ExxonMobil has initiated a lawsuit against California, alleging that two recently enacted state laws designed to combat climate change unlawfully infringe upon the oil company’s freedom of speech.
These two pieces of legislation, collectively known as the California Climate Accountability Package and passed in 2023, mandate that thousands of major corporations operating within the state assess and publicly disclose the greenhouse gas emissions associated with their product use. They also require companies to report the financial risks posed by climate change to their operations.
This requirement to quantify the climate impact from consumer use of products represents a significant shift. Historically, climate regulations focused primarily on a company’s direct operational emissions, not those generated by the end-use of the goods they produce and sell.
Starting in 2026, these new regulations will compel oil companies, including Exxon, to meticulously calculate and report emissions stemming from activities such as the combustion of gasoline and diesel in vehicles. Transportation remains a primary source of heat-trapping greenhouse gases like carbon dioxide, which contribute to global warming.
Exxon’s lawsuit, lodged in the U.S. District Court for the Eastern District of California, contends that these laws would force the company to employ flawed calculation methods for emissions, thereby misrepresenting its and its products’ role in global warming. The company is seeking a judicial injunction to prevent the state from enforcing these regulations.
According to the lawsuit, “The statutes compel ExxonMobil to echo California’s favored narrative, even though ExxonMobil believes this message is misleading and ill-conceived.”
California’s legislators are recognized for their pioneering efforts in reducing greenhouse gas emissions, with the state’s policies frequently serving as a model for others. However, Exxon’s lawsuit argues that these two California laws are not genuinely designed to curb emissions but rather to unfairly penalize large corporations.
The lawsuit further states: “While California might believe that compelling ExxonMobil to report historical emissions for an oil refinery acquired in Canada or speculative business risks for a Kazakhstan pipeline is the most effective approach to climate solutions, ExxonMobil fundamentally disagrees. The First Amendment prevents California from adopting a strategy of stigmatization by compelling ExxonMobil to characterize its non-California business activities using the State’s preferred terminology.”
The Governor’s office and other state officials in California have not yet commented on the matter. The lawsuit specifically names key figures from the California Air Resources Board, the state body responsible for air and climate oversight, as well as Attorney General Rob Bonta.
One of the disputed laws, SB 253, mandates that businesses calculate emissions using a global methodology that considers a company’s total worldwide output. Exxon’s lawsuit claims this approach unfairly assigns excessive blame to large corporations solely due to their scale.
California’s chosen methodology, known as the Greenhouse Gas Protocol, was developed through a collaboration between two organizations: the Washington-based World Resources Institute, a research group, and the World Business Council for Sustainable Development, a global network comprising over 250 leading companies, including some of Exxon’s direct competitors such as Chevron and Shell.
Exxon’s legal challenge suggests that the state should instead adopt an alternative approach that incentivizes more efficient corporate practices. Furthermore, the lawsuit asserts that incorporating emissions from consumer product use, rather than solely a company’s operational emissions, results in problematic double-counting and creates unnecessary confusion.
Another key point in Exxon’s lawsuit is the argument that California’s laws should be confined to activities within its borders, rather than extending to emissions reporting and calculations beyond the state. Exxon highlights that most of its core business operations are outside California, as it does not engage in the exploration, production, manufacturing, or transport of crude oil or natural gas, nor refining, within the state. The company’s headquarters are in Texas, with global operations spanning over 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 severe storms or the financial impact of evolving government policies. Exxon contends that it already provides comparable information under federal securities laws and that California’s requirement forces a ‘highly speculative’ framework distinct from federal standards.
The lawsuit characterizes these laws as an overreach by California officials attempting to control corporate speech. It claims the legislation’s true intent is to publicly embarrass large businesses rather than genuinely regulate emissions.
This legal action mirrors a lawsuit initiated by the U.S. Chamber of Commerce and various business associations in January 2024. In that previous case, Judge Otis D. Wright II of the U.S. District Court for Central California dismissed several claims earlier this year, but allowed the First Amendment challenge to proceed. He also denied the plaintiffs’ motion for a preliminary injunction to prevent the laws from being implemented in August.
Subsequently, the Chamber of Commerce filed an appeal with the U.S. Court of Appeals for the Ninth Circuit.
Similar to Exxon’s suit, the Chamber’s lawsuit also named officials from the California Air Resources Board and Attorney General Bonta as defendants.
In legal documents related to the Chamber of Commerce’s case, Mr. Bonta’s office countered that the laws align with a fundamental First Amendment objective by promoting informed financial decision-making. Caitlan McLoon, a deputy attorney general, asserted in a recent brief that ‘Plaintiffs have yet to explain how the laws compel even a single company to state a political or ideological opinion.’
In that ongoing case, several organizations have submitted amicus briefs to the appellate court, representing both sides of the argument. The Washington Legal Foundation, advocating for free-enterprise principles, claims the laws force businesses to merely reiterate the state’s perspective. Conversely, Ceres, a business network promoting cleaner energy transition, argues the laws enjoy widespread support from corporations and investors. A recent filing from Friday by FarmSTAND, a group against industrial animal agriculture, emphasized the laws’ importance in combating ‘greenwashing’ – deceptive environmental claims – by meat and dairy companies.
Towards the conclusion of the Biden administration, the Securities and Exchange Commission was close to implementing new federal climate disclosure regulations. These federal rules also faced legal challenges, and in March, soon after the start of the current Trump administration, the commission voted to withdraw its legal defense of them.
Though not officially repealed, these federal rules are currently inactive, as noted by Jayson O’Neill, senior director of climate finance at Focal Point Strategy Group, a communications firm engaged with climate and good-governance organizations. He also pointed out that several other states are now considering similar climate disclosure legislation.
Meanwhile, the European Union is progressing with its own set of new climate disclosure rules. In a recent letter to the E.U., U.S. Energy Secretary Chris Wright, alongside his Qatari counterpart, Saad Sherida al-Kaabi, Minister of State for Energy Affairs, expressed concerns regarding the Corporate Sustainability Due Diligence Directive. They urged the E.U. to either revoke the directive or remove certain provisions they believe would be detrimental to the economy.