California Legislature Extends Cap-and-Trade Program Through 2045, Sends Bill to Governor

California lawmakers on Saturday approved legislation to reauthorize the state's cap-and-trade emissions program through 2045 and sent the measure to Gov. Gavin Newsom, a key ally who has framed the program as central to meeting the state's climate targets and countering federal rollbacks.

The package would extend a program that sets a declining limit on greenhouse gas emissions from major polluters and requires companies to reduce emissions, purchase allowances or fund offset projects. Lawmakers said the redesign — which would retitle the program “cap and invest” to emphasize its role in financing climate and community projects — better aligns the declining cap with state climate goals and could boost carbon-removal efforts.

The Legislature also approved a companion bill committing specific annual funding from program revenues, including $1 billion for the long-stalled high-speed rail project, $800 million for an affordable housing program, $250 million for community air protection, and $1 billion to be allocated each year by the Legislature. Proponents say the dedicated revenue stream will provide certainty to businesses and communities that rely on consistent funding for climate mitigation and resilience projects.

Gov. Newsom, who has championed the program, said after striking the deal this week that the reforms will reduce electric bills, stabilize gasoline supply and reduce toxic air pollution while advancing a transition to a clean-economy job market. Assembly Speaker Robert Rivas described cap and trade as “the cornerstone of our climate strategy.” The program was authorized by then-Gov. Arnold Schwarzenegger in 2006 and launched in 2013.

Supporters argued that reauthorization was urgent. A report from Clean and Prosperous California, a pro-program coalition of economists and lawyers, said market uncertainty had cost the state roughly $3.6 billion in revenues over the past 18 months. Energy regulators have warned of potential supply strains after planned closures of two oil refineries that together account for about 18% of the state's refining capacity.

The program has critics on multiple fronts. Environmental justice advocates said the bill does not go far enough to protect low-income communities and neighborhoods of color that are disproportionately exposed to pollution from nearby refineries and industrial facilities. “This really continues to allow big oil to reduce their emissions on paper instead of in real life,” said Asha Sharma, state policy manager at the Leadership Counsel for Justice and Accountability.

Republican lawmakers and business groups warned the measure will raise costs for residents. “Cap and trade has become cap and tax,” said Assembly Republican Leader James Gallagher. An advisory committee report in February estimated the program has added roughly 26 cents to a gallon of gasoline and has had a limited effect on electricity prices, noting that California's grid is relatively less carbon-intensive.

Some lawmakers and lobbyists criticized the pace and process by which the deal was advanced. Ben Golombek, executive vice president of the California Chamber of Commerce, said the Legislature should have taken more time to vet the changes. Democratic state Sen. Caroline Menjivar complained that members were expected to vote on complex legislation with limited opportunity for amendments, though she ultimately voted to move the bill forward out of committee.

The cap-and-invest bills were part of a broader legislative package aimed at advancing the state's energy transition and easing costs for consumers. Related measures would speed permitting for oil production in Kern County — a response cited by proponents to looming refinery closures and by critics as a threat to local air quality — increase air monitoring in overburdened areas, codify an environmental-justice bureau created in 2018, refill a wildfire liability fund for utility-sparked blazes, and allow the state grid operator to join a regional power market to improve reliability and reduce costs.

The bills now await action from Gov. Newsom. If signed, the extensions and accompanying measures would reshape how California finances climate programs and navigates near-term energy and affordability concerns while attempting to stay on track with its long-term carbon reduction mandates.