In the News: “Now is not the time to be horse-trading with climate change”

Time is money, and cap-and-trade is running low on both

By ALEX NIEVES 

07/14/2025 09:00 PM EDT

Presented by Los Angeles Cleantech Incubator

With help from Blake Jones, Sam Ogozalek and Jason Plautz

The clock is ticking on cap-and-trade reauthorization. | Eric Risberg/AP

A LONG AUGUST: Lawmakers are leaving town for summer recess next week without cap-and-trade reauthorization done — and they could be leaving a half-billion dollars on the table as a result.

Both of the Legislature’s vehicles for extending the state’s marquee carbon-trading program are getting hearings this week: The Senate’s vessel, Sen. Monique Limón’s SB 840, was awaiting a hearing in the Assembly Natural Resources Committee as of press time, and Assemblymember Jacqui Irwin’s AB 1207 gets its turn in the Senate Environmental Quality Committee Wednesday.

But the odds of reaching a consensus by Friday’s deadline to clear policy committees are low as discussions over how much to reform the program grind on.

“As much as I wish we would just get a deal done before recess, I’m not sure that there will be much movement at this point,” said one senator, granted anonymity to discuss ongoing negotiations.

That’s bad news for market watchers who are hoping for some certainty ahead of the next emissions auction on Aug. 20, just two days after the Legislature reconvenes in Sacramento.

If history is any guide, that means the state should expect a lot less revenue to fund its climate ambitions at an August auction where investors are likely to be spooked. The last auction, held on May 21, failed to sell all of the available allowances for the first time since the pandemic and brought in roughly $595 million, half of what was generated in last May’s auction.

“I think this auction is going to be a wake-up call for legislators,” said Katelyn Roedner Sutter, California state director at the Environmental Defense Fund. “For anybody who doesn’t think there is urgency to cap-and-trade, when we start seeing programs have funding pulled back, that’s going to be painful.”

The holdup is largely centered on a debate around how much to tinker with cap-and-trade’s rules. Gov. Gavin Newsom, who committed to reauthorization this year after President Donald Trump directed Attorney General Pam Bondi to block state climate programs in April, has laid out a plan that would leave the structure of the program largely unchanged.

Environmental justice organizations, meanwhile, are pushing for reforms like the elimination of free allowances that keep major polluters’ costs down and emissions caps on individual facilities.

Clayton Munnings, a climate economist who leads Clean and Prosperous California, a nonprofit that advocates for carbon markets, said the uncertainty about the future of the program is costing the state billions it could be using to keep energy bills down and pay for things like electric vehicle incentives.

His organization released a report Monday that found lawmakers’ delay in reauthorizing the program, which expires in 2030, has cost California up to $3 billion in potential revenue over the past year as the price of pollution allowances has plummeted. Prices reached $42 at an auction in February 2024, but were down to around $26 in May.

“Now is not the time to be horse-trading with climate change,” Munnings said. “California is in a climate crisis and our state’s commitment to cap-and-trade is in question.”

Katie Valenzuela, a consultant for environmental justice groups, pushed back, saying she appreciates that lawmakers aren’t rushing to finalize changes that will be in place through 2045.

“This is the most consequential climate decision that will be made for 20 years, period,” Valenzuela said. “Rushing this process without being thoughtful would really be a disservice to California’s climate goals.”

Lawmakers and groups that rely on cap-and-trade revenues also need to hash out exactly how that funding will be spent. That’s only getting harder as the pool of available dollars has already shrunk.

Newsom and lawmakers have already committed $1 billion in auction revenues this year to backfill CalFire and want another $1 billion for the state’s high-speed rail project, half of the $4 billion that the program’s generated annually in recent years.

All of this comes amid what’s shaping up to be a particularly hectic end of session for climate and energy policy. Newsom and lawmakers still need to hash out sprawling energy affordability legislation, a plan to establish a West-wide energy market and California Energy Commission recommendations for preventing refinery closures and gas price spikes, with less than a month between session resuming on Aug. 18 and ending on Sept. 12. — AN