CaliforniaAB 12072025-2026 Regular SessionHouseWALLET

Climate change: market-based compliance mechanism.

Sponsored By: Jacqui Irwin (Democratic), Monique LimÃ³n (Democratic), Mike McGuire (Democratic), Robert Rivas (Democratic)

Signed by Governor

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Bill Overview

Analyzed Economic Effects

6 provisions identified: 2 benefits, 0 costs, 4 mixed.

Cap-and-invest continues through 2045

California keeps its cap‑and‑invest program in place through December 31, 2045. The state board sets yearly shrinking emission caps from 2012 through 2045 to drive reductions. Petroleum refineries and oil and gas facilities are regulated under this market‑based system. Local air districts may not add separate carbon dioxide rules for stationary sources already covered. The system can affect energy and fuel prices, while also creating revenues that can fund rebates and clean investments when approved.

Climate credits on your electric bill

Electric companies must credit the value of state‑allocated climate allowances to residential customers. Credits appear on bills in no more than four high‑bill months each year, as set by regulators. By January 1, 2027, bills in those months must show a top‑of‑bill note with the savings amount and that it comes from the climate credit and the California Cap‑and‑Invest Program. Local publicly owned utilities must pass the full value of any extra allowance allocations directly to their ratepayers and report how all allowance revenues are used. The state board must send the Legislature an annual report on those utility uses.

More oversight and reports on cap-and-invest

An expert committee within CalEPA meets at least yearly and reports on the market’s environmental and economic performance. The Legislative Analyst’s Office reports each year, until January 1, 2046, on economic impacts and benefits of the state’s climate targets. When launching a major regulation, the board chair must brief key legislative committees and share economic analyses, and the board must report scoping plan updates and market implementation to fiscal and policy committees. By December 31, 2025, the board must report progress and leakage risk, with recommendations that may include a border carbon adjustment. The Legislature states that auction proceeds should fund priorities like clean transportation, healthy forests and urban greening, climate adaptation, and research.

Some climate funds to grid projects

Starting July 1, 2026, each electric company must send 5% of its allowance‑allocation revenues each year to the California Transmission Accelerator Revolving Fund. This ends on July 1, 2031. Regulators may also allow up to 15% of these revenues for utility or third‑party clean energy and efficiency projects, but only until July 1, 2026. These shifts can reduce money available for bill credits, but they support transmission and efficiency that can lower long‑run energy costs.

Guardrails to limit allowance price spikes

The state sets a price ceiling for allowances and sells reserve allowances at that ceiling. If the reserve from December 31, 2020 runs out, the state may sell additional tons at the ceiling and deposit proceeds into the California Climate Mitigation Fund for rebates and clean investments. Two lower price containment points offer nontradable allowances, using two‑thirds of the 2017 reserve split evenly. Unsold auction allowances sitting more than 24 months move into the reserve. The board must curb speculation through banking rules, address any 2021–2030 overallocation, and report to lawmakers if two auctions in a row clear above the lower containment level.

Tighter offset limits, more local projects

From 2021–2025, offsets can meet up to 4% of a company’s obligation; from 2026–2045, up to 6%. In each period, no more than half of allowed offsets may be from projects without direct in‑state benefits. The next year’s allowance budget must retire an amount equal to the prior year’s offset use. The board must ensure credited cuts are real, additional, verified, and enforceable; boost in‑state offset projects; and consider new protocols, including carbon removal. A task force advises on protocols that help disadvantaged, tribal, rural, and farm communities, including grouped landowner projects and wetlands and land management.

Sponsors & Cosponsors

Cosponsors

There are no cosponsors for this bill.

Roll Call Votes

All Roll Calls

Yes: 181 • No: 19

Senate vote • 9/13/2025

Item 7 — Senate SFLOOR

Yes: 29 • No: 6

House vote • 9/13/2025

Item 1000 — Assembly AFLOOR

Yes: 58 • No: 10

legislature vote • 9/11/2025

Vote in CS64

Yes: 5 • No: 1

legislature vote • 7/16/2025

Vote in CS64

Yes: 7 • No: 0

House vote • 5/27/2025

Item 454 — Assembly AFLOOR

Yes: 60 • No: 2

legislature vote • 5/7/2025

Vote in CX25

Yes: 11 • No: 0

legislature vote • 4/28/2025

Vote in CX16