Climate 411

Despite lower revenue due to program uncertainty, a stronger, long-term Cap and Trade promises to strengthen investments in California

By Caroline Jones and Katelyn Roedner Sutter / Published: May 29, 2025

Results were released today for California’s second cap-and-trade auction of the year, and the first auction since Governor Newsom proposed extending California’s cap-and-trade program through 2045 as part of his May budget proposal. As California lawmakers consider the future of the cap-and-trade program, they face a pivotal opportunity to deliver real and lasting benefits to communities across the state. At stake is not only California’s continued leadership on climate, but also the potential to unlock major economic and affordability gains for Californians.

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Posted in California, Carbon Markets, Cities and states, Greenhouse Gas Emissions, Policy / Authors: , / Comments are closed

As the California legislature looks to reauthorize cap-and-trade, they cannot forget the strongest climate safeguard the state has: the cap itself

By Caroline Jones and Katelyn Roedner Sutter / Published: May 5, 2025

In the face of federal attacks on U.S. climate progress, Governor Newsom recently announced that California was “doubling down on cap-and-trade: one of our most effective tools to cut emissions and create good-paying jobs.”  And at the heart of that program is the emissions cap: the firm, declining limit on climate pollution that drives progress on emissions reductions across the state. 

With the cap-and-trade program up for reauthorization this year and the California Air Resources Board (CARB) evaluating important program updates, now is a crucial moment to revisit what matters most: the cap. 

What is the cap and why does it matter?

The cap is the foundation of California’s cap-and-trade program. It sets a binding, declining limit on greenhouse gas emissions from the state’s largest polluters, covering roughly 75% of statewide climate pollution. Each year, California issues a declining number of emissions allowances — each one representing one ton of carbon pollution — and the amount issued is limited to the total allowed under the state’s emissions cap. The allowances are either auctioned at quarterly auctions, or distributed to regulated entities to benefit ratepayers and insulate them from price impacts. Because the total number of allowances declines each year, overall emissions must also fall. The cap is what gives the cap-and-trade program its climate power. The built-in trajectory that the cap represents ensures steady, predictable progress toward California’s climate goals — as long as the cap is properly calibrated to achieve those goals. 

California’s emissions cap is designed to help achieve both near- and long-term climate targets. Under the state’s 2022 Scoping Plan, California is aiming to cut emissions 48% below 1990 levels by 2030, and at least 85% below 1990 levels by 2045. Hitting those targets requires consistent and meaningful progress. The design of the cap, and especially how quickly it declines, plays a key role in determining how much pollution is avoided in this critical decade. These cumulative emissions are incredibly important: every ton of pollution we avoid emitting today reduces the long-term buildup of pollution in the atmosphere, limiting warming and the damage of future climate impacts. 

Cap-and-trade is part of a broad suite of climate policies in California, including clean air standards, electrification efforts, and clean fuels. But while most policies are designed to incentivize reductions or reduce emissions from specific sectors or sources, the cap ensures that economy-wide emissions stay within the limit of the cap. That makes the cap a critical ‘insurance policy’ — even if other programs don’t deliver the level of emissions reductions they expected, the cap guarantees an upper bound on pollution. 

How can the cap be strengthened?

Lawmakers have the opportunity this year to reaffirm their commitment to ambitious, effective climate action by extending the cap-and-trade program. The cap is what guarantees that emissions go down, and reauthorization should reinforce that core principle. 

At the same time, CARB is evaluating near-term changes to the program through a rulemaking process. One of the most important choices on the table is how the cap will be structured until 2030. Encouragingly, CARB is considering options that would properly align the cap with emission reductions the 2022 Scoping Plan says are necessary. With reauthorization, lawmakers can ensure that this cornerstone program can keep delivering emissions reductions for Californians while generating billions of dollars in investments for climate resilience, environmental justice priorities and to help address affordability. Also, with the current rulemaking, CARB has the chance to make sure that these reductions are swift enough to avoid the worst impacts of climate change. 

These are both necessary and crucial steps — strengthening the cap through long-term reauthorization and the rulemaking will keep California on track for near-term climate success, and create a model for other states to follow. Because — when it comes to California’s climate future — it’s about the cap.

