California is weighing multiple approaches for introducing Scope 3 greenhouse gas reporting under its new corporate climate disclosure regime, signalling that regulators are trying to balance transparency with the practical difficulty of measuring emissions across complex value chains. The discussion comes as the state moves from passing climate reporting rules in principle to deciding how companies will actually comply in practice.

This matters because Scope 3 emissions are often the largest part of a company’s carbon footprint, yet they are also the most difficult to calculate. Unlike direct operational emissions, these emissions sit across supply chains, purchased goods and services, business travel, employee commuting, waste, and the downstream use of products. That makes them central to meaningful climate disclosure, but also the most contentious part of almost any reporting framework.

California Is Now Deciding How Fast to Push Companies

Under SB 253, companies with more than $1 billion in revenue that do business in California will be required to report Scope 1 and Scope 2 emissions first, with Scope 3 reporting scheduled to begin in 2027. The California Air Resources Board is now considering how to structure that next phase, and the options it has presented show just how cautious the state is trying to be.

The first option would require all in-scope companies to report across all Scope 3 categories from the outset, with only limited flexibility to omit categories considered immaterial if properly explained. This is the most comprehensive path and would give the market the fullest picture of corporate value chain emissions earliest. But it is also the most demanding, especially for companies that still have weak supplier data and limited internal systems for emissions accounting.

That approach would create the strongest reporting baseline, but it would also expose businesses to the most immediate operational burden.

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A Sector-Based Rollout Would Prioritise High-Impact Industries

The second option under consideration would phase in Scope 3 reporting by sector, beginning with transportation and industrial companies. The reasoning here is clear. These sectors contribute a large share of California’s economy-wide emissions and also face particularly significant transition risks, making them natural early priorities for more demanding disclosure.

This route would allow regulators to focus first on the parts of the economy where emissions visibility may have the greatest policy relevance. It could also reduce the immediate compliance shock for lower-emissions sectors that may need more time to build reporting systems.

At the same time, a sector-based approach introduces a different challenge. It creates uneven obligations across the market and may be harder to justify if investors and stakeholders are looking for a common disclosure baseline across all large companies. It also risks creating the impression that Scope 3 matters most only in obvious heavy-emitting sectors, even though value chain emissions can be highly material in consumer goods, finance, retail, and technology as well.

A Category-Based Phase-In May Be the Most Practical Starting Point

The third option would phase in reporting by emissions category rather than by sector. Under this approach, companies would start by reporting on the Scope 3 categories that are already more commonly disclosed and generally easier to estimate, such as business travel, purchased goods and services, fuel and energy-related activities, employee commuting, and operational waste.

This may prove the most practical path because it builds from areas where companies already have some data familiarity. Instead of forcing businesses to calculate every element of their value chain at once, it would allow them to start with categories that are relatively established and then expand over time into more difficult areas.

That approach may also produce a more manageable learning curve, both for companies and for the regulator. Scope 3 reporting is not just a compliance exercise. It requires companies to build internal systems, work with suppliers, and make judgment calls on methodology. A phased rollout by category could help strengthen the quality of disclosure before the state pushes toward full coverage.

Methodology Flexibility Shows the State Understands the Complexity

Another important aspect of the workshop is that regulators appear ready to allow companies to use different methods for calculating Scope 3 emissions. These include spend-based approaches, activity-based methods, supplier-specific data, or a hybrid combination of them.

This flexibility is significant because it recognises a basic reality of Scope 3 accounting: not every company has access to the same depth or quality of emissions data. A rigid methodological requirement from the start could create unnecessary failure points and reduce participation quality. Allowing multiple methods gives businesses more room to build reporting capability gradually while still producing usable disclosures.

It also reflects the current state of corporate carbon accounting more broadly. Most companies are still working with mixed data quality across their value chains, and a hybrid model is often the only realistic way to build a defensible first version of Scope 3 reporting.

Compliance Costs Are Material but Not Overwhelming

California also presented preliminary cost estimates for compliance, with average annual costs per company over the first three years ranging from roughly $135,000 to $152,000 depending on which Scope 3 phase-in path is chosen. The difference between the options is not enormous, but it is still meaningful enough to shape business views on the rollout.

These figures matter because the political and legal durability of climate disclosure rules often depends on whether regulators can show that the burden is manageable and proportionate. If implementation costs appear too high relative to the quality of the information produced, opposition tends to intensify. California seems to be trying to avoid that by signalling both flexibility and an awareness of practical costs.

The estimates also reinforce that the real challenge is not only financial. For many companies, the harder part will be organisational: building systems, improving supplier engagement, and creating internal processes strong enough to withstand scrutiny.

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California’s Decision Will Matter Beyond the State

What happens next in California will likely influence how other jurisdictions and companies think about Scope 3 disclosure. The state is effectively becoming a testing ground for one of the most difficult areas of climate reporting. If it implements a workable model, it could shape broader expectations across the U.S. market, especially for large companies already facing investor, customer, or regulatory demands for more complete emissions disclosure.

This is why the phase-in debate is so important. It is not simply about easing companies into a new requirement. It is about deciding what kind of disclosure regime California wants to build: one that prioritises early comprehensiveness, one that targets the heaviest-emitting parts of the economy first, or one that builds gradually from the categories companies are most able to report with confidence.

The Bigger Issue Is Whether Scope 3 Becomes Usable, Not Just Mandatory

California’s workshop makes clear that regulators understand the central problem of Scope 3 reporting. The challenge is not only to require it. The challenge is to make it credible, usable, and scalable across a very broad corporate population.

That means the state’s eventual decision will likely be judged less by how ambitious it sounds and more by whether it creates disclosures that companies can actually produce and stakeholders can actually use. A rushed framework may look strong on paper but generate inconsistent data. A phased framework may appear less forceful at first, but could ultimately produce more durable reporting quality.

California is now deciding where to strike that balance, and the outcome will shape not only the first years of compliance, but also the wider credibility of corporate climate disclosure in one of the world’s most important regulatory markets.

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