuel generation depends on grid conditions at the moment of generation. Sometimes it does, sometimes it doesn't (especially when the grid is already fully renewable, as has happened repeatedly in California). The AG's analysis aligns with EPA guidance treating RECs and offsets as fundamentally different instruments.

Result: voluntary RECs sit outside AB 1305. RECs used for state Renewables Portfolio Standard compliance were already explicitly excluded as "regulatory mandates."

What this means for you

If you are a corporate sustainability or ESG lead at a California-facing business

You can buy voluntary RECs to back clean-power claims without triggering AB 1305's offset disclosure regime. That regime requires listing the offset project, the methodology, the annual emissions reduction, and the third-party verifier; none of that applies to RECs. But your underlying clean-energy marketing claim is still regulated. You still need the REC matched to the electricity you're using to claim ownership, and California's broader consumer-protection and false-advertising rules still bite if you say something the REC does not actually support.

If you mix RECs and offsets in your sustainability portfolio, segregate the recordkeeping. Offsets need AB 1305 disclosures; RECs don't. Don't blur them in your annual sustainability report.

If you sell or broker voluntary RECs

Be careful how you market them. The AG's logic is that a REC "makes no claim" to reduce or prevent emissions; it conveys non-power attributes only. If your sales literature says a REC "offsets your carbon footprint" or "reduces emissions," you've effectively redefined your product as a voluntary carbon offset and pulled yourself into AB 1305. Stick to language that mirrors the REC definition: renewable attributes, support for renewable generation, ownership of clean-energy claims.

If you sell voluntary carbon offsets

This opinion narrows the scope of AB 1305 but does not weaken its application to actual offsets. If you market a "carbon offset," "voluntary emissions reduction," "retail offset," or any product that "connotes" emissions reduction or avoidance, the disclosure obligations apply. The Health & Safety Code section 44475 disclosures, Health & Safety Code section 44475.1 purchaser disclosures, and section 44475.3 civil penalties all still attach. Annual updates are mandatory.

If you are an environmental journalist or NGO

This opinion is a useful citation when reporting on the difference between offset markets and REC markets. The AG accepted the academic and regulatory consensus that they are separate instruments with separate accountability frameworks. Use it to push back on companies that conflate REC purchases with carbon-offset reporting.

If you are a California state legislator

The Legislature could close the gap (treat voluntary RECs as voluntary offsets and require similar disclosures) by amending the AB 1305 definition. The AG explicitly noted that the existing definition draws this line. If you think the line is in the wrong place as a policy matter, the route is statutory.

Background and statutory framework

AB 1305 was enacted in 2023 and codified at Health & Safety Code sections 44475 through 44475.3. Section 44475 requires sellers of voluntary carbon offsets in California to publish on their website (a) the project location, (b) the protocol or methodology, (c) the annual quantity of GHGs reduced or avoided, (d) the offset registry, (e) third-party verification, and other details. Section 44475.1 imposes parallel disclosure obligations on businesses that purchase or use voluntary offsets and then advertise carbon-neutrality, significant emissions reductions, or similar claims. Section 44475.3 authorizes civil penalties up to $2,500 per day for violations.

The statute's core definition of "voluntary carbon offset" is in section 44475(d)(3)(A): a product marketed as a "greenhouse gas emissions offset," "voluntary emissions reduction," "retail offset," or any like term that "connotes that the product represents or corresponds to a reduction in the amount of greenhouse gases present in the atmosphere or that prevents the emission of greenhouse gases into the atmosphere that would have otherwise been emitted." Section 44475(d)(3)(B) carves out products that "correspond to legal or regulatory mandates," which excludes RECs used for Renewables Portfolio Standard compliance.

RECs are creatures of Public Utilities Code section 399.12. A REC represents the "renewable and environmental attributes associated with the [electricity] production." For each megawatt-hour of electricity generated by an eligible renewable resource, a REC is created as a certificate of proof. RECs trade on regulated markets and may be sold bundled with or unbundled from the underlying electricity.

The Renewables Portfolio Standard program (Public Utilities Code section 399.11 et seq.) requires retail electricity suppliers to acquire RECs equal to a rising percentage of their sales. The current target is 60 percent renewable by 2030. Voluntary REC purchases are separate: a business that wants to claim renewable consumption beyond what its utility supplies buys RECs on its own.

EPA guidance (Offsets and RECs: What's the Difference?, 2018) describes them as "fundamentally different instruments" measured in different units (one ton CO2-equivalent for an offset; one MWh of renewable electricity for a REC) that "are not interchangeable."

