CARB Issues Notice on Cap-and-Invest Market After Extension Legislation Signed

On September 19th, Governor Newsom signed the Cap-and-Invest extension legislation, marking a significant step forward in California’s environmental initiatives. Following this development, California regulators are now gearing up for a Program Review workshop, tentatively scheduled for October. This workshop aims to finalize rulemaking by 2026 to meet the 2027 free allowance allocation deadlines before beginning the process of linking with Washington in 2027.

In light of the upcoming workshop, CARB has released a new Market Notice focusing on the Cap-and-Invest program. The notice emphasizes CARB’s commitment to aligning with the new legislative direction while incorporating public input gathered since early 2023. Key areas earmarked for updates include conducting a workshop on the draft AB 398 leakage risk assessment report, adjusting industrial allowance allocations to prevent leakage, updating annual allowance budgets to reflect inventory changes and retirements used for compliance, and transitioning gas utility allowances to electricity utilities while ensuring affordability for consumers.

Furthermore, CARB plans to review compliance offset protocols to incorporate the latest scientific findings by 2029 and submit a report to the Legislature outlining recommendations to bolster in-state offset projects as required by the updated legislation. Of particular interest to stakeholders is the adjustment to annual allowance budgets and retirement of allowances, with an estimated 118 million allowances set to be removed based on the revised GHG inventory demonstrating lower historical emissions.

Other scenarios under consideration, such as “Option 1” and “Option 2,” propose removing a minimum of 180 million allowances from annual budgets between 2026-2030. Additionally, CARB aims to enhance cost-containment provisions to align with the latest social cost of carbon assessments. While the exact details of implementing retirements for offset usage remain uncertain, regulators have stressed that offsets will continue to play a crucial role in cost containment measures within the program.

Notably, regulators are working to ensure that any changes introduced do not compromise affordability or hinder cost containment objectives. They clarify that offsets are already accounted for within the program’s cap, indicating that future regulatory amendments will focus on ensuring a seamless transition to the new design elements. The overarching goal remains to maintain a balance between environmental sustainability and economic viability while fostering innovation in climate policy.

As California continues its transition towards a greener economy, the upcoming Program Review workshop and subsequent regulatory updates signify a proactive approach to addressing climate change challenges. By engaging with stakeholders and incorporating scientific advancements, CARB aims to fortify the Cap-and-Invest program’s effectiveness while staying true to the state’s ambitious climate targets for 2030 and 2045.