Exxon Mobil has launched a lawsuit against California, alleging that two newly enacted state laws aimed at combating climate change infringe upon the oil company’s constitutional right to free speech.
These two pieces of legislation, passed in 2023 and collectively known as the California Climate Accountability Package, mandate that thousands of large corporations operating within the state must meticulously calculate and publicly disclose the greenhouse gas emissions generated by the use of their products. Additionally, they must report the financial risks that climate change poses to their businesses.
This requirement for companies to account for the climate impact of consumer product use represents a significant shift. Traditionally, climate regulations have focused solely on a company’s internal operational emissions, not those resulting from the consumption of its manufactured and sold goods.
For major oil companies like Exxon, these new regulations, slated to begin in 2026, will necessitate calculating and reporting emissions from activities such as the burning of gasoline or diesel in vehicles. Transportation is a primary source of greenhouse gases like carbon dioxide, which act as a heat-trapping blanket in our atmosphere, leading to global warming.
Exxon’s lawsuit, filed in a U.S. District Court in California, contends that these laws would compel the company to employ flawed methods for emission calculations, thereby misrepresenting its and its products’ role in global warming. The company is seeking a judicial order to prevent the state from enforcing these laws against it.
“The statutes compel Exxon Mobil to trumpet California’s preferred message even though Exxon Mobil believes the speech is misleading and misguided,” the lawsuit said.
California’s lawmakers have been pioneers in developing strategies to reduce greenhouse gas emissions, and their policies frequently inspire other states to adopt similar measures. However, Exxon’s lawsuit claims that these two California laws are designed more to penalize large businesses rather than genuinely reduce emissions.
The suit asserts: “While California might believe that making Exxon Mobil report historical emissions for an oil refinery acquired in Canada or speculative business risks for a Kazakhstan pipeline is the best way to spur climate solutions, Exxon Mobil disagrees. The First Amendment bars California from pursuing a policy of stigmatization by forcing Exxon Mobil to describe its non-California business activities using the State’s preferred framing.”
As of now, the California governor’s office and other state officials have not publicly responded to the lawsuit. The legal action names key figures, including officials from the California Air Resources Board, the state agency responsible for air and climate oversight, and Attorney General Rob Bonta.
One of the two laws contested by Exxon, SB 253, mandates that businesses calculate emissions using a methodology that encompasses a company’s total global emissions. Exxon’s lawsuit argues this approach unfairly assigns disproportionate blame to large corporations purely based on their size.
The Greenhouse Gas Protocol, California’s chosen methodology, was developed by the World Resources Institute (a Washington-based research group) and the World Business Council for Sustainable Development (a consortium of over 250 prominent companies, including some of Exxon’s competitors like Chevron and Shell).
Exxon’s lawsuit suggests that California should instead adopt an alternative approach that would incentivize more efficient companies. Furthermore, it argues that including emissions generated by consumer use of products, rather than just a company’s direct business operations, results in inaccurate double-counting and creates unnecessary confusion.
The oil giant’s legal challenge also insists that any California law should restrict its scope to in-state activities and not demand reporting or calculation of emissions from beyond its borders. Exxon highlights that the majority of its core business operations are outside California, with no exploration, production, manufacturing, or transportation of crude oil or natural gas, nor any refining, conducted within the state. Exxon is headquartered in Texas and operates in more than 60 countries.
The second law under challenge, SB 261, compels companies to disclose climate-related risks, such as potential flooding of coastal oil facilities during storms or the financial impact of evolving government policies. Exxon states that it already provides comparable information under federal securities laws and claims California’s provision would impose a “very speculative” framework that significantly diverges from federal standards.
The lawsuit concludes that these laws represent an overreach by California officials, attempting to control corporate communication. It posits that the true intention behind these laws is to publicly embarrass large businesses rather than to effectively regulate emissions.
This lawsuit bears a strong resemblance to a case initiated by the U.S. Chamber of Commerce and other business advocacy groups in January 2024. In that instance, U.S. District Court Judge Otis D. Wright II dismissed some of the Chamber’s initial claims earlier this year, allowing only the First Amendment argument to proceed. He subsequently declined the plaintiffs’ request for a preliminary injunction to halt the laws from taking effect in August.
The Chamber of Commerce has since appealed that decision to the U.S. Court of Appeals for the Ninth Circuit.
That earlier lawsuit by the Chamber also named officials from the California Air Resources Board and Attorney General Rob Bonta as defendants.
In court documents related to the Chamber of Commerce lawsuit, Attorney General Bonta’s office asserted that these laws uphold a fundamental First Amendment principle by enabling informed financial decision-making. Caitlan McLoon, a deputy attorney general, stated in a recent brief: “Plaintiffs have yet to explain how the laws compel even a single company to state a political or ideological opinion.”
In the Chamber’s case, various groups have submitted amicus briefs to the appellate court, expressing support for both sides. The Washington Legal Foundation, advocating for free-enterprise principles, contended that the laws force businesses to echo the state’s viewpoints. Conversely, Ceres, a business network promoting a shift towards cleaner energy, argued that the laws have widespread backing from corporations and investors. A recent filing from FarmSTAND, an organization against industrial animal agriculture, emphasized the laws’ importance in combating “greenwashing” – misleading environmental claims – by meat and dairy companies.
Toward the end of the Biden administration, the Securities and Exchange Commission (SEC) was nearing the implementation of new federal climate disclosure regulations. These federal rules also faced legal challenges, and in March, shortly after the current Trump administration began, the commission voted to cease its legal defense of these rules.
While the federal rules are effectively stalled, they have not been officially repealed, according to Jayson O’Neill, senior director of climate finance at Focal Point Strategy Group, a communications firm assisting climate and good-governance organizations. He also pointed out that other states are actively considering their own climate disclosure legislation.
The European Union is similarly advancing its own comprehensive climate disclosure rules. This week, U.S. Energy Secretary Chris Wright and his Qatari counterpart, Saad Sherida al-Kaabi, minister of state for energy affairs, sent a letter to the E.U., expressing concerns about their proposed Corporate Sustainability Due Diligence Directive. They urged the E.U. to either revoke the directive entirely or remove provisions deemed economically detrimental.