California remains steadfast in its efforts to act as a national regulatory dictator. On its face, an appeals case still awaiting a ruling two months after argument is just about state emissions reporting. In truth, the underlying laws are Sacramento’s latest threat to the national economy. The implications of the Ninth Circuit’s U.S. Chamber of Commerce v. Sanchez, 25-5327, reach far beyond California and environmental concerns, threatening the future of free speech, business regulation, and federalism in the United States.
In 2023, California passed two laws that exceed established limits in compelling specific types of commercial speech: the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). Importantly, the laws apply to any business entity with annual revenue over a threshold amount ($1 billion for SB 253, $500 million for SB 261) “and that does business in California.” In other words, these laws apply to the nationwide business of any large U.S. company that wishes to access the world’s fourth largest economy. California has in effect passed national legislation, regulating out-of-state business activities for any company that accesses California’s market.
This is nothing new for California. In 2017, a coalition of States attempted to challenge California’s extraterritorial egg production regulations. The States alleged California “single-handedly increased the costs of egg production nationwide by hundreds of millions of dollars each year” by barring access to California’s market unless an out-of-state egg producer complied with California’s own regulations. The Supreme Court, which held original jurisdiction, refused to hear the case over the objection of Justice Clarence Thomas.
Now, California is throwing its weight in much the same way at all nationwide brands by requiring specific emissions disclosures. At the center of the dispute lies SB 253’s requirement that companies disclose what it terms Scope 3 emissions — emissions “from sources that the reporting entity does not own or directly control” including customers’ “use of sold products.” Such a requirement violates the Supreme Court’s long-standing First Amendment limitations, which require that compelled commercial disclosures must be “purely factual and uncontroversial.”
While all large companies are impacted, oil and gas producers are one of the most obvious targets. Scope 3 reporting does not rely on objectively verifiable measurements but on predictive modeling, economic assumptions, and methodological judgments about future consumer behavior. Compelling publication of conjectural projections rather than settled facts pushes the requirement beyond “purely factual and uncontroversial” reporting and into the realm of compelled speech governed by heightened First Amendment scrutiny.
Not only would producing such reports bring onerous new costs to affected businesses, it opens the door to penalizing companies for emissions that, by the law’s own admission, those companies do not control. Fossil fuel producers do not make the engines, stoves, or power plants that burn their products, and so cannot control their efficiency.
To further the controversy, industries will be forced to make judgment calls about how to assign emissions under Scope 3, potentially leading to counting some types of emissions multiple times over. If a shoe business requires a salesman to drive from Los Angeles to Santa Barbara, do those emissions apply to the shoe business, the auto manufacturer, the engine manufacturer, the gas company, or all four? Do the muffler and brake pad manufacturers also need to take responsibility? And if that trip was from Detroit to Ann Arbor? California demands the company report those far-off emissions as well.
The First Amendment problem is not that detailed regulations cannot clarify the answer but that any solution is beyond pure fact and will certainly involve controversy. California is obviously not just interested in information but in being able to act upon that information with further regulation in the future.
California’s true motivations are about national control: This is not just another cost of doing business imposed by a business-unfriendly state. It is an attempt to shape nationwide behavior while creating a record that demonizes certain industries and business models (paid for by those same industries). Making companies accountable for the third-party use of their products is a dangerous proposition for any industry because there is only so much any seller can control. When one state can force such liabilities on even the out-of-state activities of any nation-wide company, federalism itself suffers.
Tony Napolitano is a constitutional litigator and former Arizona Assistant Attorney General who writes about the intersection of law, infrastructure, and political power. He graduated from the University of Virginia School of Law and lives with his family in Arizona.
