California is updating its Cap-and-Trade Regulation to reflect the increased ambition of the state’s 2022 Scoping Plan (see InfluenceMap’s policy tracker for more details), which raised the ambition of the state’s 2030 emissions reduction target from 40% to at least 48% below 1990 levels.
California’s Cap-and-Trade Program took effect in 2012 and was linked with Québec’s own carbon market in 2014. The program targets significant emitters of greenhouse gases (GHGs), which includes power plants, industrial facilities, and fuel distributors. To remain compliant under the policy, emitters may reduce their GHGs, purchase allowances, and/or rely on offsets to cover their emissions. With each allowance being equal to one metric ton of carbon dioxide equivalent, the cap-and-trade allowances are increasingly stringent over time, such that the cap decreases and fewer allowances are allocated each year. For the purpose of addressing cost and emissions leakage concerns, free allowances – allowances that are given out by the state and that certain entities do not need to purchase – are granted to select utilities and industrial facilities.
Although the California Air Resources Board (CARB) has yet to issue a formal rulemaking, its October 2024 notice proposes to raise the stringency of the program by lowering the amount of allowances and increasing the cost of compliance. Among other changes, the notice states that the scope of the expected amendments will include the removal of up to 265 million allowances in aggregate from the 2026-2045 annual budgets, updates to the free allowance allocations, and an increase in the price of the cost-containment provisions to better align with the federal government’s updated social cost of carbon. During the workshop presentations, CARB presented scenarios with emissions reduction targets of 48% and 55% by 2030, offering a range of ambition.
It is unclear if the program will link with other existing emissions trading schemes, however in March 2024, the governments of California, Washington, and Québec announced their official interest in creating a shared carbon market. In May 2025, Governor Newsom proposed a budget that would extend the Cap-and-Trade Program to 2045 and be rebranded as a “Cap-and-Invest” program.
Following the finalization of California’s 2022 climate plan, CARB held a series of workshops and meetings to receive input on potential amendments to the Cap-and-Trade program. Although CARB originally expected to propose a formal rulemaking by the end of 2024, its website states that it plans to move through a regulatory package sometime in 2025.
LIVE – Undergoing revisions, formal proposal expected in 2025.
LIVE – Undergoing revisions, formal proposal expected in 2025.
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