The California legislature passed a pair of bills reauthorizing the state's cap-and-trade program along with a spending plan for program revenue in the final hours of the legislative session Saturday.
The state Senate passed AB 1207, which would extend the cap-and-trade program to 2045, and the state Assembly then voted to advance the bill to Governor Gavin Newsom (D) for his consideration.
"California's cap-and-trade program has been successful at cost effectively reducing greenhouse gas emissions," Assembly member Jacqui Irwin (D), the bill's primary sponsor, said ahead of the Assembly vote. "The 'cap-and invest' program proposed in AB 1207 builds on that success and charts a clear course forward, while providing a roadmap for other states and countries to follow."
The Senate voted 29-6 with 5 members not voting and the Assembly voted 55-10 with 15 members not voting. Republicans in both chambers cast the only opposing votes.
The cap-and-trade program, which covers major sources of California's greenhouse gas emissions, including power plants and transportation fuel, requires a 40pc reduction from 1990 levels by the end of 2030. The California Air Resources Board (CARB) is considering setting a more-aggressive 2030 target of 48pc as part of a delayed rulemaking that could take effect in 2026.
State lawmakers presented the legislative package approved on Saturday as an ongoing commitment for California to fulfill its climate promises, even as the administration of President Donald Trump moves away from the climate initiatives of the previous administration.
"Talk is cheap, and this body is taking action," Senate president pro tempore Mike McGuire (D) said ahead of the vote.
The bill would make cap-and-trade program adjustments, including renaming the program to "cap-and-invest," and would direct CARB to address affordability. For example, it directs CARB to adjust the program's price containment reserve, or price ceiling, if it determines that is necessary to protect consumers from higher prices for energy and other affected goods, and it would set carbon offset usage for compliance to no more than 6pc starting next year through the end of the program.
SB 840, a separate bill in the climate package that the legislature approved on Saturday, updates how California spends the cap-and-trade auction revenue that goes to the state's Greenhouse Gas Reduction Fund (GGRF). The bill would direct percentages of the revenue into funds for specific purposes, including clean transportation, 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 bill also maintain $1bn/yr for the state's long-delayed high-speed rail project, a priority for Newsom in his cap-and-trade extension proposal from May.
The state Assembly passed SB 840 on a vote of 54-15 with 11 members not voting and the Senate passed the bill 28-6 with 6 members not voting. Republicans cast the opposing votes.
No time to spare
An extension deal that pleases no one has been a recurring phrase in the final days of the session for state lawmakers and advocacy groups.
The state Assembly, Senate and Newsom's administration reached a deal on the bills early Wednesday, the first time full language for either chamber's preferred extension approach or full GGRF expenditures appeared in print, following months of placeholder language bills moving through both chambers.
But the bills were required to be printed 72 hours before a vote could occur, pushing the final vote to Saturday and leaving lawmakers unable to amend either AB 1207 or SB 840, a move that frustrated many in the legislature. The state Senate Environmental Quality Committee met for an informational session on AB 1207 Thursday, where many committee members, like state senator Caroline Menjivar (D), expressed their disappointment at the closed-door negotiations to reach a final bill.
"I am frustrated that we did not have a say, the actual committee that is in charge of these kinds of bills had no say in this bill," Menjivar said.
It was a sentiment shared by Irwin, AB 1207's primary sponsor, whose amendment proposal last month to add extension language to AB 1207 was refused by the Senate.
The Senate did not release a public proposal for their preferred extension approach, an action that added difficulty for negotiations, according to state senator Catherine Blakespear (D), with members "unclear" on what they should prioritize during committee discussions on Thursday.
Despite the final agreement, many legislative members remain on the fence about the final language, along with stakeholders like the California Chamber of Commerce. The chamber removed support from the extension earlier this week with a group of other industry stakeholders over the lack of time for input.
"We have five years before cap-and-trade expires, and we should be taking a little bit more thoughtful time than to try and re-up right now to try and make it look like we are going to have an impact on the future for people," said Senator Kelly Seyarto (R) ahead of the vote for AB 1207.
State lawmakers and policy advocates have indicated this week they plan to continue pursuing cap-and-trade program changes in committee and floor remarks. Though it is unclear how much focus additional changes will get as the 2026 legislative session will be a midterm year when legislators historically focus on district-specific bills rather than statewide climate policy.
What's Next
Governor Gavin Newsom (D) has until 12 October to sign or veto AB 1207 and SB 840.
The next focal point is a pair of long-delayed rulemakings between CARB and Quebec's Environmental Ministry, which together operate a linked market known as the Western Climate Initiative (WCI). CARB indicated in March that it leaned toward lawmakers finishing the extension before it would advance any program amendments.
The lack of progress on the WCI amendments has bled into Washington's "cap-and-invest" program which looks to link with the larger joint carbon market. Washington's Department for Ecology has an in-progress rulemaking intended to smooth out any incompatibility with the WCI, but the state's regulators require more information from the larger market on their planned changes for further progress. The joint market has indicated plans to finish its own program changes before turning its attention to advancing linkage talks with Washington.
