Topline:
Gov. Gavin Newsom closed out the legislative year with one of the most sweeping overhauls of California’s energy and climate policies in decades.
Why it matters: The six-bill deal — passed Saturday after lawmakers extended their session by an extra day because of last-minute dealmaking — was sold as a way to ease gas prices and soaring electricity bills while preserving the state’s signature climate programs.
Read on ... to find details about this package of bills.
Gov. Gavin Newsom closed out the legislative year with one of the most sweeping overhauls of California’s energy and climate policies in decades — a package that could give him a presidential debate-stage talking point on rising energy costs as the Democratic Party shifts its focus to affordability.
The six-bill deal — passed Saturday after lawmakers extended their session by an extra day because of last-minute dealmaking — was sold as a way to ease gas prices and soaring electricity bills while preserving the state’s signature climate programs.
Ratepayers are expected to get some relief through measures to cut the cost of building transmission lines, and an expanded cap-and-trade energy credit aimed at blunting rising energy bills. They also will get some protection from utilities hiking rates based on the cost of wildfire-proofing their infrastructure, such as by putting power lines underground. But they’ll also continue paying $9 billion over the next decade into a fund to compensate wildfire victims.
The package of legislation now heads to the governor’s desk for his signature.
Newsom and his allies, who negotiated the package in the final days of the legislative session, said the state needed to allow more permits to drill oil to head off more refinery shutdowns that could send gas prices soaring.
Critics said the biggest winners of the maneuvering were the oil industry and the state’s major utilities. Oil drilling measures advanced in Kern County after refiners threatened to shutter plants. Utilities gained sweeping new wildfire liability protections and the ability to join a regional power market — a step critics warned could tether California to fossil-fuel states at a time when the Trump administration is moving to roll back clean energy.
Michael Wara, a Stanford legal scholar focused on energy policy, called it “astonishing” that lawmakers managed to pass so many major bills at once, including the two-thirds vote to reauthorize cap-and-trade. California is making steady progress in shifting from fossil fuels to renewables, even as wildfires complicate the transition, and while the measures were imperfect, they were necessary, he said.
“I’ve been a part, over the last decade, of getting individual tweaks done in each of these areas — but the idea that we would get them all done at once, on time, when we needed to, is astonishing to me,” Wara said. “Are the bills perfect? No, from my perspective they’re not perfect, but they are all material improvements over the status quo.”
At the center of the bargain was the extension of California’s cap-and-trade system — rebranded by Newsom as “cap and invest” — through 2045. The extension, hammered out in backroom talks, was one of the most divisive elements of the package.
The carbon-trading program, launched in 2013, is California’s way of putting a price tag on greenhouse gas emissions — those responsible for climate change. The program sets a strict cap on emissions for polluters and hands out a limited supply of permits companies can sell to other polluters if they cut enough emissions.
The final agreement on the program preserved rules that let oil companies avoid paying the full cost of their emissions while leaving untouched a cap on carbon prices. That setup shields polluters while leaving consumers potentially exposed to higher gas prices, experts said.
Assembly Speaker Robert Rivas stood by the energy package on Saturday, arguing the measure to boost in-state oil production and keep refineries from closing would keep prices down at the pump. “Altogether,” he told reporters, the deal “is going to result in some billions of dollars in savings.”
The California Chamber of Commerce was out front in opposing the cap and trade deal, arguing it would make energy less affordable by taking credits away from gas customers and giving them to electric utilities — hurting families, renters, and small businesses that still depend on natural gas. The powerful business group has poured at least $6.9 million into legislative races over the past decade, according to CalMatters’ Digital Democracy database.
The oil industry’s chief lobbying group, the Western States Petroleum Association, which had pushed back early on, eventually settled into neutrality. Meanwhile, environmental justice advocates remained staunchly against it, saying the program protects oil and gas companies while leaving nearby low-income communities to bear the health costs of pollution.
A group of seven environmental justice groups from across the state, including Physicians for Social Responsibility and the Asian Pacific Environmental Network Action, said the extension “institutionalizes inequality in California’s climate policy.”
“This year, California’s leaders gutted basic public health and safety protections and took away tools communities need to protect themselves from polluters,” the groups said.
