The California Legislature has voted to extend the state's cap-and-trade program

State Senate President Pro Tempore Mike McGuire and Democratic state Sen. Monique Limon watch as the votes are counted on a bill before the Senate at the Capitol, in Sacramento, Calif., Thursday, Sept. 11, 2025. (AP Photo/Rich Pedroncelli)

SACRAMENTO, Calif. (AP) — California will extend a key climate program under a bill state lawmakers passed Saturday, sending the measure to Gov. Gavin Newsom, who has championed it as a crucial tool to respond to the Trump administration’s environmental rollbacks.

The Democrat-dominated Legislature voted to reauthorize the state's cap-and-trade program, which is set to expire after 2030. Then-Gov. Arnold Schwarzenegger, a Republican, signed a law authorizing the program in 2006, and it launched in 2013.

The program sets a declining limit on total planet-warming emissions in the state from major polluters. Companies must reduce their emissions, buy allowances from the state or other businesses, or fund projects aimed at offsetting their emissions. Money the state receives from the sales funds climate-change mitigation, affordable housing and transportation projects, as well as utility bill credits for Californians.

Newsom, a Democrat, and legislative leaders, who said months ago they would prioritize reauthorizing the program, almost ran out of time to introduce the proposal before the statehouse wraps for the year.

“After months of hard work with the Legislature, we have agreed to historic reforms that will save money on your electric bills, stabilize gas supply, and slash toxic air pollution — all while fast-tracking California’s transition to a clean, green job-creating economy,” Newsom said after striking the deal this week.

The proposal would reauthorize the program through 2045, better align the declining cap on emissions with the state's climate targets and potentially boost carbon-removal projects. It would also change the name to “cap and invest" to emphasize its funding of climate programs.

The Legislature approved another bill committing annual funding from the program's revenues. It includes $1 billion for the state's long-delayed high-speed rail project, $800 million for an affordable housing program, $250 million for community air protection programs and $1 billion for the Legislature to decide on annually.

Officials try to balance environmental protection with cost of living

The votes come as officials contend with balancing the state’s ambitious climate goals and the cost of living. California has some of the highest utility and gas prices in the country. Officials face increased pressure to stabilize the cost and supply of fuel amid the planned closures of two oil refineries that make up roughly 18% of the state's refining capacity, according to energy regulators.

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Democratic Assemblymembers Cottie Petrie-Norris, and Jacqui Irwin confer at the Capitol, in Sacramento, Calif. Thursday, Sept. 11, 2025. (AP Photo/Rich Pedroncelli)

Proponents of the extension say it will give companies certainty over the program's future. The state lost out on $3.6 billion in revenues over the past year and a half, largely due to uncertainty, according to a report from Clean and Prosperous California, a group of economists and lawyers supporting the program. Some environmentalists say the Trump administration's attacks on climate programs, including the state's first-in-the-nation ban on the sale of new gas-powered cars by 2035, added urgency to the reauthorization effort.

Assembly Speaker Robert Rivas said the extension balanced the state's ambitious emission-reduction and affordability goals. The Democrat called cap and trade “the cornerstone of our climate strategy.”

But environmental justice advocates opposing the proposal say it doesn't go far enough and lacks strong air quality protections for low-income Californians and communities of color more likely to live near major polluters.

“This really continues to allow big oil to reduce their emissions on paper instead of in real life,” said Asha Sharma, state policy manager at the Leadership Counsel for Justice and Accountability.

GOP lawmakers say cap-and-trade will raise prices in California

GOP lawmakers criticized the program, saying it would make living in California more expensive.

“Cap and trade has become cap and tax,” said James Gallagher, the Assembly Republican minority leader. “It’s going to raise everybody’s costs.”

Cap and trade has increased gas costs by about 26 cents per gallon, according to a February report from the Independent Emissions Market Advisory Committee, a group of experts that analyzes the program. It has played “a very small role” in increasing electricity prices because the state's grid isn't very carbon intensive, the report says.

Lawmakers and lobbyists criticized the governor and legislative leaders for rushing the deal through with little public input.

Ben Golombek, executive vice president of the California Chamber of Commerce, said at a hearing this week that the Legislature should have taken more time “to do this right.”

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Assembly Speaker Robert Rivas talks with Democratic Assembly member Esmeralda Soria, left, during at the Capitol in Sacramento, Calif., Thursday, Sept. 11, 2025. (AP Photo/Rich Pedroncelli)

Democratic state Sen. Caroline Menjivar said it shouldn't be par for the course for lawmakers to jam through bills without the opportunity for amendments.

“We’re expected to vote on it," she said of Democrats. "If not, you’re seen to not be part of the team or not want to be a team player.”

Menjivar ultimately voted to advance the bill out of committee.

Energy affordability and fuel supply

The cap-and-trade bills are part of a sweeping package lawmakers approved aimed at advancing the state’s energy transition and lowering costs for Californians.

One of the bills would speed up permitting for oil production in Kern County, which proponents have hailed as a necessary response to planned refinery closures and critics have blasted as a threat to air quality.

Another bill would increase requirements for air monitoring in areas overburdened by pollution and codify a bureau within the Justice Department created in 2018 to protect communities from environmental injustices.

The Legislature voted to refill a fund that covers the cost of wildfire damage when utility equipment sparks a blaze. The bill would set up public financing to build electric utility projects.

Lawmakers also passed a measure allowing the state's grid operator to partner with a regional group to manage power markets in western states. The bill aims to improve grid reliability. It would save ratepayers money because California would sell power to other states when it generates more than it needs and buy cheaper energy from out of state when necessary, the governor's office said.