Common questions

If I buy a voluntary REC and tell customers my operations are powered by renewables, do I need AB 1305 disclosures?
No. AB 1305's offset disclosure requirements don't apply to REC-based clean-energy claims. But ordinary advertising and consumer-protection rules apply, so the underlying claim has to actually be supportable.

What if my marketing says I'm "carbon neutral" because I bought enough RECs to match my electricity consumption?
That gets harder. The AG's analysis says a REC "makes no claim" to reduce or prevent emissions. If you market the REC purchase as offsetting your carbon emissions, you may have re-characterized it as a voluntary carbon offset for AB 1305 purposes. Cleaner phrasing: "all electricity matched with renewable energy certificates" rather than "carbon neutral."

What about RECs I'm required to buy under the Renewables Portfolio Standard?
Those are explicitly outside AB 1305 because they correspond to a regulatory mandate. Section 44475(d)(3)(B) excludes products required by law.

Does AB 1305 apply to me if I'm based outside California?
The statute applies to any business that markets or sells a voluntary carbon offset in California. Geographic location of headquarters doesn't matter. If your offsets are sold to or marketed at California consumers or businesses, the disclosures apply.

What's the penalty for getting this wrong?
Up to $2,500 per day per violation under Health & Safety Code section 44475.3. The Attorney General, district attorneys, and city attorneys can enforce.

Citations

• Health & Safety Code section 44475 (offset seller disclosures)
• Health & Safety Code section 44475.1 (purchaser disclosures for sustainability claims)
• Health & Safety Code section 44475.3 (civil penalties)
• Public Utilities Code section 399.12 (REC definition and attributes)
• Public Utilities Code section 399.21 (RPS percentage requirements)
• Public Utilities Code section 399.25 (REC tracking)
• California Code of Regulations, title 17, section 95980 (Cap-and-Trade offsets in tons CO2)

Source

• Landing page: https://oag.ca.gov/opinions/yearly-index
• Original PDF: https://oag.ca.gov/system/files/opinions/pdfs/24-201.pdf

Original opinion text

TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
ROB BONTA
Attorney General

OPINION
of
ROB BONTA
Attorney General
KARIM J. KENTFIELD
Deputy Attorney General

:
:
:
:
:
:
:
:
:
:

No. 24-201
July 23, 2024

The HONORABLE STEVEN BRADFORD, STATE SENATOR, and the
HONORABLE COTTIE PETRIE-NORRIS, STATE ASSEMBLYMEMBER, have
requested an opinion on a question relating to regulation of greenhouse gases.
QUESTION PRESENTED AND CONCLUSION
Does the term "voluntary carbon offset" in Assembly Bill 1305 include renewable
energy credits (RECs) used outside of the State's regulatory programs?
No, the term "voluntary carbon offset" does not include RECs used outside of the
State's regulatory programs because RECs do not claim to reduce greenhouse gases in
the atmosphere or prevent greenhouse gas emissions that would otherwise have occurred.

BACKGROUND
As awareness of climate change continues to grow, individuals and businesses are
increasingly interested in reducing the greenhouse gas emissions associated with their
activities. One instrument used to achieve that goal is a "carbon offset." A "carbon
offset is when one entity" who wishes to reduce its emissions footprint without altering
its activities "pays another entity" to implement emissions reductions. An offset seller
might promise to remove existing greenhouse gases from the atmosphere, for example,
by growing a forest or installing machines that remove carbon dioxide from the air. Or a
seller might promise to prevent future emissions that would otherwise have occurred,
for example, by protecting a forest that would otherwise be destroyed.

In California, carbon offsets can be used to satisfy certain state regulatory
requirements. Polluters subject to emissions limits under the State's Cap-and-Trade
program, for instance, can comply with a small portion of their legal obligations by
purchasing qualifying offsets. Outside of the State's regulatory regime, carbon offsets
may also be purchased by individuals or businesses on a voluntary basis. Individuals
may purchase offsets to advance personal sustainability goals. And businesses may
purchase offsets to "demonstrate their commitment to reducing their carbon footprint" or
to advertise to consumers that their products are "carbon neutral."

Although carbon offsets used for compliance with state emissions programs are
closely regulated, most offsets sold on the voluntary market are not. Last year,
lawmakers expressed concern that the voluntary offset industry had become a "wild
west." Recent studies suggested that some offsets on the market "did not represent
genuine carbon reductions." Such "junk offsets" defraud purchasers when the promised
carbon benefits are not delivered. And businesses that rely on invalid offsets in their
carbon accounting may make inaccurate claims to customers and investors, for example,
as to whether their products are carbon neutral.

