California Cap-and-Invest auction results reveal opportunity for stronger cap and faster pollution cuts

Results were released today for the February 18 auction for the joint California–Quebec Cap-and-Invest market, the first of the year and the first since the California Air Resources Board (CARB) published its initial plans for updating this cornerstone climate program.

Today’s allowance prices, detailed below, signal lackluster demand and suggest there is ample room in the emissions market to tighten the cap in order to maximize program benefits for the achievement of California’s climate emissions reduction targets, cost of living and the state’s economy. With almost 88% of the allowances in this auction bought by compliance entities, it’s clear that the low prices are not just the result of financial interests’ speculation — there is real opportunity for tightening these allowance budgets and reducing emissions in the near-term. Modestly improving market confidence is important given that recent uncertainty leading up to last year’s program reauthorization through 2045 cost the state roughly $3 billion.

February auction results

• All of the 54,975,757 current vintage allowances (emission allowances valid for compliance this year) offered for sale were purchased, resulting in a third consecutive sold-out auction for this market.
• The current auction settled at the price floor of $27.94, and $0.38 below the November settlement price of $28.32.
• The advance auction was slightly undersubscribed, with 6,263,000 allowances sold of the 6,481,750 available. These allowances can be used for compliance beginning in 2029.
• Future vintage allowances also settled at the $27.94 price floor and $1.67 below the November settlement price of $29.61.
• This auction is expected to generate roughly $919 million for the Greenhouse Gas Reduction Fund (GGRF).

Ambitious climate policy that pays off for households 

California’s Cap-and-Invest program serves as the state’s emissions backstop: a foundational policy to cap and reduce climate pollution, while generating critical revenue to invest in energy affordability, climate resilience, infrastructure, and more. And, California’s suite of climate policies produced one of the largest annual emissions reduction while California’s economy continues to grow. The latest data from CARB, statewide greenhouse gas emissions fell another 3% in the most recent inventory — equivalent to taking more than 2.6 million gas-powered cars off the road for a year. Cap-and-Invest is a key part of that success. But there’s still more that California needs to do in order to make sure this program is really delivering reductions at the pace and scale required to meet its climate targets while also addressing household energy affordability. 

With the formal rulemaking process now in motion, CARB has a pivotal chance to set the cap-and-invest program’s ambition at a level that truly meets this moment — both for cutting emissions and delivering tangible benefits to communities across California. EDF supports the adoption of a stronger emissions cap and stronger reductions in the cap compared to what CARB proposed in the Initial Statement of Reasons (ISOR).

The allowance budget reductions outlined in the agency’s proposal reflect only the minimum needed to align with the 2030 emissions reduction targets, well below the stronger pathway CARB previously presented. The proposal would remove about 118 million allowances from 2027-2030 and set a post-2030 pathway to an 85% emission reduction by 2045. While this represents progress compared to the existing cap trajectory, deeper reductions before 2030 are essential to ensure the program drives near-term emissions cuts and maximizes benefits for households and communities across California.

Preliminary modeling  conducted by Greenline Insights for EDF shows CARB could reduce emissions at a faster pace while maintaining cumulative cost savings for low- and moderate- income households.

• Modeling of two scenarios that accelerate near-term emissions reductions through a tighter emissions cap than CARB’s proposal found that in both scenarios, households earning $100,000 or less would receive net savings from the Cap-and-Invest program. 
• In the most ambitious scenario modeled, which would remove approximately 180 million allowances through 2030 instead of the 118 million proposed by CARB, a tighter near-term cap would significantly incentivize decarbonization while saving money for working families. This scenario is projected to deliver over $860 million in net savings to families earning $100,000 or less, with lower-income families (earning $70,000 or less) receiving the biggest affordability gains. 
• A tighter emissions cap is also projected to generate more Greenhouse Gas Reduction Fund revenue to balance affordability challenges with emissions reduction, as intended by lawmakers when reauthorizing the Cap-and-Invest program last year. The most ambitious cap modeled by Greenline Insights is projected to generate over $1 billion more for GGRF than is modeled under CARB’s proposal. As the federal government digs in on policies causing the climate crisis and increasing living costs, this revenue is urgently needed to fill a widening leadership gap through critical investments in building a clean energy economy, such as the creation of state incentives for the purchase of zero-emission vehicles.

With a growing list of states considering policies like California’s and seeking to join the state’s emissions market, the stakes could not be higher. California pioneered this policy and must show that it works. The relatively weak demand for allowances seen in today’s auction results — selling out current vintages, but at the price floor — illustrates a tighter cap and faster rate of emissions reduction are the most logical path forward to meet the affordability needs of households across California and the urgency for climate action at scale.