California Air Resources Board proposes regulations to implement SB 253 and SB 261 and invites public comment

Takeaways

• CARB has proposed regulations for SB 253 and SB 261, which include:
  • August 10, 2026 initial reporting deadline for Scope 1 and 2 emissions under SB 253.
  • Annual flat fees to implement the statutes, with fee notices issued by September 10 each year starting in 2026 and payment due within 60 days.
• OAL published the Notice of Proposed Action on December 26, 2025, and the rulemaking timeline provides:
  • A 45-day public comment period will run through February 9, 2026.
  • A public hearing to consider adoption of the regulations is scheduled for February 26, 2026.
• SB 253 implementation continues despite ongoing legal challenges. While SB 261 is stayed pending the Ninth Circuit’s decision on the merits (see our article here), the rulemaking is moving forward in the interim.

Important proposed deadlines

• SB 253 Scopes 1 and 2 Emissions Reporting: August 10, 2026

The proposed regulations set forth an initial SB 253 deadline of August 10, 2026 for reporting entities to disclose certain Scope 1 and Scope 2 emissions information to CARB, consistent with the proposal in CARB’s third public workshop on November 18, 2025 (see our article here).

• SB 253 and SB 261 Annual Fees: September 10, 2026

CARB has provided a formula, timeline, and procedure for fees under both statutes. Starting in 2026, every year on or by September 10, CARB will issue a fee notice to covered entities with the amount owed. Those entities will then have 60 days from the date of the notice to remit payment to CARB.

Key provisions of the proposed regulatory text

The proposed regulations are largely consistent with the information CARB relayed in its November workshop. We note material changes in the summary below.

Applicability

“Reporting” and “Covered” entities

The regulations apply to “reporting entities” and “covered entities.” A “covered entity” refers to a U.S.-formed business entity who does business in California with total annual revenues exceeding $500,000,000, bringing the entity within the scope of SB 261. A “reporting entity” means a U.S.-formed business entity who does business in California with total annual revenues exceeding $1,000,000,000, bringing the entity within the scope of SB 253.

Exemptions

The proposed regulations identify multiple entities that are exempt from reporting:

(1) Non-profit or charitable organizations that are tax-exempt under the Internal Revenue Code;

(2) A business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state;

(3) Federal, State and local government entities, and companies that are majority-owned by government entities (>50%);

(4) A business entity whose only activity within California consists of wholesale electricity transactions; and

(5) A business entity whose only activity in California is employee compensation or payroll expenses, including teleworking employees.

The fifth exemption represents a slight change from the November workshop proposal (see November 18, 2025 Slide Deck, Slide 31), providing a broader exemption extending beyond teleworking employees to include employee compensation and payroll expenses for employees working in offices physically located in California.

“Revenue”

The proposed regulations define “[r]evenue” as synonymous with “gross receipts” as that term is used in § 25120(f)(2) of the California Revenue and Taxation Code (RTC):

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, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of this part. 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.

CARB has specified that an entity’s revenue amounts are determined by “the lesser of the entity’s two previous fiscal years of revenue.”

“Doing business in California”

The proposed regulations define “[d]oing business in California” consistent with certain, but not all, criteria specified in RTC § 23101. Specifically, entities are “doing business in California” for purposes of SB 253 and SB 261 if they are “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit” and (1) are organized or commercially domiciled in California, or (2) have sales in the State exceeding the applicable inflation-adjusted threshold (e.g., $735,019 in 2024) or 25% of the taxpayer’s total sales.

CARB has proposed that wholesale sales of electricity are not eligible for the purpose of determining an entity’s sales in California under RTC § 23101(b)(2).

“Parent” and “Subsidiary”

The proposed regulations are generally consistent with CARB’s November workshop (see November 18, 2025 Slide Deck, Slide 26), but provide further detail regarding “parent” entities. Specifically, a “parent” is proposed to be defined as “a business entity that has ownership interest in or control of another business entity by direct corporate association as specified in section 95833 of Title 17 of the California Code of Regulations. The indicia determining ownership or control are set forth in section 96072(a)([1]6).” These indicia include:

• Greater than 50 percent of ownership of any class of listed shares, the right to acquire such shares, or any option to purchase such shares of the other entity;
• Greater than 50 percent of common owners, directors, or officers of the other entity;
• Greater than 50 percent of the voting power of the other entity;
• In the case of a partnership other than a limited partnership, greater than 50 percent of the interests of the partnership;
• In the case of a limited partnership, greater than 50 percent of control over the general partner or greater than 50 percent of the voting rights to select the general partner; and
• In the case of a limited liability corporation, greater than 50 percent of ownership in the other entity regardless of how the interest is held.

