California’s climate laws set a legally binding target to cut greenhouse gas emissions 85 percent below 1990 levels and reach carbon neutrality by 2045, and they get there through a stack of interlocking rules covering power plants, oil refineries, car dealers, trucking fleets, large corporations, and new buildings. If you run a business in the state or own property here, several of these rules probably reach you, and the compliance deadlines are already running.
The Binding Statewide Emission Targets
Three statutes form the backbone. The Global Warming Solutions Act of 2006 (AB 32) created the first enforceable statewide cap on greenhouse gas emissions and required the state to return to 1990 emission levels by 2020.1California Legislative Information. California Code Health and Safety Code 38500 – California Global Warming Solutions Act of 2006 SB 32 raised the target to 40 percent below 1990 levels by 2030.2California Legislative Information. SB 32 – California Global Warming Solutions Act of 2006: Emissions Limit In 2022, AB 1279 wrote carbon neutrality by 2045 and the 85 percent cut into binding statute.3California State Assembly. Governor Newsom Signs Assemblymember Muratsuchis AB 1279 – California Climate Crisis Act
The California Air Resources Board (CARB) is the agency responsible for hitting these numbers. Violations of rules adopted under AB 32 are treated as air-contaminant emissions under state law, so the penalty framework used for conventional air pollution applies.4California Legislative Information. California Code, Health and Safety Code – HSC 38580 Depending on the regulation, maximum fines run from a few thousand dollars to more than $12,000 per day per violation.5California Air Resources Board. 2014-2024 Minimum and Maximum Penalties
Cap-and-Trade for Large Emitters
Cap-and-trade is the mechanism that forces industrial emissions down year over year. Any facility in a covered sector emitting 25,000 metric tons or more of CO₂ equivalent per year is automatically pulled into the program, which covers roughly 400 facilities including oil refineries, cement plants, electricity generators, and large fuel distributors.6California Air Resources Board. Cap-and-Trade Program Data Dashboard Smaller facilities in covered sectors can opt in voluntarily.
Each covered entity must hold one compliance instrument for every metric ton it emits. Those allowances come from quarterly state-run auctions, free allocations for industries at risk of leaving the state, and secondary market trading. CARB sets a floor price below which it will not sell at auction, which keeps the market from collapsing. In 2024, the average auction settlement price was about $35 per metric ton.
At the end of each multi-year compliance period, a covered entity has to surrender enough allowances to cover its reported emissions. Falling short triggers penalties under the same air-quality enforcement provisions that apply to other AB 32 violations, and the entity still owes the missing allowances plus an additional surrender obligation.4California Legislative Information. California Code, Health and Safety Code – HSC 38580
The 100 Percent Clean Electricity Mandate
SB 100, the 100 Percent Clean Energy Act of 2018, requires renewable and zero-carbon resources to supply all of California’s retail electricity sales by 2045. The interim procurement requirements for utilities are 44 percent by the end of 2024, 52 percent by the end of 2027, and 60 percent by the end of 2030.7LegiScan. California Senate Bill 100 Both investor-owned utilities and publicly owned electric companies must file compliance plans. The California Public Utilities Commission can impose administrative penalties and forced procurement orders on utilities that fall behind.
Zero-Emission Vehicle Rules
Transportation is the largest source of greenhouse gas emissions in the state, and California addresses it with two separate regulations.
Advanced Clean Cars II (Passenger Vehicles)
Advanced Clean Cars II requires 100 percent of new passenger cars, light trucks, and SUVs sold in California to meet zero-emission standards (including plug-in hybrids) by model year 2035.8California Air Resources Board. Advanced Clean Cars The phase-in started with model year 2026, which requires 35 percent of new sales to be zero-emission or plug-in hybrid, climbing each year after that.9Atlas EV Hub. 12 States Have Formally Adopted Advanced Clean Cars II Manufacturers that miss their quotas face civil penalties per noncompliant vehicle. CARB runs a credit system that lets automakers who overshoot sell credits to those who undershoot.
Because the Clean Air Act generally preempts state vehicle emission standards, California needs an EPA waiver to enforce its own rules. The EPA granted that waiver for ACC II on December 18, 2024, covering model years 2026 through 2035.10U.S. Environmental Protection Agency. EPA Grants Waiver for Californias Advanced Clean Cars II Regulations Section 177 of the Clean Air Act then allows other states to adopt identical standards without needing their own federal approval, and at least 12 states have done so.11U.S. Environmental Protection Agency. Vehicle Emissions California Waivers and Authorizations
Advanced Clean Fleets (Trucks)
The Advanced Clean Fleets regulation sorts medium and heavy-duty truck operators into three groups:
- High-priority fleets, meaning companies with more than 50 trucks or over $50 million in annual revenue, must purchase only zero-emission trucks for new additions starting in 2024. Older combustion-engine trucks must be retired based on age or mileage limits.
