Legislation to extend California's greenhouse gas (GHG) emissions cap-and-trade program remains on hold this week while state lawmakers are negotiating a plan behind closed doors.
Program stakeholders await the next sign of progress after state Assembly member Jacqui Irwin (D) confirmed last week that the state Senate refused amendments to her bill, AB 1207, that would have added language reauthorizing the program out to 2045. It is currently scheduled to sunset in 2030.
The lack of a clear path ahead of the 12 September deadline for passing a bill out of the legislature stems from a conflict pitting Senate Democrats against governor Gavin Newsom (D) and their Assembly counterparts, who appear to be largely in alignment over how they want to extend the program, a source close to negotiations said.
While the Senate's cap-and-trade working group has not released a formal extension proposal, it indicated earlier this year that it intended to pursue a "reform" minded approach. But the group has not since had further public discussions.
The main sticking points for the Senate group appear to be around the Assembly's proposals for cost-containment, increased carbon offset usage and retaining no-cost allowances for the oil and gas sector, a source privy to negotiations said.
For example, some in the Senate oppose the Assembly proposal to add an emissions containment reserve (ECR), which would remove allowances when auction clearance prices fall below a threshold.
Instead, they want to raise the auction price floor and lower the trigger price for price ceiling units, which the California Air Resources Board (CARB) sells for compliance needs in the event the program's allowance price-containment reserve pool is depleted, sources said. CARB set the price floor for this year at $25.87/metric tonne and the price ceiling at $94.92/t.
The Senate proposal potentially would limit the level of the price ceiling to twice that of the price floor.
But there are concerns that this would contradict the program's affordability measures and trajectory to its emissions-reduction targets. Price ceiling units are potentially unlimited, cost more and are not part of the annual cap.
While it is uncertain where lawmakers will fall on carbon offset use in the program, the Assembly and Newsom have been clear on where they stand on calls to remove oil and gas allowance allocations in discussions, particularly given the state's ongoing refinery woes, according to Ryan Schleeter, communications director of the Climate Center, a non-profit group.
"The Assembly and the governor's office have wanted to move past that," he said.
Racing the clock
Negotiations were ongoing as of Thursday, leaving the final path forward uncertain.
Irwin's office has indicated she may gut another bill, AB 710, and insert extension language. But it is unclear if that language will repeat the earlier proposal or reflect a compromise with the Senate.
The other potential extension vehicle, SB 840, is pending in the Assembly but still lacks relevant language. The Senate may hold off on amending the bill with its own proposal and instead wait to reach an agreement with the Assembly, which could happen as late as next week, a source close to the negotiations said.
Whichever bill ends up going forward, it must be in print at least 72 hours before any vote. This leaves a narrow but not impossible window, according to Schleeter. The legislature has a history of completing "monumental" tasks with little time left in a session.
Newsom's involvement could help motivate lawmakers. He has made the state's climate programs part of his campaign against the Trump administration in his final term as governor.
"I don't think he is going to back down from that, and when he wants to get something done, he is not so concerned with the rules of the process," Schleeter said.
A temporary ebb in political appetite for completing the extension after this year is still a possibility with the midterm elections approaching in 2026. This has historically led to legislative sessions focusing on home district issues, rather than sweeping state policies in election years.
If the extension does not pass this session, CARB could add some stability to the market by advancing its much-delayed rulemaking for the cap-and-trade program, according to Nick Roy, national and state energy policy research associate with Resources for the Future, a non-profit energy and environmental policy think tank.
"If CARB does move forward with rulemaking without reauthorization, then there could be ways to keep the market afloat even without that longer term certainty," he said.