Posted in California, Carbon Markets, Cities and states, Energy, Greenhouse Gas Emissions, Policy / Authors: , / Comments are closed

Delay and uncertainty around California’s core pollution-cutting program is costing the state millions

By Caroline Jones and Katelyn Roedner Sutter / Published: February 26, 2025

Results were released today for California’s first cap-and-trade auction of 2025. Prices decreased from the November 2024 auction, reflecting continued uncertainty among market participants due to the lack of regulatory and legislative clarity. This uncertainty is costing California hundreds of millions of dollars in lost revenue for climate and environmental justice programs at a time when the state needs it most.

February auction results

  • All 51,466,028 current vintage allowances — emission allowances valid for compliance this year – offered for sale were purchased, resulting in the 18th consecutive sold out auction. This is 1,163,584 fewer allowances than were offered at the previous auction, as the number of offered allowances declines annually.
  • The current auction settled at a price of $29.27, $3.40 above the $25.87 price floor and $2.64 below the November 2024 settlement price of $31.91. Today’s settlement price follows a trend of lower settlement prices, similar to the prices seen in the February, May, and November auctions, which settled at $41.76, $37.02, and $31.91, respectively. The last time auction prices dipped below $30 was in February of 2023. 
  • All of the 6,847,750 future vintage allowances offered for sale were purchased. These allowances can be used for compliance beginning in 2028. This is 363,250 fewer future vintage allowances than were offered at the previous advance auction. 
  • Future vintage allowances settled at $28.00, $2.13 above the $25.87 price floor and $2.16 below the November settlement price of $30.16. 
  • This auction is expected to generate roughly $851 million for the Greenhouse Gas Reduction Fund. This is a notable drop from the peak revenue a year ago, when the February 2024 auction generated over $1.3 billion. 

What these results mean

First, it is important to understand that the market is functioning as designed. Despite fluctuating prices, the emissions cap remains intact and covered entities must comply with the program’s requirements. However, continued uncertainty surrounding the California Air Resources Board (CARB)’s rulemaking process and the state legislature’s timeline on program reauthorization are introducing unnecessary volatility and costing California critical revenue for climate and community investments.

Delays and uncertainty have a cost

This latest auction demonstrates the financial consequences of policy uncertainty. With CARB yet to finalize key decisions on pre-2030 allowance budgets and allocation, market participants lack the clarity needed to plan compliance strategies and make long-term investments in emissions reductions. The result? Auction prices that are lower than they might otherwise be, meaning California is leaving huge amounts of revenue on the table — funds that could have been used to invest in clean energy, wildfire prevention, and air quality improvements. 

This month’s report from the Legislative Analyst’s Office highlights that the state may need to revise its Greenhouse Gas Reduction Fund expenditure plan if prices continue to trend lower than forecasted, potentially impacting both the 2024-25 and the 2025-26 budgets. Much of the revenue raised through these quarterly auctions is already committed to be spent on important programs statewide and the loss of revenue due to uncertainty could have very real impacts.   

The lack of clarity also dampens the incentives for businesses to invest in emissions reductions; investments that often happen over years. If companies aren’t sure what the cap-and-trade market will look like in the next decade, they’re less likely to take proactive steps to decarbonize. Similarly, investors in clean energy and climate technology need confidence in long-term market stability to support new projects. 

The good news: this is fixable

California has an opportunity to strengthen market confidence and ensure the cap-and-trade program continues driving ambitious emissions reductions while raising urgently needed funding for climate resilience and community investments. That starts with swift action on two fronts:

  1. CARB must finalize and implement its rulemaking to ensure the cap-and-trade program is on track to deliver the necessary reductions by 2030. This will provide clear market signals for investors, allow covered entities to plan their compliance strategies, and prevent further unnecessary volatility. CARB should release the Initial Statement of Reasons as soon as possible so that changes can go into effect in the 2026 allowance budget year. 
  2. The Legislature must act this year to reauthorize the program at least through 2045. This will enable long-term investments and planning in emissions abatement, provide clarity about potential program reforms to increase climate ambition and equity outcomes, and send a strong message that cap-and-trade will remain a cornerstone of California’s strategy to meet its 2045 carbon neutrality goal.

Market fluctuations like those seen in this auction are a symptom of uncertainty. By committing to ambitious climate action through regulatory and legislative pathways, and reinforcing the essential role of cap-and-trade in delivering emission reductions, California can protect its climate leadership and generate the revenue needed for critical investments.