“Subsidiary” is defined as “a business entity that another business entity has ownership interest in or control of by direct corporate association as set forth in section 95833 of Title 17 of the California Code of Regulations. A subsidiary may operate as a separate legal entity but is under the control of the parent entity due to this direct corporate association which can influence the subsidiary’s operations, management, or financial decisions.” The same indicia of control for parents apply to subsidiaries.

Fees

Annual flat fee

CARB has proposed a formula to calculate the annual flat fee to cover the costs of implementing the statutes consisting of the total cost of implementation (e.g., operating costs of staffing, legal defense, and contracts), adjusted for inflation, with a 10% contingency added to account for unforeseen costs or revenue shortfalls as well as a debt payment. CARB will calculate the total amount required using this formula, then apportion that total between SB 253 and SB 261 based on resource use and distribute it evenly among reporting and covered entities. SB 253’s fees will be deposited into the Climate Accountability and Emissions Disclosure Fund, and SB 261’s fees will be deposited into the Climate-Related Risk Disclosure Fund.

Timeline

Starting in 2026, every year on or by September 10, CARB will issue a fee notice to reporting and covered entities of the amount owed. Those entities will have 60 days from the date of the notice to remit payment to CARB.

Late fees

Failure to submit timely payment will result in a late fee in addition to any penalties that may be assessed.

Recordkeeping

CARB has proposed that entities subject to the proposed regulations must keep records, for five years, demonstrating they meet the “revenue” and “doing business in California” thresholds, which must be submitted to CARB upon request.

Fee enforcement

The proposed regulations set forth enforcement for non-compliance—authorizing penalties, injunctions, and auditing. Specifically, penalties and/or an injunction may be assessed for any violation of the laws or regulations. In addition, CARB is authorized to “contract with or consult with outside entities, including, but not limited to, the Board of Equalization or the California Franchise Tax Board, to obtain data or services needed to audit the fee remittances provided by fee payers, or unpaid fees.”

SB 253 Deadline for Reporting

The proposed regulations require reporting entities to report their Scope 1 and Scope 2 emissions for the “applicable preceding fiscal year” on or before August 10, 2026.

With respect to what data must be used in generating this report, “applicable preceding fiscal year” is proposed to be defined as follows:

• If the reporting entity’s fiscal year ends on or before February 1 in a calendar year, the applicable preceding fiscal year shall be the fiscal year ending in the current calendar year.
• If the reporting entity’s fiscal year ends after February 1 in a calendar year, the applicable preceding fiscal year shall be the fiscal year ending in the previous calendar year. However, reporting entities may choose to report their Scope 1 and Scope 2 emissions from their most recent preceding fiscal year notwithstanding their fiscal year ending after February 1, where that data is available.

CARB’s Staff Report reiterated that the agency will provide some flexibility for the first reporting deadline, allowing companies to submit their Scope 1 and Scope 2 emissions based on information in their possession at the time the agency issued the December 5, 2024 Enforcement Notice (i.e., no new information is required to be collected). And if entities lacked any emissions data at the time CARB issued the Notice, they are not expected to submit Scope 1 and Scope 2 reporting data for this first cycle. While this is not explicit in the proposed regulations, CARB has indicated it will exercise its enforcement discretion for good-faith first-year submissions to support reporting entities actively working toward compliance.

CARB’s Staff Report has also indicated that it will undertake future rulemakings to address reporting dates after 2026, reporting content and format, and data assurance.

Comment period and public hearing

With OAL’s Notice of Proposed Action, the comment period for CARB’s proposed regulations has begun. This 45-day public comment period will end on February 9, 2026. There will be a public hearing (in person in Sacramento and via Zoom) for approving and adopting the regulations on February 26, 2026 at 9:00am. The public meeting may continue the following day on February 27 at 9:00am.

While interested individuals and entities can comment orally or in writing during the hearing, comments can also be submitted by mail or on CARB’s Comment Portal prior to the hearing.

The broad range of expertise at Hogan Lovells US LLP – including the Environment and Natural Resources, Litigation/Consumer Products, Sustainable Finance and Investment, Corporate and Finance, and Infrastructure, Energy, Resources and Projects teams – are available to assist clients with complying with California’s climate-related financial risk and GHG emissions disclosure requirements and can help you understand interactions with other relevant sustainability-related reporting regimes required globally.

Authored by Tom Boer, Olivia Molodanof, and Allison Klei.