California lawmakers rejected Governor Gavin Newsom's (D) proposal to extend the state's cap-and-trade program through the 2025-26 budget package on Monday, pushing back any final resolution of the carbon market's future to later in the session.
Lawmakers instead want to extend the California Air Resources Board's (CARB) authority to run a market-based system after 2030 through the policy bill process, rather than use a budget trailer bill proposed by Newsom as part of his revised 2025-26 budget proposal, according to a budget agreement between the state Senate and Assembly.
Newsom floated a "clean" reauthorization of the state's cap-and-trade program that would extend the program out to 2045 with no substantive changes to its mechanics outside of outside of adjusting expenditures from the Greenhouse Gas Reduction Fund (GGRF) to support the state's high-speed rail project and wildfire operations. The fund is where the state stores cap-and-trade auction revenue.
But state budget writers appeared cool to the governor's proposal in hearings last month, given the time needed for the legislature's ongoing discussions around incorporating affordability measures and a new revenue spending plan as part of any program extension.
State representative Jacqui Irwin (D) and state senator Monique Limón (D) are leading reauthorization discussions in their respective chambers, with Limón chosen on Monday to assume leadership of the Senate.
Two bills, SB 840 and AB 1207, remain positioned as likely vehicles to extend the program for lawmakers, though neither currently has reauthorization language.
The legislature has until 12 September to pass bills, though it will break over 19 July-17 August for its summer recess, leaving a minute possibility that lawmakers could get a reauthorization bill out before the program's 20 August allowance auction.
The joint budget agreement would reduce or delay Newsom's GGRF fund changes, with the Department of Forestry and Fire Protection receiving $1bn split evenly across the upcoming two fiscal years rather than $1.5bn proposed for the upcoming fiscal year, which would have grown to $1.9bn by the 2028-29 budget.
State budget writers have also deferred the governor's other request to set a minimum appropriation of $1bn/yr for the state's high-speed rail.
Further GGRF appropriations will come in later bills, according to the Assembly report.
CARB is also set to receive funds for an expansion of its legal department to defend the state's climate policies and programs "in response to increased federal legal challenges."
The move comes after the Trump administration issued an executive order in April alleging state "overreach" around climate and clean energy programs and policy, with a specific mentions of California's cap-and-trade program.
Both chambers have scheduled hearings on the budget agreement over the coming days, and a final floor vote is expected to take place later in the week. The legislature has until 15 June to pass the state's budget.
