(a) For purposes of this section, the following definitions apply:

(1) “Carbon intensity” means the quantity of life-cycle greenhouse gas emissions per unit of building material, and specifically the ratio between the net upstream carbon dioxide impact (emissions minus storage) of a material and the weight of the material.

(2) “Embodied carbon trading system” means a market-based credit trading platform of greenhouse gas emissions exchanges, banking, credits, and other transactions, governed by rules and protocols established by the state board, that result in the same greenhouse gas emission reduction, over the same time period, as direct compliance with a greenhouse gas emission limit or emission reduction measure adopted by the state board pursuant to this division.

(3) “Low-carbon building standard” means a framework created pursuant to Section 38561.3 to reduce by 40 percent the carbon intensity of the materials used in newly constructed buildings identified in paragraph (1) of subdivision (c) of Section 38561.3 and within the embodied carbon trading system, to facilitate a credit trading platform for building materials along with other requirements as specified.

(4) “Material life-cycle” means the aggregate of greenhouse gas emissions associated with material production, as defined in the International Organization for Standardization (ISO) 14040 series of standards with a focus on the Product Stage phases (A1-A3).

(5) “Entity undertaking the construction of a project” means a person or entity who owns the real property that is the subject of a development agreement.

(b) The state board may establish an embodied carbon trading system in compliance with the requirements set forth in Section 38561.3 and this section that meets both of the following requirements:

(1) If the state board opts to establish an embodied carbon trading system, the system shall be designed to be used by entities undertaking a construction project and building material manufacturers.

(2) The embodied carbon trading system unit of measurement shall be Global Warming Potential (GWP) per gross square foot (kg CO2e/sq. ft.2).

(c) The state board shall have the flexibility to design the embodied carbon trading system and may do all of the following with respect to the embodied carbon trading system:

(1) (A) Adopt rules and regulations for the credit allocation approach, the anticipated carbon price in the scheme, and trading periods.

(B) In developing the rules and regulations for the credit allocation approach, including those governing any tradeable compliance instrument, make efforts to avoid an overabundance of compliance credits in the market, and, to this end, may consider setting an upper limit on amount of credits that can be generated per unit of material.

(2) Consider using the credits generated through the use of the embodied carbon trading system to help promote innovation and investment in building construction materials that reduce emissions of greenhouse gases.

(3) Consider all relevant information pertaining to low-carbon building materials reduction programs in other states, localities, and nations, including other states, Canada, and the European Union, and, in doing so, review existing and proposed international, federal, and state greenhouse gas emission reporting programs, make reasonable efforts to promote consistency among the programs established pursuant to this division and other programs, and streamline reporting requirements on greenhouse gas emission sources.

(4) Integrate the embodied carbon trading system with the framework described in Section 38561.3 on or before December 31, 2026, and shall implement that system on and after January 1, 2029.

(5) Consult with the California Building Standards Commission, the Department of Housing and Community Development, and the State Energy Resources Conservation and Development Commission in the development of building regulations, in order to minimize duplicate or inconsistent regulatory requirements.

(d) The state board shall have the discretion to adopt further greenhouse gas emission reduction targets within the scope of Section 38561.3 prior to December 31, 2035, or provide early reduction credit considering market adoption, if appropriate.

(e) In developing its plan, the state board shall identify opportunities for emission reduction measures from all verifiable and enforceable actions, and best management practices.

(f) (1) The state board may adopt rules and regulations to monitor, verify, and enforce reductions in embodied carbon in building materials pursuant to this section and Section 38561.3.

(2) The state board shall minimize the administrative burden of implementing and complying with these regulations when possible.

(3) The state board shall design any rules and regulations to encourage manufacturers of building materials to produce low-carbon materials for sale in California to ensure that entities that undertake construction of projects identified in paragraph (1) of subdivision (c) of Section 38561.3 have an adequate supply of low-carbon materials that meet all of the feasibility and cost impact requirements of subdivision (f) of Section 38561.3 to meet the greenhouse gas reduction targets established in Section 38561.3.

(g) The state board may consider the use of third parties, such as verifiers, for purposes of implementing the requirements of this section.

(h) Compliance mechanisms, reporting requirements, and penalties for noncompliance with any compliance standards or an embodied carbon trading system established pursuant to this section or Section 38561.3 will be determined by the administrative process. The carbon trading system established pursuant to this section alone or in combination with Section 38561.3 shall not cause a project to have a cost impact or be unfeasible as those terms are defined in subdivision (f) of Section 38561.3.

(i) The state board shall periodically review and update its emission reporting and compliance standard requirements, as necessary.

(j) This section does not limit the state board’s ability to establish alternative incentives or compliance programs aside from or in addition to an embodied carbon trading system.

(k) This section provides guidance only. This section does not limit or expand the authority of the state board.

(l) This section does not authorize the creation of a revenue-generating program or any other program that would result in moneys being paid to the state, other than penalties imposed for a violation of this section.

(m) Notwithstanding any other law, the penalties described in subdivision (q) of Section 38561.3 are the exclusive enforcement mechanism against regulated entities for a violation of this section.

(Added by Stats. 2023, Ch. 316, Sec. 3. (AB 43) Effective January 1, 2024.)