Cal Cities urges lawmakers to intervene if CARB doesn't reverse proposed Cap-and-Invest changes

By Brian Hendershot, Cal Cities Advocate managing editor, and Melissa Sparks-Kranz, legislative advocate

Cal Cities, along with many other organizations, is expressing deep concerns with proposed changes to the state’s landmark carbon trading program. The changes would dissolve the Cap-and-Invest framework authorized just last year and reduce funding for key city priorities, including affordable housing and wildfire mitigation.

Last year, the Legislature passed a sweeping update to what was then called the Cap-and-Trade Program. The update created a three-tiered framework for the state’s Greenhouse Gas Reduction Fund. Major polluters still buy allocations based on their greenhouse gas emissions. The state then uses those proceeds to fund climate programs. The Greenhouse Gas Reduction Fund is the main source of funding for several state grant programs, including affordable housing.

Then, in April, the California Air Resources Board (CARB) proposed several changes to the program. The new rules would create a roughly 50% drop in annual funding — a total $8 billion reduction through 2030. It would also redirect the Legislature’s discretionary funding (Tier 2) and stop essential programs in Tier 3 from receiving any funding at all.

What is at stake is critically important funding for affordable housing, wildfire prevention, safe drinking water, transit, and air quality programs, as well as electricity bill rebates.

The CARB proposal is a dramatic shift from what the Legislature and Gov. Gavin Newsom agreed to last year, which Cal Cities strongly supported. Although the current program doesn’t fund all of Cal Cities’ priorities — most notably zero-emission fleets and organic waste diversion — it gave the Legislature flexibility to fund those areas each year.

In a letter to the agency’s chair, Cal Cities argued that the changes — which primarily benefit manufacturers, oil, and gas companies — are unjustified and undermine the state's climate programs. The letter notes that the proposal goes far beyond what is permissible under a 15-day public comment period, and the agency has not conducted a true economic analysis. In a Senate hearing last week, Cal Cities urged the Legislature to intervene if the agency pushed the changes forward.

Almost every stakeholder group, including other local government associations, construction unions, transit operators, and environmental organizations, opposes the draft changes. For their part, oil, gas, and manufacturing groups are arguing that the changes do not go far enough.

The fight over the program’s future will continue later this month. As part of its proceedings, CARB will host a hearing on May 28. Should the current proposal proceed, Cal Cities and others will urge lawmakers to intervene during this legislative session.