Tracking mandate hurts small businesses without reducing emissions

OPINION – California has led the nation in the fight against climate change for two decades, reducing greenhouse gas emissions while still growing an economy that may soon be the fourth largest in the world.

We’ve done that by encouraging innovation, creating green jobs and cultivating consensus between environmentalists and much of the business community.

But a new proposal nearing passage in the Legislature threatens that delicate balance. Senate Bill SB 253 would place significant new burdens on businesses – including medium and small businesses – without removing a single molecule of carbon dioxide or other climate pollutants from the atmosphere.

The bill would create a massive new mandate requiring companies to track and report not just their own emissions but those of their employees, business partners, suppliers and customers.

While the measure directly targets only the largest companies, medium and small businesses like those we represent could become collateral damage.

California already requires large companies to report their own greenhouse gas emissions and the emissions of the utilities or other companies that supply them energy.  In the climate change world, these greenhouse gases are known as “Scope 1” and “Scope 2” emissions.

SB 253 would add a new category – “Scope 3” – that would attempt to calculate and report to the state the emissions of every company and persons with any direct or indirect economic interaction with the company.

The implications of the mandate go well beyond the large companies that are supposedly its target.

Under this legislation, a large manufacturer would not only have to report the emissions from its factories and its energy suppliers. It would also be forced to calculate the emissions of its employees commuting to and from work, its business travel, the suppliers who make and sell the parts it uses in its manufacturing process, the resource companies that mine the raw materials that go into the company’s products, the trucks that deliver its product to market, the consumers who buy and use the product and the landfills that accept any waste after the consumer throws away the product at the end of its useful lifetime.

All of this information would be audited and made public. Any company found to have failed to accurately report the required data could be fined up to $500,000.

The implications of the mandate go well beyond the large companies that are supposedly its target. The burden of tracking such emissions would equally fall on the medium and small businesses that provide goods and services to these companies. Most smaller businesses have no experience counting their emissions and no capacity to do so without incurring additional costs.

Some of the targeted companies may simply stop doing business with smaller suppliers – many of which are owned and operated by diverse communities – if they are unable to provide the required information.

The bill’s supporters say these concerns are overblown because the large companies targeted by the bill would be allowed to use averages or estimates to report the emissions of all the other firms in their supply chains.

But those methods are unproven at best and may be wildly inaccurate, they risk double counting of emissions which is counterproductive to achieving reductions. Even if the numbers were on the mark for an individual company, the system could still result in counting the same emissions many times over as multiple manufacturers who use the same supplier each count and report that supplier’s alleged contribution to climate change. The data would be so unreliable it’s hardly worth building this massive new system to collect it.

The objective of this bill is to incentivize big companies into reducing their carbon footprint by adding a layer of public shame if they appear in the state’s database of largest offenders. However, the success of California’s efforts to date show that there’s no need for such a heavy-handed, bureaucratic approach.

SB 253 would waste time, resources, and money that would be far better spent actually reducing emissions to meet our climate goals, rather than trying to track the flow of greenhouse gases through every transaction in our vast economy.

Pat Fong Kushida is the President and CEO of the California Asian Pacific Chamber of Commerce