California regulators have approved a sweeping overhaul of the state’s carbon market program, advancing a plan that supporters say will help contain consumer costs but that critics argue could deliver billions of dollars in benefits to major oil and gas companies while reducing funding for climate initiatives.
The California Air Resources Board voted 10-3 to adopt revisions to the state’s cap-and-trade system, now known as “cap-and-invest,” after months of debate over how to balance aggressive emissions targets with concerns about affordability and economic competitiveness.
The program remains one of the state’s primary tools for reducing greenhouse gas (GHG) emissions by placing a declining limit on pollution and requiring companies to obtain emissions allowances.
The Dispute
At the center of the dispute is a new pool of free emissions permits that could direct billions of dollars in value to oil refineries, manufacturers and other large industrial facilities, according to CalMatters.
Regulators said the changes are intended to encourage investments in decarbonization projects while reducing the risk that businesses relocate outside California. Environmental advocates, however, contend the move weakens incentives for companies to cut emissions.
The revised program also reflects growing political pressure over energy costs, including intensive lobbying by the oil industry urging Gov. Gavin Newsom’s administration to keep refineries operating in the state.
The financial implications could be significant. Expanding free allowances may sharply reduce proceeds from carbon allowance auctions, potentially cutting revenue for programs that have funded public transit, affordable housing, wildfire prevention and other climate-related projects.
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Some estimates suggest annual revenue could fall by roughly half, that is, from about $4 billion a year currently to about $2 billion under the new overhaul.
“While Trump sows ongoing chaos and uncertainty, California is staying focused by protecting our economy, safeguarding public health, and doubling down on the clean energy future all Californians deserve,” Newsom said in a comment.
Bahram Fazeli, at Communities for a Better Environment, said the move was equivalent to “handing billions to oil executives at the expense of our climate, health, and affordability for working families” in what he called “a rushed process.”
The Program
California’s cap-and-invest program requires major polluters to obtain emissions allowances under a statewide cap that declines each year, gradually tightening limits on GHG emissions.
The revised rules preserve that structure but establish a new incentive program that could distribute as much as $4 billion worth of free allowances to industrial facilities that commit to emissions-reduction projects.
The new allowance pool would contain up to 118.3 million permits—the same quantity regulators previously identified for removal from the market to help achieve California’s 2030 climate goals. About half of those permits would be reserved for oil refineries and other fossil-fuel operators.
Environmental groups argue the move risks offsetting emissions reductions that the state had planned to achieve through a tighter cap.
State regulators contend the allowances are temporary and conditional—the credits can be revoked if requirements are not met—and are available only to companies undertaking decarbonization investments.
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