FACT SHEET ON CALIFORNIA’S CAP AND TRADE PROGRAM

On 15 April 2025, California’s political leadership—Governor Newsom, Senate President pro Tempore Mike McGuire, and Assembly Speaker Robert Rivas—announced they would “double down” on California’s cap-and-trade program by legislatively extending it beyond 2030. In their press release, these California leaders outlined the critical role of cap-and-trade in reducing emissions, supporting job growth, and helping California achieve its climate targets. This fact sheet synthesizes the scientific literature on the program described as “a huge success” by California leadership and finds strong evidence for the program’s success in cost-effectively reducing greenhouse gas (GHG) emissions while reducing local air emissions and toxics. Based on this scientific evidence, relying on California’s cap-and-trade program is an affordable and effective way to achieve California’s 48% by 2030 target.  

1. California’s cap-and-trade program has significantly reduced GHG emissions. 

Since it was established, California’s cap-and-trade program has reduced GHG emissions by placing a cap on GHG emissions and imposing a minimum price on climate pollution. Starting in 2021, the allowance price lifted off the price floor, indicating that market participants believe allowances are “scarce”. This scarcity implies further GHG emissions above and beyond what would be achieved by the minimum price floor.  

To more precisely quantify GHG reductions caused by California’s cap-and-trade program, economists must carefully design statistical studies that parse “signal” from “noise” of dozens of other policies implemented by state regulators. For this reason, there are only a handful of statistical studies estimating the impact of California’s cap-and-trade program in its early years on GHG emissions. 

• A recent meta-analysis published in Nature Climate Change finds that California’s cap-and-trade program reduced GHG emissions an estimated 15 percent in its early years primarily through abatement in the utility sector[1]. 

• A recent study published in the Journal of Public Economics finds that California’s cap-and-trade program reduced GHG emissions by over 40 percent between 2012 and 2017 for industrial facilities regulated only by the program and not any other climate policy[2].

2. California’s cap-and-trade program is designed to be cost conscious and delivers GHG reductions more affordably than other climate and energy policies.

In the 1970s, academic economists created the concept of a cap-and-trade program with the explicit intent of achieving pollution reduction at the lowest economic cost[3]. California’s cap-and-trade program delivers emissions reductions at the market-established allowance price per metric ton of carbon, currently around 26 USD dollars. Regulatory approaches, such as standards for low carbon fuels or renewable energy, typically cost many times more per ton of GHG emissions reduced[4]. Government subsidies and regulatory incentives, such as rooftop solar[5] or electric vehicles[6], can cost up to an order of magnitude or more per ton of GHG emissions reduced compared to cap-and-trade. Cap-and-trade has a critical role to play in California’s broader climate policy portfolio in lowering costs.

3. California’s cap-and-trade program has reduced local air toxics and reduced, or at least not increased, local air emissions. 

A longstanding concern from environmental justice communities is that California’s cap-and-trade program may increase local toxics or air pollution emissions. 

• A recent study in the Journal of the Association of Environmental and Resource Economists finds that disadvantaged communities experienced a relative reduction in cumulative exposure from air toxic releases caused by California’s cap-and-trade program.[7] 

• Another recent study in the Journal of Public Economics finds that California’s cap-and-trade program reduced particulate matter and nitrous oxides emissions between 3 and 5 percent annually from 2012 to 2017. This resulted in a 6 to 10 percent annual drop in the air pollution disparity between disadvantaged and other communities across the state during this period.[8]

Taken together, the recent scientific evidence suggests that California’s cap-and-trade program has reduced local toxins and air pollution emissions and their disparity across the state.