Updates with additional bill in ninth paragraph.
California lawmakers will vote this weekend on extending the state's cap-and-trade program through 2045 after reaching a deal on legislation that includes changes to address affordability for consumers.
Draft amendments to AB 1207, the bill being used to extend the program, were circulated among lawmakers and went into print earlier Wednesday morning, according to groups involved in discussions. State lawmakers suspended a rule that set a Tuesday deadline to amend the bill so it could be voted on by 12 September. The legislature will vote on the changes on 13 September, a Saturday, according to the office of Assembly member Jacqui Irwin (D), the sponsor of AB 1207 and one of the leaders of the extension negotiations.
The market traded higher on the news Wednesday, with December 2025 allowances on Ice rising nearly 9pc to as high as $31/metric tonne (t) early in the afternoon.
The amendments largely would leave it to the California Air Resources Board (CARB), which oversees the cap-and-trade program, to enact certain changes with a focus on affordability.
For example, the amendments would direct CARB to adjust the program's price containment reserve or price ceiling if it determines that is necessary to protect consumers. The proposal also would direct the agency to develop new carbon offset protocols, including for CO2 removal. In addition, starting in 2031, the agency would have to shift the allocation of allowances to electricity distribution utilities and away from natural gas companies. It also would have to distribute industrial allowances in a way that "minimizes emissions leakage," or increased emissions resulting from sources moving to places without emissions limits or rules.
The bill does not include language to reduce allowances given to the state's refiners, an issue that had split lawmakers during negotiations. The planned shutdown of two California refineries has raised concerns about the potential costs to residents.
Other changes include allowing electric companies that are not covered by the program to receive ratepayer assistance and requiring utilities to give 5pc/yr of their allowance revenue to the state that would go into a "transmission accelerator fund" from July 2026 to July 2031.
The amendments would allow covered entities to use offsets for up to 6pc of their compliance obligations from 2026-2045, requiring at least half of those credits come from projects that provide "direct environmental benefits to the state".
In addition, CARB would have to reduce its annual emissions budget by one metric tonne for every offset used for compliance during the prior year.
A separate bill, SB 840, which also will go to a vote this weekend, would require CARB by the end of next year to develop recommendations for the use of offsets. In addition, it would require the agency to update all existing offset protocols by the end of 2028 and then review them every five years starting no later than 1 January 2034.
The bill also would update how the state spends the cap-and-trade auction revenue that goes to the state's Greenhouse Gas Reduction Fund. It says it is the intent of lawmakers to direct percentages of the revenue into funds for specific purposes, including clean transportation, housing, wildfire prevention, agriculture and clean energy starting with the 2026-27 fiscal year. The funds would replace the continuous appropriations of program revenue that lawmakers had previously established.
The draft language for AB 1207 also would create a "California Climate Mitigation Fund" that would hold revenue generated from the sale of additional allowances from the program's price containment reserve or its price ceiling units. The money would be used to provide direct ratepayer rebates and incentivize the transition to zero-emissions vehicles as well as energy efficient housing.
But the draft amendments do not include language for an emissions containment reserve (ECR), something previously sought by members of the Assembly. It is a mechanism that would remove allowances from the program when auction clearance prices fall below a threshold. The issue of including an ECR versus raising the program's price floor had been a significant point of contention among lawmakers during bill negotiations.
Uncertainty over the fate of the reauthorization and extension of California's cap-and-trade program reached its peak on Tuesday after industry groups a day earlier pulled their support for passing an extension during the current session. That left market participants on edge and resulted in volatility.
Argus on Tuesday assessed prompt-month and December 2025 contracts at $28.06/t and $28.45/t, respectively.
