Legislators, CARB and experts debate cap-and-trade reauthorization, auction revenue drop and use of proceeds to address affordability

The Joint Legislative Committee on Climate Change Policies held its first 2025 hearing on cap‑and‑trade and affordability, with California Air Resources Board officials explaining the program's design and advocates, utilities and independent experts pressing competing priorities for reauthorization.

California Air Resources Board Chair Lianne Randolph told the committee the board will “defend our clean air and climate protection programs” and argued the state must balance ambition with affordability as it considers changes to the program. Dr. Steven Cliff, CARB's executive officer, said the program currently covers about 80% of the state's greenhouse‑gas emissions and has generated more than $31 billion for the Greenhouse Gas Reduction Fund (GGRF) since its start.

The hearing focused on three linked questions: whether and how the Legislature should extend the cap‑and‑trade program beyond the current 2030 planning horizon, what adjustments to allowances and offset rules would mean for market prices, and how auction proceeds should be used to blunt consumer costs and support frontline communities.

Why it matters

CARB said cap‑and‑trade has been one of the state’s most cost‑effective tools for cutting emissions while producing revenue for climate investments. Randolph noted the program has helped finance efficiency, transit and community projects and that California climate investments have exceeded statutory environmental‑justice targets. But she and other witnesses said recent auction receipts have fallen: CARB reported the most recent auction produced about $850 million, a level the agency described as among the lowest in recent auctions and attributed in part to regulatory and market uncertainty.

What CARB told the committee

Dr. Cliff outlined the program’s core features — a statewide declining cap, quarterly auctions, banking, limited offsets and a mix of free allocations and auctioned allowances. He said auction proceeds have funded more than half a million projects statewide, and that about $13 billion of allowances’ value has been returned to residential ratepayers as the California Climate Credit. CARB staff told the committee the board has run public workshops on regulatory changes to align the program with the state’s statutory targets and the 2022 Scoping Plan, and is evaluating options that include removing allowances to meet a tighter 2030 target.

Independent analysis and expert panels

Helen Kirsten of the Legislative Analyst’s Office told the committee cap‑and‑trade likely has only modest impacts on electricity and natural gas bills because utilities receive allocations that CARB and the IOUs use to produce the visible climate credit, but that the program contributes more noticeably to fuel prices (about 25–26¢ per gallon in LAO estimates). Meredith Fowlie, chair of the Independent Emissions Market Advisory Committee, emphasized that carbon pricing coordinates least‑cost abatement across thousands of sources and that capped markets can be more cost‑effective than prescriptive mandates — while also acknowledging the political difficulty of visible price signals.

Michael Wara of Stanford said the most politically important choice is how the state uses auction revenue: “what we do with the revenues is the most important thing to ensuring that we have a politically sustainable cap and trade program moving forward,” he testified, urging the Legislature to prioritize rebates and targeted investments that lower bills and remove barriers to electrification.

Key policy trade‑offs discussed

- Caps and allowance supply: CARB described several options discussed in public workshops — a technical inventory adjustment of roughly 110 million allowances, a larger removal of about 265 million allowances to align with a 48% 2030 target, or a middle path near 190 million allowances. Staff said the larger reductions would raise allowance prices and compliance costs but that the overall macroeconomic impacts were not expected to be proportionally large.

- Offsets and program design: CARB staff explained offsets remain a limited cost‑containment feature under the state’s design; California initially removed allowances at program start to create space for offsets rather than removing allowances when offsets are used, as some other jurisdictions do. The program currently allows offsets up to 4% of compliance (rising to 6% in 2025), and CARB said half of those offsets must provide direct environmental benefits in California.

- Free allocations and leakage protection: CARB staff defended free allowances for trade‑exposed industries as a measure to guard against leakage (production moving out of state) and to protect jobs. Staff said roughly 15% of allowances have been allocated to industry over the past decade, and that allocations have been used to blunt compliance cost pass‑through to consumers.

How auction revenue could address affordability

Witnesses offered several tools legislators could use to address affordability without abandoning the cap. Options mentioned included: raising the utility allocations to generate larger, more visible bill credits; directing a greater share of GGRF revenue to targeted rebates for low‑ and moderate‑income households; using GGRF to buy down the cost of critical electric system investments so they are less costly in rate base; and paying for adaptation and wildfire mitigation measures that address the root of rising insurance and reliability costs.

Experts and stakeholders emphasized trade‑offs: allocating more allowances to utilities or industry reduces GGRF proceeds for state programs; using GGRF for rate relief reduces resources for other climate investments. CARB and independent analysts repeatedly urged better public communication so Californians can see the benefits tied to allowances and auction proceeds.

Environmental justice and public comment

Environmental‑justice representatives and community groups testified that the program must do more for frontline communities. Katie Valenzuela of the Center on Race Poverty and the Environment urged the Legislature to “stop giving industry a free pass, and to really start looking at how we collect more of that revenue to invest in our communities.” The Air Resources Board’s community programs were defended by CARB staff as having directed large shares of funding to disadvantaged communities, but speakers said allocation decisions and program design must prioritize local benefits and transparency.

Other topics raised

Panels and public commenters also addressed carbon capture and removal, nature‑based offsets and the role of tribal projects; some speakers urged using a portion of auction proceeds to scale nature‑based solutions and habitat investments. Wildfire mitigation, home hardening and the high cost of utility investments to reduce ignition risk were discussed as drivers of rising electricity bills and insurance costs; several witnesses suggested reallocating some investments toward fuels reduction, defensible‑space and community resilience where those measures can deliver lower cost outcomes for public safety.

What was decided or directed

No formal votes or legislative actions occurred at the hearing. CARB staff said they will continue public workshops and pre‑rulemaking on regulatory adjustments and that they expect to post supporting materials and analyses, including leakage studies and related reports, later in the year. The Legislative Analyst’s Office and other independent bodies offered to supply technical analyses on consumer impacts and alternative revenue uses.

Outlook

Committee members and witnesses repeatedly framed reauthorization as a technical and political negotiation: extending the program or changing allowance supply would affect market prices, while choices for GGRF spending and allocation will determine whether households and frontline communities feel benefits. Several legislators said the committee will pursue further technical briefings and follow‑up workshops to test design changes, and CARB pledged to remain available as staff continue rulemaking work. The hearing closed with broad agreement that California must continue aggressive climate action while seeking clearer, more visible ways to address affordability and equity concerns.

Ending

The committee did not take votes and will hold additional hearings and briefings as CARB develops regulatory proposals and the Legislature considers statutory choices for reauthorization and allocation of proceeds.