California’s latest Cap-and-Invest auction shows what’s at stake with upcoming CARB vote

Results were released today for the year’s second auction of the California-Québec carbon market, known as the Western Climate Initiative. This is the last auction before the California Air Resources Board votes on new regulations regarding the implementation of this program, at their hearing scheduled for tomorrow and Friday.

If CARB approves the draft regulations as they are currently proposed, they’ll be voting to blow a hole in the emissions cap and threaten critical community and household investments that make Cap-and-Invest such a powerful tool for delivering results for the climate and families.

May auction results

• All 49,634,209 current vintage allowances (emission allowances valid for compliance this year) offered for sale were purchased, resulting in a fourth consecutive sold-out auction for this market.
• Prices for current vintage allowances settled at $28.81, $0.87 above the last quarterly auction, which settled at the floor price of $27.94.
• Future vintage allowances settled at $28.76, $0.82 above the last quarterly auction where they also settled at the price floor of $27.94.
• This auction is expected to generate roughly $770 million for the Greenhouse Gas Reduction Fund (GGRF).

What’s at stake at tomorrow’s CARB vote

These results come at a tumultuous time for California’s landmark climate program. Since 2012, it has served 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.

As detailed in our April blog, the creation of a Manufacturing Decarbonization Incentive (MDI) in CARB’s proposed update to program regulations creates a significant problem for the most essential part of this climate program: the cap on climate-warming emissions.

When CARB votes, Board Members should make their approval of these regulations contingent on the removal of the MDI, and direct the CARB Executive Officer to issue a new 15-day package without this problematic new mechanism. Here’s why:

1. The MDI blows a hole in the emissions cap.

CARB has proposed creating exactly 118.3 million additional allowances to fund the MDI, the precise number of allowances they need to be removing from the cap to keep us on track for our 2030 targets. By both removing 118.3 million allowances from one part of the program, and then creating 118.3 million allowances in a new part of the program, CARB is essentially laundering pollution.

While the MDI is intended to provide assistance to industries, like oil refineries, to encourage investment in decarbonization technologies, it is layered on top of already generous free allowance allocation in CARB’s draft regulations, and its design jeopardizes California’s ability to meet our 2030 emissions reduction targets. One analysis from UC Berkeley finds that when all these proposed benefits are taken together, refineries could receive free allowances “well in excess” of what they actually need for compliance. Free allocation of allowances from under the cap is a proven strategy to avoid emissions leakage, but the MDI above the cap is a step too far.

2. The MDI threatens billions in revenue for households and communities.

By creating additional allowances for a market where prices have been hovering at the price floor for a year, this proposal effectively stands to flood an already weak market with even more allowances, driving down demand further.

The consequences are not theoretical: the Legislative Analyst’s Office issued a report in May, based on CARB’s own estimates, predicting that with these proposed revisions projected to cut Greenhouse Gas Reduction Fund revenue roughly in half, many critical programs that depend on GGRF funding — including AB 617 programs that fund clean air and safe drinking water — would be zeroed out. These findings build on analyses by the UC Santa Barbara Environmental Markets Lab and by Greenline Insights, which also predict huge losses in critical revenue for climate and affordability programs if this proposal is adopted. And that brings us back to today’s results:

Today’s settlement price, which cleared above the February auction price by less than a dollar, reflects the ongoing downward trend in allowance prices and GGRF revenue seen by this market since February, 2024 when prices peaked at $41.76. In 2024, the May auction settled at $37.02 and generated $1.1 billion for the GGRF — over $330 million more than what’s expected from this auction. In 2025 alone, California lost out on more than $3 billion in cap-and-invest revenue as the rulemaking process dragged on. The prices we saw today are also still far lower than the price projections CARB used in their Initial Statement of Reasons, which estimated weighted average allowance prices of $68. Had allowance prices in this auction settled at that price, this auction would have raised over $1.8 billion in revenue for the GGRF.

CARB can and must fix this when they vote tomorrow.

Today’s results make the stakes of tomorrow’s Board vote impossible to ignore. By making their approval contingent on removing the MDI, CARB can strengthen this landmark program and permanently reduce emissions in line with our statutory 2030 goal while also shoring up critical climate and affordability revenue — in short, CARB can fulfill its duty to the law, to Californians, and to the climate.

EDF and many others will be at the Board meeting in person to give comments — if you’re interested in tuning in or want to share your thoughts, you can find more information here.