The California Air Resources Board voted unanimously Friday to approve the first significant update to the state’s cap-and-trade program since 2018, a move that drew immediate condemnation from environmental advocates and guarded skepticism from the oil industry. The board’s decision, made with little prior public detail on the specific rule changes, expands the share of emissions that companies can meet through carbon offsets and adjusts the pool of available pollution allowances — adjustments that critics on both ends of the political spectrum say fail to address the program’s weaknesses.
The cap-and-trade program, launched in 2013, sets a declining limit on total greenhouse gas emissions from roughly 450 of the state’s largest industrial sources, including power plants, oil refineries, and factories. Companies must reduce their emissions, buy allowances from the state or other businesses, or finance projects — such as reforestation or waste-capture systems — intended to offset their pollution. Similar systems exist across Europe and Asia, and California’s market is linked with those in Quebec and Washington state.
The program’s extension through 2045, signed by Gov. Gavin Newsom last year, preserved the mechanism as a centerpiece of California’s climate strategy while instructing regulators to update its rules. The Air Resources Board’s action Friday represented the first concrete step in that process, though the board released few specifics immediately after the vote.
Environmental groups said the board opted for a weaker proposal than what the state’s climate targets require. By allowing companies to meet a larger share of their obligations through offsets and by increasing the number of allowances, the changes risk delaying actual emission cuts at a time when California is already behind its 2030 goals, several organizations warned. Fossil Free California and other environmental-justice groups said the rule changes could concentrate pollution in low-income communities and communities of color, because offset projects often push emission reductions to other locations rather than forcing cuts at the source.
“We’re disappointed that the board went with a weaker proposal,” said Danny Cullenward, a climate economist and fellow at the University of Pennsylvania’s Kleinman Center for Energy Policy. “This program is supposed to be the centerpiece of California’s climate policy, and it’s being hollowed out.”
Oil industry representatives, meanwhile, argued that the program remains too burdensome. Jodie Muller, a vice president at the Western States Petroleum Association, said the cap-and-trade system “continues to penalize California consumers with high energy costs,” even after the revisions. The industry has long targeted the program as a driver of the state’s elevated gasoline prices, a theme Newsom himself has echoed in his recent campaign to pressure oil companies to lower costs at the pump.
Administration officials defended the changes as a necessary calibration. Lauren Sanchez, Newsom’s climate advisor, said the update “strikes the right balance between environmental ambition and economic reality,” a framing that signals the governor’s effort to maintain his climate credentials while addressing the economic pain felt by California drivers and businesses.
The vote places cap-and-trade at the center of a broader national debate over the future of carbon pricing. California’s program, the largest of its kind in the United States, is closely watched by other states and by international counterparts. As Newsom positions himself for a potential 2028 White House run, his administration’s handling of the program will be scrutinized by both environmentalists who view it as a litmus test for climate leadership and by economic interests who see it as a cost driver in an already expensive state.
The Air Resources Board said it will release full rulemaking documents and an economic analysis in the coming weeks, triggering another round of public comment before the changes take effect later this year.
Going deeper: Read MSI’s analysis of the structural mechanics of the updated California cap-and-trade rules →