To increase accountability and transparency in the offset market, the Legislature in
2023 enacted Assembly Bill 1305. That statute requires any business that markets or
sells a "voluntary carbon offset" within the State to disclose specified information on its
website about the underlying emissions-reduction project. Sellers must disclose the
project's location and timeline, the protocol used to estimate emissions benefits, and the
annual quantity of emissions reduced or carbon removed, among other information. A
business that "purchases or uses voluntary carbon offsets" must make analogous
disclosures if it advertises "significant" emissions reductions, "carbon neutral[ity]," or
similar environmental claims. Regulated entities must update disclosures annually or
face civil penalties.

The new disclosure rules apply to products that claim to reduce atmospheric
greenhouse gas levels. Specifically, the statute defines a "voluntary carbon offset" as
"any product sold or marketed in the state that claims to be a 'greenhouse gas emissions
offset,' a 'voluntary emissions reduction,' [or] a 'retail offset.'" It also includes "any
like term . . . that connotes that the product" either "corresponds to a reduction in the
amount of greenhouse gases present in the atmosphere" or "prevents the emission of
greenhouse gases into the atmosphere that would have otherwise" occurred. Because
the statute is focused on the voluntary consumer market, a product is not a "voluntary
carbon offset" if it "correspond[s] to legal or regulatory mandates" for reducing
atmospheric greenhouse gases or preventing emissions.

This opinion request asks whether AB 1305's definition of "voluntary carbon
offset" encompasses a type of regulatory instrument known as a "renewable energy
certificate" or "renewable energy credit" (REC, pronounced like the word "wreck"). A
REC "is a tradeable, market-based instrument that represents the legal property rights to
the 'renewable-ness', or all non-power attributes, of renewable electricity
generation." For each "unit of electricity" that is "generated and delivered by an
eligible renewable energy resource," such as a solar or wind facility, a REC is created as
a "certificate of proof." It represents the "renewable and environmental attributes
associated with the [electricity] production." RECs are traded on regulated markets and
may be sold with or without the associated unit of electricity.

RECs are used by energy suppliers and consumers to support claims that
electricity was generated from renewable resources. For example, if a business purchases
renewable electricity along with the associated RECs, then it can claim ownership and
use of clean energy. But if the business instead buys the same electricity without the
associated RECs, then it cannot claim to own or use zero-emissions energy because it
would not own the "renewable and environmental attributes associated with the
[electricity] production." Instead, the purchaser of the associated RECs would obtain
the "exclusive right[] to characterize" the corresponding quantity of energy as "zero-emissions electricity."

In California, energy suppliers use RECs to comply with their obligations under
the Renewables Portfolio Standard program (RPS), administered by the California Public
Utilities Commission and the California Energy Commission. The RPS program requires
that an increasing percentage of electricity sold in the State is generated from renewable
energy resources. The program currently mandates, for instance, that 60 percent of
retail electricity sales must be served by renewable energy by 2030. Each compliance
period, retail electricity suppliers must furnish RECs to regulators to demonstrate that the
required percentage of electricity was derived from renewable resources. Suppliers can
acquire RECs either by directly generating renewable electricity or by buying RECs on
regulated markets.

Relevant here, RECs are also sold for use outside the RPS program on a voluntary
basis to support claims of clean energy generation and use. A business that wishes to
advertise products manufactured using zero-emissions energy, for instance, might support
that claim by buying RECs to match the nonrenewable energy it obtains from the utility
grid. "By purchasing RECs and electricity separately," organizations can effectively
"obtain green power" in areas where renewable energy is otherwise unavailable.

ANALYSIS
The question presented here is whether RECs sold for non-regulatory use outside
of the State's RPS program are "voluntary carbon offsets" subject to AB 1305's
disclosure requirements. We conclude that they are not.

As discussed, AB 1305 defines a "voluntary carbon offset" as

any product sold or marketed in the state that claims to be a "greenhouse gas
emissions offset," a "voluntary emissions reduction," a "retail offset," or any like
term, that connotes that the product represents or corresponds to a reduction in the
amount of greenhouse gases present in the atmosphere or that prevents the
emission of greenhouse gases into the atmosphere that would have otherwise been
emitted.

In other words, a voluntary carbon offset must "claim", directly or by implication, to
either reduce greenhouse gases in the atmosphere or prevent future emissions that would
otherwise have occurred.

The seller of a REC, however, makes no such claim. A REC does not directly
promise to reduce greenhouse gases or prevent future emissions. It does not purport to be
a "greenhouse gas emissions offset," a "voluntary emissions reduction," a "retail offset,"
or any other product that expressly claims to alter atmospheric greenhouse gas levels.

