California environmental regulators approved modifications to a major climate initiative on Friday, despite widespread opposition from green advocacy groups who argued the revisions would diminish the program’s effectiveness and hamper efforts to reduce emissions that contribute to global warming.
Oil industry representatives, however, contended that the program would continue to create obstacles for reducing energy costs in a state known for high prices.
Democratic Gov. Gavin Newsom and state legislators renewed authorization for California’s cap-and-trade initiative last year, extending it through 2045. This system establishes a decreasing ceiling on total greenhouse gas emissions from large polluting entities throughout the state. Businesses must either cut their pollution output, purchase permits from the government or other companies, or support projects designed to offset their emissions. Comparable systems operate throughout Europe and Asia, with California’s program connected to similar initiatives in Quebec, Canada and Washington state.
The modifications approved Friday will provide companies — primarily manufacturers and oil refiners — with approximately $3.5 billion in free permits if they construct projects that help decrease their emissions. State officials explained this approach aims to prevent major businesses from relocating outside California, though environmental advocates argue it contradicts the program’s fundamental purpose of encouraging companies to reduce pollution to minimize permit costs. They also contend it will reduce funding available for climate change mitigation and reduction programs.
California Air Resources Board Chair Lauren Sanchez, who previously served as the governor’s top climate adviser, stated the modifications will help California maintain its position as a climate leader.
“Moving forward shows that we can be responsive to affordability concerns, new legislative direction, while also setting a clear signal for Californians, other states and global partners that we remain committed to driving long-term investments in clean energy jobs and reducing pollution in communities,” she said.
State law mandates California reduce its planet-warming emissions by 40% and 85% below 1990 levels by 2030 and 2045, respectively. Program supporters believe cap and trade will help achieve these targets.
The governor signed legislation designed to better align the decreasing emissions ceiling with state climate objectives, designate program revenue for various climate, housing and transit initiatives, and potentially enhance carbon-removal projects. The legislation also renamed the program “cap and invest” to highlight its funding of climate initiatives.
However, achieving these objectives has generated months of air board discussions and intensive lobbying by both environmental organizations and the oil industry. An original proposal primarily focused on aligning the program with last year’s legislation, but was modified to emphasize reducing program costs.
California officials have encountered growing pressure to prioritize affordability in climate policy development after two oil refineries announced closure plans in recent years. The Democratic-controlled state has also confronted federal challenges to its climate agenda, including legislation Republican President Donald Trump signed last year blocking a pioneering rule prohibiting new gas-powered car sales by 2035.
The newly approved changes also boost funding from permit sales by $2 billion from 2027 through 2030 for a program offering utility bill credits to Californians and designate approximately $800 million to help cap-and-trade participating businesses limit program costs for residents.
Previously, roughly $4 billion the state collected annually from permit sales funded climate change mitigation, affordable housing and transportation projects through the Greenhouse Gas Reduction Fund.
The governor and state lawmakers determine which programs receive fund money, and last year they agreed to provide $1 billion annually for the state’s delayed high-speed rail project.
The modifications will likely reduce annual fund revenues by half, according to the nonpartisan Legislative Analyst’s Office. This reduction stems largely from the new incentive program for manufacturers and refiners, said Danny Cullenward, a climate economist who opposes the changes, though board staff disputes this assessment.
This week’s regulatory deliberations extended into a second day following extensive public commentary where climate advocates, legal experts and fossil fuel industry leaders discussed the rules’ effects on pollution and consumer costs, with many requesting the board postpone its vote to better align regulations with state priorities.
Environmental groups, Democratic lawmakers and other critics argue the changes impede state efforts to reduce planet-warming emissions. Cullenward stated the new manufacturer and refiner incentive program lacks testing and adequate safeguards to prevent misuse.
“The state is not on track for its climate goals,” he said at a media briefing Wednesday. “Cutting our climate funding does not help address consumer cost concerns, and it doesn’t accelerate emission reductions.”
The board agreed Friday to postpone issuing permits from the new incentive program until the agency’s executive officer reviews the program and reports back with potential modifications.
The Greenhouse Gas Reduction Fund reductions will severely impact diverse programs serving communities statewide, said Michelle Pariset, director of legislative affairs for social justice law firm Public Advocates.
“These are investments that determine whether a student can afford to take transit to school, whether a senior can get to a doctor’s appointment, whether a family can live near reliable transportation instead of enduring long commutes and higher costs,” Pariset said at the Wednesday briefing.
Jodie Muller, president and CEO of the Western States Petroleum Association, said the updates represent progress but inadequately address future energy affordability concerns.
“California refineries need long-term certainty to make the investments that keep energy reliable and affordable for consumers –- and right now, that certainty stops at 2030,” she said in a statement.
The changes will increase California’s dependence on oil imports to satisfy energy requirements, said Rock Zierman, CEO of the California Independent Petroleum Association.
“That means high GHG emissions, fewer jobs, more expensive gasoline, and lower tax revenue for schools, police, fire, and parks,” Zierman said in a statement, using an acronym for greenhouse gas.