Posted in California, Carbon Markets, Cities and states, Greenhouse Gas Emissions, News, Policy / Authors: , / Comments are closed

California auction results underscore need for ambition and certainty in cap-and-trade market

By Caroline Jones and Katelyn Roedner Sutter / Published: November 27, 2024

Photo: Pexels

Results were released today for California’s fourth cap-and-trade auction of the year, which was administered last week by the California Air Resources Board (CARB). Auction prices in the joint California-Quebec market (known as the Western Climate Initiative, or WCI) have trended downward this year, reflecting growing uncertainty among market participants about how best to plan their compliance strategies in the absence of regulatory or legislative clarity. A clear commitment to ambitious reductions in climate pollution and long-term market stability are urgently needed.

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Posted in California, Carbon Markets, Cities and states, Economics, Greenhouse Gas Emissions, News, Policy / Authors: , / Comments are closed

Growing costs of climate emergency demand ambitious policy — not business as usual

By Katelyn Roedner Sutter / Published: October 31, 2024

 

Photo: Pexels

Fear, uncertainty and doubt are frequently-used tools to undermine environmental policy. For decades, polluters and their sympathizers rejected the existence of climate change. Now, they say climate action costs too much. This recurring argument ignores the costs working Californians are already facing from a changing climate and the clear benefits of California’s climate policy in order to justify “business as usual” for the biggest polluters.

Californians rightly want to understand fluctuations in day-to-day energy prices, but debates over these issues cannot conveniently ignore the significant costs of climate inaction, its impact on our cost of living and its disproportionate impact on families with low incomes.

  • A national report ranked California the worst state for natural disasters fueled by a changing climate, with expected annual losses totaling more than $16 billion statewide
  • Home insurance is harder and more expensive to get. Seven of California’s largest property insurers, State Farm, Allstate, Farmers, USAA, Travelers, Nationwide and Chubb recently limited new homeowners policies in the Golden State — raising questions about the stability of the California home insurance market.
  • During an 11-year period, exposure to wildfire smoke caused more than 50,000 deaths in California and more than $400 billion in economic impacts.
  • During seven extreme heat events over the past decade, California experienced $7.7 billion in losses.

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Posted in California, Carbon Markets / Authors: / Comments are closed

Top 10 Wins for the 2022 California Legislative Session

By Katelyn Roedner Sutter / Published: October 4, 2022

Photo of the California Capitol Building

In the intense August heat of Sacramento, the California Legislature wrapped another year of policymaking. The second year of the 2021-2022 legislative session included some significant wins on long-term climate ambition, environmental justice, and clean transportation investments, even as the state fell short in drought response and near-term climate goals. These achievements, coupled with the new game-changing federal climate law, will allow the Golden State to supercharge clean economic growth, drive down climate pollution, and support healthier and more resilient communities.

Here are the top 10 wins (and a few losses) from this year’s legislative session, starting with Governor Gavin Newsom’s climate priorities that were released in August. Four out of those five priorities made it across the finish line:

1. The California Climate Crisis Act

With the passage of this bill (AB 1279, Muratsuchi), California has locked in a pathway for it to reach net-zero greenhouse gas emissions no later than 2045. This enables the legislature, communities and businesses to start long-term planning, with certainty, for a safer future today. Critically, this bill also requires California to slash emissions by 85% — ensuring the state uses solutions at our fingertips now to sharply cut pollution from industrial facilities, vehicles, power plants and more, even as the state starts to build out necessary carbon removal strategies.

2. A framework for carbon capture with community protections

Carbon capture is likely to be a key part of the suite of climate solutions. But solutions meant to reduce emissions should not harm local air quality or public health, especially in communities historically overburdened by pollution. With the passage of SB 905 (Caballero & Skinner), the California legislature has taken a significant step toward responsible deployment of carbon capture technology with a framework that includes essential community protections and environmental integrity provisions.

3. Health and safety setbacks around oil wells

Governor Newsom directed the California Geologic Energy Management Division to establish a regulation to create a public health and safety setback around oil wells in 2021, and with this legislation (SB 1137, Gonzalez & Limon), the policy is now enshrined in law. This long-overdue protection aims to reduce oil and gas pollution harming communities of color and people living below the poverty line, who disproportionately bear the brunt of these health impacts. Thanks to tireless advocacy from California’s environmental justice organizations, state leaders have finally taken decisive action to protect public health.

4. Pathway to 100% zero-carbon electricity by 2045

California has an existing goal to achieve 100% renewable or zero-carbon electricity by 2045. This session, the state has codified interim targets (SB 1020, Laird) to ensure we are moving swiftly and consistently on a path toward a fully clean electricity sector on the timeline the climate demands. The bill sets targets for California to achieve 90% renewable or zero-carbon electricity by 2035 and 95% by 2040 while on the way to the existing 2045 goal.

