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Senators press CARB on allowances, price collar and offsets; experts warn markets need certainty
Summary
Senators asked CARB about reducing allowances, protecting against price spikes and the role of offsets. Witnesses said a narrower price collar and early regulatory clarity would reduce revenue volatility and legal uncertainty for market participants.
SACRAMENTO — A central focus of the Senate hearing was the cap‑and‑trade market's design: how many allowances the state should issue, whether offsets should remain part of compliance, and how to prevent sharp price increases that would raise consumer costs.
CARB Chair Liane Randolph described the program's mechanics and safeguards including a price ceiling and other cost‑containment features, and reminded lawmakers the board is considering removing allowances to align the market with the 2022 Scoping Plan.
"For this program, we must keep in mind that it is a closed system," Randolph said, noting that "any changes to one feature will ripple across the system and impact the overall program."
Experts and analysts told senators that two related fixes would improve predictability: publish a draft Initial Statement of Reasons (ISOR) and narrow the spread between the price floor and ceiling (the "collar"). Helen Christian of the Legislative Analyst's Office said a narrower collar would tend to reduce revenue volatility. Researcher Danny Cullenward told the committee that market prices could move substantially under tighter caps, and that faster regulatory clarity would produce more stable outcomes for investors.
Offsets and enforcement: Senator questions repeatedly returned to offsets and the integrity of credited projects. CARB staff confirmed projects must comply with all applicable state and federal permits and that CARB has invalidated credits in cases where projects were out of compliance. CARB representatives said invalidated offsets used for compliance must be replaced by allowances or valid offsets.
Price scenarios and household impacts: The LAO highlighted scenario analysis that includes a high‑price example tied to the existing regulatory ceiling. Senators cautioned against citing a single high‑price scenario as the default outcome and pressed witnesses to make clear the scenario's assumptions, including whether prices would reach the regulatory ceiling and whether changes to free allowances or the cap would cause price increases.
No regulatory decisions were made at the hearing; several senators urged CARB and the administration to publish regulatory proposals quickly so markets and stakeholders can respond.
