California lawmakers and Governor Gavin Newsom have reached an agreement to extend the state’s cap-and-trade program for reducing greenhouse gas emissions through 2045. The deal, finalized after late-night negotiations, also includes measures to increase domestic oil production, set up a fund for pollution mitigation in disadvantaged communities, add $18 billion to the wildfire liability fund, and establish a shared electricity market with neighboring states.
The agreements followed weeks of closed-door discussions involving Newsom, Assembly Speaker Robert Rivas, and Senate President Pro Tem Mike McGuire. These talks delayed other legislation and drew criticism from lobbyists and some legislators who felt excluded from the process.
Because the deals were reached so late in the legislative session, lawmakers will need to waive rules to extend their voting period into Saturday. California law requires legislation to be public for at least 72 hours before a vote.
Newsom met with Rivas and McGuire at the Capitol Tuesday night as they worked toward consensus. The three leaders described the package as balancing stable energy prices with progress toward climate goals.
“We took the time to get it right because real change, reduced prices and protecting homeowners is essential,” Rivas said in a joint statement.
Rivas’s commitment to affordability was a key factor in shaping this year’s legislative agenda. Newsom has sought to keep gas prices low while advancing environmental policies.
The central issue was how to renew cap-and-trade—recently rebranded by Newsom’s office as “cap and invest.” This program provides revenue for environmental priorities during a year marked by a $12 billion budget deficit. The federal government has also sought to block funding for several clean energy projects.
Cap-and-trade sets limits on carbon emissions by requiring companies to hold permits for every ton emitted. Companies that pollute less can sell unused permits. Supporters argued that extending the program would provide certainty for businesses and maintain revenues needed for clean energy initiatives. Uncertainty over its future reportedly led to nearly $3 billion in lost auction revenues over one year.
Assembly Bill 1207 will reauthorize cap-and-trade with minor adjustments on how pollution permits are distributed by the California Air Resources Board. Senate Bill 840 outlines how revenue from the program will be used starting in 2026, guaranteeing $1 billion annually each for high-speed rail and discretionary spending by lawmakers, while supporting housing, transit, wildfire prevention, and clean water efforts. The bill also calls for a review of rules regarding offsets—where companies pay elsewhere for pollution reductions—with findings due in 2026.
Consumers will continue receiving twice-yearly climate credits on utility bills under this plan; credits will now be timed during months when bills are highest.
Other elements tied up in negotiations included new drilling permits aimed at boosting oil production—particularly waiving certain environmental reviews in Kern County—and changes making it harder to restart old pipelines while adding more environmental assessments.
The deal advances plans for creating a Western regional energy market—a move supporters say is needed both to lower electricity rates and help meet carbon-free targets. Measures are also included that aim to lower utility costs through increased regulation of transmission lines via public financing (Senate Bill 254). Utilities would not be allowed profit on the first $6 billion spent on fire safety upgrades after this year; similar restrictions were placed on earlier expenditures under a 2019 law.
SB 254 also allocates $18 billion more into California’s wildfire victim compensation fund established in 2019 following major utility-caused fires. Funding responsibilities would be split between shareholders and ratepayers of Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric.
It remains uncertain whether Democrats have enough support for passage since tax-related measures require two-thirds approval in both chambers. Some Republicans remain undecided; Sen. Shannon Grove of Bakersfield expressed concern about refinery protections but welcomed provisions allowing more oil drilling locally: “It’s a multibillion-dollar piece of legislation, and I don’t know what’s in it, so I can’t tell you,” she said Wednesday.
Business groups like the California Chamber of Commerce and Western States Petroleum Association opposed last-minute changes made behind closed doors but did not comment further after details became public: “WSPA strongly opposes this rushed attempt to reauthorize the state’s Cap-and-Trade program behind closed doors in the remaining days of the legislative session,” WSPA stated Monday night.
Environmental justice advocates criticized omissions from proposals intended to monitor pollution impacts on specific neighborhoods near industrial sites: “There’s a lot of money left on the table,” said Ryan Schleeter of the Climate Center. He added: “There could have been more done to shore up that revenue for future years, and there’s a lot of money that’s still flowing to oil and gas corporations through the cap-and-trade program.”
