Changes are coming to California’s “cap and trade” system as lawmakers passed an extension and amendments to the law in September of last year. The amendments extend the system from 2031 to 2045 and introduce new requirements for how tax revenue raised through the system is spent. Now referred to as a “cap and invest” system, proceeds generated by the sales of carbon allowances will go to investing in climate mitigation measures across the state. CARB has recently published preliminary regulatory text and staff reports on the new regulations. CARB describes the changes, stating:
“The Program sets a cap on approximately 80% of total statewide GHG emissions, which declines annually in line with the State’s GHG emissions reduction goals. Each metric ton of GHG emissions within the cap is represented by a GHG allowance that is distributed by CARB and used by covered entities to fulfill a compliance obligation for their carbon emissions. A portion of these allowances are sold at State-run auctions, which establishes a carbon price and generates revenue for the State to invest in further GHG emissions reduction.”
The public comment period for the regulations begins on January 23, 2026, and runs through March 9, 2026. With the EPA seemingly abdicating responsibility for GHG regulation, we may see more states follow in California’s footsteps. Thirteen states currently have or are developing carbon market programs.
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