This week, California Governor Gavin Newsom announced his proposal to extend the state’s landmark cap-and-trade program for GHG emissions through 2045. The extension was included in Governor Newsom’s revised budget for 2025–26 and seeks to secure the program’s role as a cornerstone of California’s climate strategy. The announcement timing is based on the approaching expiration date of the original program and as federal opposition to state-led climate initiatives intensifies. The extension aims to provide long-term certainty for markets, businesses and communities.
There were no major structural changes to the program included in Governor Newsom’s proposal – a decision welcomed by key business groups such as the California Chamber of Commerce (CalChamber) and the California Manufacturers & Technology Association (CMTA). Instead, Governor Newsom framed the extension as a “clean reauthorization” designed to maintain a balance between environmental ambition and economic competitiveness.
Governor Newsom’s plan also proposes a rebranding of the program as “cap-and-invest,” aligning California’s approach with similar frameworks in other states such as Washington and New York. This branding shift is intended to emphasize the program’s dual objectives of capping emissions and investing in the technologies and communities needed for a sustainable future.
Stakeholder Reactions
The proposed extension has garnered broad support from business groups who emphasize the importance of regulatory certainty and market stability for long-term investment in clean technology and infrastructure. CalChamber President Jennifer Barrera highlighted the program’s role in balancing compliance costs with economic growth, while CMTA President Lance Hastings underscored its contribution to California’s global climate leadership and private sector innovation.
Program Structure and Operation
California’s cap-and-trade program, established by the Global Warming Solutions Act of 2006 (Assembly Bill 32), was designed as a market-based mechanism to reduce greenhouse gas emissions across the state’s economy. It operates through a system of emissions allowances, which are distributed via quarterly auctions and, to a lesser extent, free allocation to certain sectors in an effort to keep that business in California.
The program sets a declining cap on total emissions from major sources such as power plants, refineries and large industrial facilities and allows these entities to buy and sell emissions allowances at quarterly auctions. Entities covered by the program must surrender enough allowances to cover their verified emissions each year, creating a financial incentive to reduce their carbon footprint.
Economic and Environmental Impact
Since its inception, California’s cap-and-trade program has raised nearly $33 billion. According to the California Air Resources Board (CARB), more than $18 billion has already been awarded to over half a million projects that are either complete or in progress. These investments have supported a wide range of initiatives including clean transportation, energy efficiency, renewable energy, wildfire prevention and affordable housing.
About Full Scope Insights
Full Scope Insights specializes in developing and executing value-add sustainability strategies for public and private organizations in a cost-efficient manner, including California regulatory compliance. FSI provides scope 1, scope 2 and scope 3 GHG emissions accounting required by California’s SB 253 as well as various types of reporting, including California’s SB 261 climate risk reporting.
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