The California Air Resources Board will hold a public hearing Thursday to consider amendments to the state’s greenhouse gas emissions reduction program.
On Wednesday, the environmental justice organization Communities for a Better Environment hosted an online event warning that changes introduced by CARB 15 days ago could weaken the state’s primary climate policy.
California’s Cap-and-Invest program sets a statewide limit, or “cap,” on greenhouse gas emissions from major polluters including power plants, fuel suppliers and large industrial facilities. Companies receive emissions allowances — government-issued permits allowing the release of a specific amount of greenhouse gases — typically one metric ton of carbon dioxide per allowance. Companies must surrender enough allowances each year to cover their total emissions.
Businesses can buy, sell or trade allowances, creating a financial incentive to reduce pollution. The number of allowances declines over time, lowering overall emissions. The program is central to California’s goal of reducing greenhouse gas emissions to 40% below 1990 levels by 2030.
Revenue from quarterly allowance auctions is deposited into the Greenhouse Gas Reduction Fund and is used for programs including public transit, clean energy, wildfire prevention and utility bill rebates.
“These [Greenhouse Gas Reduction Fund] funds are overwhelmingly dedicated to the communities most impacted by pollution and climate change,” said Michelle Pariset, director of legislative affairs with the legal nonprofit Public Advocates at the Wednesday event. “The same communities that live near refineries, freight corridors, freeways, ports, and other major sources of greenhouse gas emissions.”
Supporters of the proposed changes say industrial facilities in California need long-term investment to decarbonize expensive infrastructure and stay competitive against manufacturers in cities and countries with weaker climate rules.
Debate over $4B industrial fund
At issue is the proposed Manufacturing Decarbonization Incentive Fund. According to CARB, the fund would provide $4 billion to support company investment in California and offset the loss of some federal incentives.
“Eligible projects include replacing fossil fuel-powered equipment with clean alternatives, low-carbon hydrogen use, renewable energy generation, carbon capture and sequestration, methane reductions and more,” CARB says on its website.
The idea is to encourage industries such as cement, refining, steel, and other energy-intensive manufacturers to modernize equipment, electrify operations, improve efficiency, or adopt cleaner fuels.
At the online event Wednesday, Danny Cullenward, a climate policy researcher at the University of Pennsylvania, said the new industrial program will be a $4 billion transfer of wealth from public funding to private interests.
“Half of that is earmarked specifically for the oil industry,” Cullenward said. “There are no significant guardrails on the use of this new subsidy. It effectively requires industries receiving the subsidy to write a book report for the agency.”
CARB’s website says the program would allow them to issue 118 million new carbon allowances in a separate reserve account to create the fund. If the board approves the program on Thursday, companies can apply beginning Sept. 1. Allowances would be awarded in 2027 and eligible for use in 2028.
Cullenward cited a research study by UC Berkeley economics professor Meredith Fowlie which suggests that refiners will end up getting more allowances than they have in pollution.
“CARB is now doubling the amount of new allowances for industrial polluters and expanding them to include oil refineries,” said Assemblymember Damon Connolly, D-San Rafael at the event. “Let’s be clear, this is not an affordability strategy. It will not prevent gas price spikes as we’ve seen from recent international turmoil.”
The international organization Environmental Defense Fund argues on its website that the Manufacturing Decarbonization Incentive Fund could weaken the carbon market by flooding it with allowances and lowering carbon prices. In a recent auction, prices in California’s cap-and-invest market generated roughly $770 million for programs, according to EDF.
“Today’s settlement price, which cleared above the February auction price by less than a dollar, reflects the ongoing downward trend in allowance prices and GGRF revenue seen by this market since February 2024 when prices peaked at $41.76,” the online statement said.
EDF opposes the policy change, adding that it could lead to eliminating critical funding for clean air, clean water, transit and affordable housing in the communities that need it most.