Legislators also delivered important wins above and beyond the Governor’s climate package:

5. Major investments in zero-emission cars and trucks

Breathe a little easier: The state is making big investments in zero-emission vehicles (ZEVs), just as the federal government is doing through the Inflation Reduction Act. Gov. Newsom, the legislature and clean transportation advocates did an amazing job at securing $10 billion of ZEV funding. This includes money for both cars and medium- and heavy-duty trucks, with an eye towards public health and equity. In 2021, EDF worked with Senator Leyva to pass SB 372, which enabled CARB to offer innovative ZEV financing, but it needed amendments to enable CARB to work with a greater number of experts, and those amendments were finalized in 2022. We expect this legislation to have a growing impact on truck financing over the next few years.

6. Support for community solar and storage

This bill (AB 2316, Ward) allows any customer to receive benefits from community-based clean energy facilities regardless of whether they own a home, empowering customers to save on their energy bills, invest directly in their local community, and help fight climate change. The bill requires community solar projects to include energy storage, which creates a clean power reserve when the sun sets. That ability to store power will also help every Californian by improving the resiliency of our power grid and reducing the risk of blackouts. Moreover, this combination of solar and storage will reduce California’s reliance on old and dirty power plants.

7. Cleaning up the backlog of essential electricity transmission projects

The state passed a suite of major transmission reform bills to help make the California electric grid both cleaner and more reliable. The state continues to face a major backlog and certain smart reforms were enacted, including two key bills (SB 887, Becker) (SB 1174, Hertzberg) that will make new transmission come online in a responsible and more timely manner.

8. Achieving net-zero greenhouse gas emissions from state agency operations

While California’s leaders codified an economy-wide net-zero goal, the legislature also directed our state government agencies to start planning for how to achieve net-zero greenhouse gas emissions by 2035 — or as soon as possible thereafter — from their own operations. This means decarbonizing state buildings and transitioning state vehicle fleets to ZEVs and more. This planning goal in Senator Becker’s SB 1203 is a full ten years ahead of the economy-wide goal, meaning the government of California itself is going to help forge the path to a decarbonized economy.

9. $40 million for the Multi-Benefit Land Repurposing Program

With California’s ongoing drought, some agricultural land will necessarily have to go out of production, which could have an array of impacts if not managed strategically. Funding from the Multi-Benefit Land Repurposing Program at the Department of Conservation helps growers and communities an opportunity to repurpose these lands into new beneficial uses that require little to no water, including creation and restoration of habitat, multi-benefit groundwater recharge and low-impact solar. Importantly, benefits to disadvantaged communities are prioritized. While the $40 million investment is far short of the $500 million proposed by the Senate, which was supported by EDF and our allies, we are confident the significant demand for this program (as evidenced by the $111 million in requests in the first round of grant applications for which there was only $50M available) and the myriad benefits it provides growers and communities will support greater investment in the next year.

10. Expanding the universe of support for zero-emission trucks

Gov. Newsom also recently signed bills that include extending sales tax exemptions for transit buses (AB 2622, Mullin), creating of a ZEV Market Development Office and a ZEV Equity Advocate (SB 1251, Gonzalez), accelerating deployment of ZEVs in the state fleet (SB 1010, Skinner), extending the Carl Moyer funding program (AB 2836, Garcia) and providing continued support for good quality infrastructure reliability for ZEVs (AB 2061, Ting).

While the $10 billion zero-emission budget and each of these transportation bills is important in their own right, they contribute to the universe of support for the Air Resource Board giving direction for a strong Advanced Clean Fleets (ACF) rule in October, and will collectively greatly reduce air and climate pollution while the ACF saves California billions of dollars. Zero-emission trucks truly are a win-win.

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While this was a big year for meaningful environmental action in California, a few key proposals fell short, including the last bill in the Governor’s climate package (AB 2133, Quirk). This bill accelerated California’s 2030 economy-wide greenhouse gas reduction goal from 40% below the 1990 level to 55%. This would have catalyzed an important increase in near-term ambition — which is key for averting the worst impacts of climate change — but fell just short of the needed votes in the Assembly.

Passing this essential legislation is a big step forward, but now California needs to implement these measures swiftly to reduce emissions, increase resilience and ensure equitable outcomes, especially for those communities at greatest risk of climate change. With the adoption of these measures, California continues to provide a leading model for action for other states.

Posted in California, Cars and Pollution, Cities and states, Energy, Policy / Comments are closed