California Approves Cap-and-Invest Program Overhaul to Advance 2045 Climate Goals

The California Air Resources Board on May 29 adopted revisions to the state’s Cap-and-Invest Program, strengthening emissions limits through 2045 while expanding consumer protections and support for energy-intensive industries. The updates are intended to keep California on track to meet its climate goals, provide long-term market certainty, and address affordability concerns amid economic uncertainty and shifting federal policies.

The updated program permanently removes 118 million allowances from future budgets, creating a steeper emissions reduction pathway through 2030 and continuing declines through 2045. The changes are intended to align the program with California’s statutory climate targets while maintaining incentives for investment in clean energy and low-carbon technologies.

A key element of the package directs approximately 80 percent of allowances toward benefits for California residents and businesses. The program is expected to provide about $10 billion in electricity bill credits while preserving an estimated $8 billion for the Greenhouse Gas Reduction Fund, which finances climate and clean energy projects across the state.

The board also increased assistance for industries facing compliance costs. The Manufacturing Decarbonization Incentive Fund was doubled to $4 billion to support emissions-reduction investments by manufacturers, refiners, cement facilities, and food processors. In addition, regulators approved about $800 million in compliance support intended to ease near-term financial pressures, preserve jobs, and reduce the likelihood of additional costs being passed on to consumers.

California’s Cap-and-Invest Program remains the state’s primary market-based climate policy, covering major industrial facilities, electricity providers, and transportation fuel suppliers responsible for roughly 80 percent of statewide greenhouse gas emissions. The program has generated $35 billion for climate investments, funded more than 500,000 projects, supported 30,000 jobs, delivered $16 billion in utility bill credits, and helped California achieve its 2020 emissions target ahead of schedule.

The revisions follow legislation extending the program through 2045 and extensive stakeholder engagement involving utilities, businesses, environmental groups, legislators, and community organizations. The updated regulations are scheduled to take effect Sept. 1. The board also directed staff to begin updating compliance offset protocols and requested a future review before allowances are issued through the Manufacturing Carbonization Incentive.