California lawmakers haven’t renewed cap-and-trade, leaving billions on the table

By Alex Nieves | Politico

Published Jul 21, 2025 5:00 AM

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Topline:

California lawmakers are negotiating a deal to renew cap-and-trade — the state’s signature carbon-trading program — nearly a year after legislative leaders originally said they plan to extend the carbon market. That delay in renewing the program, which expires in 2030, has spooked investors and disrupted the state’s quarterly auctions, resulting in the loss of up to $3 billion in potential revenue.

State of play: The cap-and-trade program, which requires polluters like oil refiners to buy credits when they exceed a carbon cap set by the state, has grown into the state’s largest of funding for climate programs, generating revenue that state officials reinvest in things like high-speed rail, electric vehicles and clean energy. But uncertainty about what the program will look like in the future has caused credit prices to drop from $42 at an auction in February 2024 to around $26 in the May 21 auction.

Why it matters: The May 21 auction brought in roughly $595 million, half of what was generated in last May’s auction. And a report released last week by Clean and Prosperous California, a nonprofit that advocates for carbon markets, found lawmakers’ delay in reauthorizing the program has cost California up to $3 billion in potential revenue over the past year.

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Federal threats: President Donald Trump and Congressional Republicans have taken steps that seriously undermine California’s climate agenda, like revoking the state’s zero-emissions sales mandate for cars and trucks, ending the $7,500 federal tax incentives for EV buyers and restricting funding for solar and wind projects. That’s putting more pressure on the state to fund these programs, and could complicate negotiations over how cap-and-trade revenues are spent.

What’s next? Market observers will be closely watching the next cap-and-trade auction on Aug. 18, two days after lawmakers return for their summer recess, to see if credit prices remain low.

For more, read the full story in POLITICO's California Climate newsletter.

This story is published in partnership with POLITICO.