THEMARICOPAMOD.COM / WEATHER & ENVIRONMENT

California's failing cap-and-trade program leaves state in $3bn hole

The program, designed to reduce greenhouse gas emissions, has suffered a significant drop.

PUBLISHED 5 HOURS AGO

The report cites legislative uncertainty about the program’s future as a key reason for the subdued auction performance.

Sacramento, CALIFORNIA: California may have lost up to $3 billion in potential revenue from its landmark cap-and-trade program over the past year, according to a new report from Clean and Prosperous California.

The program, designed to reduce greenhouse gas emissions by setting a cap on allowable pollution and issuing tradable permits, has suffered from weak auction results tied to a significant drop in “allowance prices.”

Allowance prices, which reflect the cost for companies to emit one metric ton of carbon dioxide, have fallen from a record $42 per ton to around $26 per ton this year. This decline translates to fewer funds generated through auctions, which are crucial for financing clean energy projects and community investments.

Clayton Munnings, executive director of Clean and Prosperous California, highlighted that “these funds would have otherwise been directly invested into communities and used to lower utility bills for ratepayers.”

California's emissions have steadily declined from about 480 million metric tons of CO2 equivalent in 2005 to around 330 million metric tons in 2024.

The report cites legislative uncertainty about the program’s future as a key reason for the subdued auction performance. Without urgent action by the California legislature to extend the program beyond its current 2030 deadline and renewed regulatory efforts to reduce permit availability, the state risks continuing to lose hundreds of millions in revenue each quarter.

Restoring auction revenues would not only support California’s climate goals, but also help mitigate potential setbacks from recent federal legislation, which Governor Gavin Newsom warns could cut wildfire management services and eliminate green vehicle incentives.

The report calls for a swift legislative extension and regulatory tightening to cut permit supply, essential steps for California to stay on track for its 2045 carbon neutrality target.

California’s Cap-and-Trade Program

California’s cap-and-trade program, launched in 2013, is a cornerstone of the state’s climate policy. It sets a declining limit—or cap—on total greenhouse gas emissions from major polluters, including power plants, industrial facilities, and fuel distributors.

Companies must hold enough emission allowances to cover their pollution; those who reduce emissions below their allowances can sell surplus permits to others, creating a market-driven incentive to cut emissions.

The program covers about 85% of the state’s emissions and has raised billions for investments in renewable energy, public transit, energy efficiency, and disadvantaged communities disproportionately affected by pollution. Funds from auctions have helped subsidize electric vehicles, support wildfire prevention, and expand clean energy infrastructure.

Cap-and-trade operates alongside California’s other climate initiatives, such as renewable portfolio standards and vehicle emissions regulations, forming an integrated strategy to reduce emissions by 40% below 1990 levels by 2030.