Nor does a REC make such a claim indirectly. First, a REC does not connote
that it "represents or corresponds to a reduction in the amount of greenhouse gases
present in the atmosphere." A REC instead conveys ownership of the non-power
attributes of one unit of renewable electricity generation. Although renewable
electricity generation does not increase the amount of greenhouse gases in the
atmosphere, the generation of renewable energy does not necessarily reduce existing
atmospheric greenhouse gases either.

Second, a REC does not connote that it "prevents the emission of greenhouse
gases into the atmosphere that would have otherwise" occurred. To be sure, the
generation of renewable electricity will sometimes avoid carbon dioxide emissions by
displacing non-renewable energy sources. "Given the integrated nature of the power
grid, adding electricity to the grid from one generator will result in the instantaneous
reduction in generation from other generators," assuming no change in energy demand.

So at times when the grid is being powered in part by fossil fuels, adding renewable
electricity to the grid may trade off with fossil fuel generation, thereby avoiding the
associated greenhouse gas emissions.

In other circumstances, however, adding renewable electricity to the grid will not
displace fossil fuel generation. If the grid is already being powered entirely by renewable
resources, as has regularly occurred in California within the past year, then generating
additional renewable electricity at such a time will not reduce greenhouse gas emissions
but will instead displace other clean energy sources. And at times when energy demand
threatens to exceed available supply, for example, during extreme heat events, adding
renewable electricity to the grid will not displace any other generation source; it will
simply increase the overall electricity supply to satisfy unmet consumer demand.

As these examples illustrate, the generation of renewable energy may or may not
reduce fossil fuel generation, depending on the circumstances. And a REC itself makes
no claim about what would have happened if the associated unit of clean electricity had
not been generated, for example, about whether fossil fuel generation would otherwise
have been greater. For these reasons, a REC does not connote that it "prevents the
emission of greenhouse gases . . . that would have otherwise been emitted." And
because a REC makes no claim to be a "greenhouse gas emissions offset," a "voluntary
emissions reduction," a "retail offset," or any other product that promises to reduce
atmospheric greenhouse gas levels or prevent future emissions, it falls outside the
definition of a "voluntary carbon offset."

Other aspects of AB 1305 reinforce our conclusion. The statute requires the seller
of a voluntary carbon offset to disclose information about the underlying offset project,
including the annual quantity of greenhouse gases reduced or avoided. That quantity is
measured by volume of gas, e.g., metric tons of carbon dioxide. But a REC is measured
differently: in units of electricity, megawatt-hours. And a REC cannot be converted
into a quantity of avoided emissions without additional assumptions, inputs, and
calculations. The fact that a REC is not measured in the units used to quantify
reductions in greenhouse gas levels is further evidence that a REC does not make the type
of emissions-reduction "claim" required for a "voluntary carbon offset."

Our understanding of the statutory text aligns with AB 1305's purpose. As
described above, the Legislature's concern was that consumers are being "defrauded" by
unregulated products that promise to reduce greenhouse gas levels yet fail to do so.
Such promises can be difficult to verify, as the underlying carbon accounting can be
"complicated" and "inscrutable." The Legislature was particularly concerned about
offsets promising to prevent future emissions, which depend on difficult-to-verify claims
about what would have happened without the offset's purchase.

To increase transparency, AB 1305 requires an offset seller to disclose information
about the underlying offset project, thereby enabling "independent analyses" of the
product's greenhouse gas-reduction claims. But where a product, like a REC, does not
claim to reduce greenhouse gases, AB 1305's concerns are not implicated. There is no
risk that a REC purchaser would be misled by complex carbon accounting or uncertain
counter-factual scenarios because a REC makes no such claims. And the only claim
that a REC does make, to convey the non-power attributes of a unit of clean
electricity, is already carefully regulated by other state laws.

Finally, our analysis is consistent with the view of the United States
Environmental Protection Agency. The EPA has explained that offsets and RECs "are
fundamentally different instruments" that are "not interchangeable." The two
instruments serve different purposes: offsets "represent emissions reductions," whereas
RECs "convey environmental attributes and renewable electricity use claims." And
they are measured in different units: an offset is typically measured in "one metric ton of
CO2-equivalent emissions," while a REC is measured in "1 [megawatt-hour] of
renewable electricity." Although the EPA has not considered AB 1305's definition of a
"voluntary carbon offset," its explanation of why offsets and RECs are different "tools in
[the] sustainability tool box" is consistent with our analysis. For these reasons, we
conclude that RECs used outside of the State's regulatory programs are not "voluntary
carbon offsets" under AB 1305.