- Drayage fleets operating at California ports and rail yards face similar purchase requirements and must transition their entire fleet to zero-emission by 2035.
- Public fleets owned by state and local agencies must make at least 50 percent of new truck purchases zero-emission through 2026, rising to 100 percent from 2027 onward.
Corporate Climate Disclosure Laws
Two 2023 laws created some of the broadest corporate climate reporting obligations in the country. Both apply to any U.S. company doing business in California, regardless of where the company is headquartered.
SB 253: Greenhouse Gas Emissions Reporting
The Climate Corporate Data Accountability Act (SB 253) requires companies with annual revenues over $1 billion to publicly disclose their greenhouse gas emissions.12California Air Resources Board. California Corporate Greenhouse Gas Reporting and Climate Related Financial Risk Disclosure Programs Scope 1 (direct operations) and Scope 2 (purchased energy) reporting began in 2026 for the prior fiscal year. Scope 3, which covers suppliers and product use across the entire value chain, must be disclosed starting in 2027.13LegiScan. California SB253 – Climate Corporate Data Accountability Act
Reports require independent third-party assurance, starting at a limited assurance level and escalating to reasonable assurance over time. CARB can seek administrative penalties for failure to report or inaccurate data, and covered entities pay an annual filing fee of up to $1,000.
SB 261: Climate-Related Financial Risk
The Climate-Related Financial Risk Act (SB 261) covers a wider pool: any company doing business in California with annual revenues over $500 million. Instead of reporting emissions, covered entities must publish biennial reports on the financial risks they face from climate change and how they are addressing those risks. The first reports were due by January 1, 2026, and must be posted publicly on the company’s website. Penalties for noncompliance are capped at $50,000 per reporting year, with CARB weighing good-faith efforts and reporting history.14LegiScan. California SB261 – Climate-Related Financial Risk Act
SB 219, passed in 2024, adjusted both laws by extending CARB’s deadline to finalize implementing regulations and allowing companies to report on a consolidated parent-level basis so individual subsidiaries do not have to file separately.
Building Codes and the Solar Mandate
California’s Energy Code (Title 24, Part 6) sets minimum efficiency standards for all new construction and major renovations and is updated every three years.15California Energy Commission. Building Energy Efficiency Standards The 2025 Energy Code applies to projects permitted after January 1, 2026.
Since the 2019 cycle, newly constructed homes, townhouses, and low-rise multifamily buildings must include rooftop solar photovoltaic systems. Buildings with insufficient roof area or heavy shading may qualify for alternative compliance pathways. Commercial buildings have parallel solar-readiness requirements that vary by roof size and building type.
There is no outright statewide ban on gas hookups, but the current standards make gas appliances hard to justify. If a builder installs a gas furnace or water heater, the rest of the building has to be efficient enough to match a comparable all-electric heat-pump design, and because heat pumps are inherently more efficient, meeting that bar with gas equipment usually costs more. Over 70 California cities separately adopted local electrification ordinances for new buildings before a federal court ruling challenged one such ban.
Local building departments enforce the code during permitting and inspection. A project that fails the current energy code can be denied an occupancy permit. For homeowners, these requirements kick in when you replace major equipment like a furnace, water heater, or HVAC system, not just when you build from scratch.
Federal Tax Credits Changing in 2026
California’s mandates have not changed, but the federal incentives that helped offset compliance costs largely have. The One Big Beautiful Bill Act accelerated the expiration of key residential energy credits. The Section 25D Residential Clean Energy Credit, which covered 30 percent of solar panel costs, and the Section 25C Energy Efficient Home Improvement Credit, which covered heat pumps and other qualifying systems, both expired for expenditures made after December 31, 2025.16U.S. Department of Energy. 179D Energy Efficient Commercial Buildings Tax Deduction California homeowners installing solar or heat pumps in 2026 can no longer count on those federal credits.
For commercial property, the Section 179D energy-efficiency tax deduction does not apply to property whose construction begins after June 30, 2026. If you are planning a major retrofit or new commercial build, that date matters, because the deduction can be substantial for qualifying projects.