Alongside reauthorization of the program, a companion bill provided a blueprint for how the state should spend its revenues, reshaping it starting in 2026 to guarantee $1 billion a year for high-speed rail and $1 billion a year for lawmakers to direct through the budget.
The sweeping climate and energy package was born of mounting pressures — some long expected, others abrupt. Affordability has become the defining fault line in Democratic politics since Donald Trump’s return to the White House, powered by a campaign fixated on cutting costs and fighting inflation.
At the same time, Democrats are leaning into the rhetoric of “abundance,” a term popularized by columnist Ezra Klein to capture the idea that more housing, clean energy and infrastructure can ease scarcity and lower costs. But some consumer advocates and Capitol insiders argue the measures won’t ultimately help consumers.
“I don’t know how any of this saves money,” said Jamie Court, president of Consumer Watchdog. “But this is the new state of Sacramento. I think it happened because of Trump, honestly, I think this is all about abundance and Trump, and Democrats trying to make a name for themselves by dumping regulation.”
Republicans, too, slammed the package, but they called it over-regulation that would continue to keep gas and energy costs high. Sen. Kelly Seyarto, a Murrieta Republican, called Democrats’ goals of using the cap-and-trade dollars to improve transit “unrealistic” when Californians “are not going to give up driving their cars,” and said the party’s stated three goals can’t coexist.
“Climate, energy and affordability are like oil, water and sand,” he said. “People aren’t going to be able to live here.”
Newsom’s push to keep gasoline prices and energy bills in check — a message potentially aimed as much at a national audience in a future presidential bid as at Californians — meshed with Assembly Speaker Robert Rivas’s early pledge to make 2025 the Legislature’s “year of affordability.”
Meanwhile, Senate President Pro Tem Mike McGuire and his team resisted giving ground to oil and gas interests without securing gains for environmental and social justice priorities, given the concentration of polluting industries and poor air quality in low-income communities.
Cap-and-trade renewal took on urgency as carbon auctions faltered and Trump singled out the program — originally set to expire in 2030 — as potentially unconstitutional.
At the same time, refinery closures and oil company threats to leave California put Newsom in a bind. After blasting the industry as deceitful and politically manipulative for years, Newsom reversed course. His administration unveiled concessions to keep production in the state and the California Energy Commission suspended a controversial profit cap on gasoline refiners for the next five years.
While much of the governor’s original oil refinery proposal was pared back in the Legislature, drilling approvals advanced in Kern County. That was a victory for Republican Sen. Shannon Grove, who represents the county. Grove has spent a decade pushing to keep drilling and its middle-class jobs alive there.
The approved oil permits, she said, “will result in California-compliant oil that is the most regulated in the world.”
Nevertheless, Assemblymember Alex Lee, a Democrat from Milpitas, criticized the oil deal from the Assembly floor Saturday as a “giveaway to big oil.”
“The thing we need to focus on is a controlled and managed phaseout of fossil fuel, like the dinosaurs that they process, the petroleum-oil, fossil-fuel industry fuel is dying out,” Lee said. “Refineries and facilities are closing, not just in California, but in Texas and across the world.”
Lawmakers also established a state fund to monitor pollution mitigation in disadvantaged communities.
Layered onto those debates was a high-stakes battle over utility finances. Wildfire liabilities loomed over investor-owned utilities, especially Southern California Edison, now under scrutiny for its potential role in the Eaton Fire in Altadena. Newsom pressed to expand California’s $18 billion wildfire fund — a safeguard supporters said was vital to protect ratepayers if utilities sparked future blazes, but one that critics warned could ultimately drive consumer bills higher.
Meanwhile lawmakers took a major push to let California join a shared Western electricity market, allowing power to flow more easily across state lines. Supporters say it could cut costs for customers and steady the grid during crunch times like heat waves, while supporting in-state clean power producers who could sell excess electricity to neighbors.
Consumer advocates, led by The Utility Reform Network, warned the change could weaken California’s control over its clean energy agenda and hand more power to a federal government under Trump that is siding with fossil fuels. Some environmental and consumer groups shared that concern.
The shift is important because California has spent decades building one of the cleanest grids in the world and the move to open up that system to other Western states could reshape how both renewable and fossil power move across the region.
CalMatters reporter Yue Stella Yu contributed.