California extends – California’s Air Resources Board approved a 10-3 overhaul extending cap-and-invest through 2045, while removing 118 million allowances by 2030 and 900 million after 2030. Supporters argue the changes protect affordability and investment certainty, but critics
Friday night, after a marathon two-day meeting, the California Air Resources Board voted 10-3 to approve a sweeping overhaul of the state’s signature climate program, cap-and-invest, extending it through 2045.
For air regulators, it was a crucial step toward meeting long-term targets while sending what they framed as a clear message to markets. For opponents, it was something else entirely: a weakening delivered with California’s future on the line.
The vote by the California Air Resources Board sets how aggressively the state will curb planet-warming greenhouse gas emissions in the years ahead. It also determines how billions of dollars in revenue will flow through communities, businesses and public programs statewide.
Cap-and-invest launched in 2013 and quickly became a nation-leading approach. The program requires major polluters to pay for their share of emissions through auctions and allowances. then uses the revenue to fund public transit projects. wildfire prevention. affordable housing. clean energy. electric vehicles and safe drinking water. The pollution limit, or cap, declines each year as California works toward ambitious climate goals, including 100% carbon neutrality by 2045.
Last year, the legislature voted to extend cap-and-invest through 2045. In the months since. officials at CARB drafted and revised the plan ahead of the final vote. taking in feedback from oil and gas companies. environmental groups. lobbyists and lawmakers all pushing for different priorities. Around 200 people testified in-person over the two-day meeting, and the final proposal drew more than 1,000 written comments.
Industry groups argued that tightening emissions limits too much and too quickly would push refineries out of the state and drive up energy costs that are already soaring. Environmentalists and other stakeholders said the opposite risked becoming reality: that concessions to fossil fuel interests could defeat the program’s purpose and steer emissions reductions away from a pathway scientists say could preserve a recognizable climate.
During the meeting, CARB chair Lauren Sanchez said the stakes are heightened by instability beyond California’s borders. “It is no secret that climate policy is at a crossroads — under attack by an openly hostile and well-funded opposition and upended by global economic upheaval. ” Sanchez said. “At a moment of uncertainty at the federal and international levels, California has the opportunity to lead with consistency.”.
Key changes approved by the board include the removal of 118 million pollution permits. or allowances. from the market by 2030. and 900 million after 2030. Officials say those removals translate into an 11% annual lowering of the cap by the end of the decade. and 7% from 2031 to 2045. aligning with the state’s mandated targets.
Yet the most contentious piece of the update is also the one that critics say blurs the line between tightening and offsetting. Alongside the removals, CARB’s plan creates a new pool of 118 million allowances above the cap. Polluters can apply for and receive those allowances if they invest in decarbonization projects. through what CARB dubbed the Manufacturing Decarbonization Incentive. The incentive is meant to discourage regulated industries from leaving the state.
Two major refineries—Valero’s Benecia refinery and Phillips 66’s Los Angeles refinery—have announced exit plans in recent years, with the Los Angeles refinery shutting down in 2025.
But critics from transit, affordable housing, environmental justice and clean water groups argued the incentive amount is the point. Caroline Jones, a senior analyst with the nonprofit Environmental Defense Fund, said the board proposal creates “exactly 118.3 million additional allowances … outside the cap. the precise number of allowances that must be removed from the cap to keep us on track for our 2030 targets. ” adding that this “undermines the cap’s role in actually limiting climate pollution. which is the core function of this program.”.
The board approved the decarbonization incentive while committing to additional workshops and evaluations of the program prior to issuing any allowances from the new pool.
Other updates in the approved plan also drew pushback. Regulators increased free allowances for industrial facilities and refineries, saying the move is meant to reduce pressure on gasoline prices. Critics described the free permits as subsidies for oil and gas. The update will also shift some allowances from gas to electric utilities and increase funding for the California Climate Credit. a rebate that appears automatically on people’s utility bills.
All of that sits on top of a larger fight about money—specifically, what the changes will do to the cap-and-invest revenue stream.
Cap-and-invest distributes its multi-billion-dollar annual revenue into the state’s Greenhouse Gas Reduction Fund. which the legislature then divides among programs. Since the program’s inception, cap-and-invest has delivered $35 billion for climate projects in California. But an analysis from the Legislative Analyst’s Office found the new incentive pool will mean a loss of $2 billion annually to the fund—roughly half the amount it has received in recent years.
CARB does not control how the Greenhouse Gas Reduction Fund is divvied up. but opponents warned the projected reductions could trigger significant cuts for programs including the Affordable Housing and Sustainable Communities Program. the Low Carbon Transit Operations Program. the SAFER drinking water program and the Community Air Protection Program.
Phillip Fine, executive officer at the Bay Area Air District, said the changes could have severe ripple effects. “This could create serious consequences. including a potential zeroing out of the state’s support for critical emission reduction programs. ” he said. “Striking the right balance is critical, but all consequences must be fully considered.”.
That concern echoed throughout the meeting comments. Pam Odell of the group Climate Action California said the additional allowances would not only endanger emissions targets. but “would also flood the auction market and depress cap-and-invest revenues. ” harming the programs funded by the system. She pointed to revenues funding climate resilience. clean transit and transportation. and public health—particularly for communities described as heavily exposed frontline communities.
Not everyone opposed the overhaul. Some groups came out in support, including Southern California Edison and Pacific Gas & Electric. During the meeting, Fariya Ali, air and climate policy manager with PG&E, said the plan strikes a “balance between program stringency and affordability.”
Assemblymember Jacqui Irwin. a Democrat from Thousand Oaks who authored the bill that reauthorized cap-and-invest last year. said she was cautiously supportive. while indicating she wants more guardrails around the incentive program to ensure it aligns with state climate targets. Irwin also argued that delaying the update would extend uncertainty at a time when the Trump administration is canceling clean energy funds and revoking California’s authority to set clean vehicle standards.
“If we fail now to adopt the proposed amendments to cap-and-invest, it would be without a doubt the greatest victory that the Trump administration could possibly hope for to achieve against California’s climate policies this year,” Irwin said.
Oil and gas groups, for their part, were tepid. Jodie Muller. chief executive of the Western States Petroleum Assn. said the update offers near-term relief for refineries but leaves too much uncertainty after 2030 to encourage continued investment. Brian McDonald. regulatory affairs manager with Marathon Petroleum Corp. said the company was “deeply concerned that the current proposal does not go far enough to provide the regulatory certainty needed to sustain in-state fuel production.”.
In a briefing ahead of the vote. California climate economist Danny Cullenward said the update threatens both the “cap” and the “invest” sides of the program. He argued the introduction of the new allowance pool undermines the cap, while revenue threats jeopardize the invest component. “The proposal is ‘being presented as a compromise when in fact it is sacrificing both of the key goals of the program. ” he said.
The new plan is slated to go into effect Sept. 1—an end date for this round of debate that won’t feel like an ending for many of the people who spent days arguing over how much California will truly cut and how much it will preserve for the programs tied to the auction revenue.
California cap-and-invest California Air Resources Board greenhouse gas reduction fund Lauren Sanchez Manufacturing Decarbonization Incentive Legislative Analyst’s Office environmental justice affordable housing climate credit refineries