Written by John Egan for Industrial Info Resources (Sugar Land, Texas) -- Doing business in California, already one of the highest-cost states in the U.S., is expected to get more expensive and complex following Governor Gavin Newsom's signing into law Senate Bill 219 (SB 219) last month. SB 219 amends two previously enacted bills, SB 253 and SB 261, which the governor signed with some reservations last October.

The new laws, which apply to all public and private companies doing business in California, enact plans to require all affected businesses to report their direct and indirect greenhouse gas (GHG) emissions starting later this decade. The new laws apply not only to companies headquartered in California but also to out-of-state companies doing business with companies in California.

Thousands of companies will likely feel the impact. A lawsuit filed in the United States District Court for the Central District of California challenges the original laws, SB 253 and SB 261. That lawsuit alleges, among other things, that SB 253 and SB 261 violate the First Amendment and improperly seek to regulate an issue that is subject exclusively to federal control under the Clean Air Act.

If the laws survive the court challenge, it would make California the first state in the U.S. to require businesses to report Scope 3 GHG emissions. The Golden State wears its environmental protection mantle proudly, and its action could persuade other states to follow its example.

The federal government, through the Securities and Exchange Commission (SEC) (Washington, D.C.), finalized a GHG emissions disclosure rule earlier this year. That final rule requires publicly traded companies to report their Scope 1 and Scope 2 emissions. That rule, adopted March 5, represented a narrowing of an earlier draft SEC GHG reporting rule, which mandated all publicly traded businesses to report their Scope 3 emissions.

For more on the final rule, see March 7, 2024, article - SEC Finalized a Narrowed Set of Greenhouse Gas Reporting Rules. That final rule also is under legal challenge.

The U.S. Environmental Protection Agency (EPA) (Washington, D.C.) defines Scope 1 emissions as direct GHG emissions that occur from sources. Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling by a source. The agency defines Scope 3 emissions, also known as "value-chain emissions," as emissions created by activities "from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain. Scope 3 emissions include all sources not within an organization's Scope 1 and 2 boundaries." In other words, emissions from inputs (upstream) to a business as well as consumption (downstream) of that business's goods or services. Scope 3 emissions often represent the majority of an organization's total GHG emissions.

SB 219, also known as the California's Climate Accountability Package, establishes the following:

• Businesses with over $1 billion in annual revenue will be required to disclose, on an annual basis, their Scope 1 and Scope 2 greenhouse gas emissions. By 2026, these businesses will have to report their emissions on a schedule developed by the California Air Resources Board (CARB) (Sacramento, California).
• Those businesses also will have to disclose Scope 3 emissions by 2027.
• Businesses with over $500 million in annual revenue must report climate-related risks in 2026.

Again, California's Climate Accountability Package would apply to all businesses located in California, regardless of the industry. Companies located outside California would also face impacts if they do business with companies located in California.

One of the affected industries, data centers, are among the largest consumers of electricity in the world. Although technology companies that operate or plan to operate data centers have claimed to be "clean" businesses, they recently disclosed that their businesses are not as clean as they once thought.

For example, Google's GHG emissions reportedly grew approximately 67% from 2020 to 2023. Emissions rose to 14.31 million metric tons of carbon dioxide equivalent in 2023 from 8.57 million metric tons of carbon dioxide equivalent in 2020. It is unclear if the emissions count included all three scopes of GHG emissions.

Part of the reason for the growth of GHG emissions from data centers is their dramatic increase in electricity use, particularly those data centers equipped with artificial intelligence (AI). These facilities use as much as 10 times more electricity as non-AI data centers.

A report earlier this year from the Electric Power Research Institute (EPRI) (Palo Alto, California) said that between 2017 and 2021, electricity used by Meta Platforms Incorporated (NASDAQ:META) (Menlo Park, California), Amazon (NASDAQ:AMZN) (Seattle, Washington), Microsoft Corporation (NASDAQ:MSFT) (Redmond, Washington) and Google (Mountain View, California)--the main providers of commercially available cloud computing and digital services--more than doubled.

For more on that, see June 7, 2024, article - EPRI Report Sees Dramatic U.S Electric Demand Growth from Data Centers.

A report from Security Boulevard, a technology news service, cited data from the Uptime Institute that North American data centers had direct GHG emissions of 59 million metric tons of CO2 in 2020. This amount is equal to the annual emissions from about 13 million vehicles. That sum does not appear to include indirect emissions from those data centers.

Industrial Info's Global Market Intelligence (GMI) platform, California has 172 operating data centers, and another 28 are scheduled to be built between January 2024 and December 2026. The total investment value of those proposed data centers is about $7.9 billion. All of those 28 projects have either a medium or high probability of being built according to their respective timelines.

Subscribers to Industrial Info's GMI Industrial Manufacturing plants and project databases can click here for a list of operating plant profiles and click here for a list of detailed project reports.

"SB 219 is yet another full-employment act for lawyers," commented David Pickering, Industrial Info's vice president of research for the Industrial Manufacturing industry. "Companies are leaving California because of high costs and restrictive regulations, so what do the elected geniuses in Sacramento do? Enact more restrictive regulations that will strangle businesses in nearly every industry, from Petroleum Refining to Oil & Gas Production to auto manufacturing and beyond."

"The scope of this new law truly is breathtaking," Pickering continued. "I wonder how an increasingly conservative federal judiciary that has grown more and more skeptical about government regulation will rule on this new law."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).