Cap-and-Invest changes zero out future funding for state climate goals

By Melissa Sparks-Kranz, legislative advocate (environmental quality)

Cal Cities is urging the Legislature to course correct the state’s Cap-and-Invest program as they negotiate a final budget deal. Recent changes backed by Gov. Gavin Newsom ease costs for in-state oil refineries and create a new incentive for manufacturers. This will dissolve the Cap-and-Invest framework authorized last year and reduce critical funding for key city priorities, including affordable housing and wildfire mitigation.

Cal Cities and many other organizations expressed deep concerns to both the Legislature and state regulators about the new rules — including in Senate and Assembly hearings. In late May, a Senate budget subcommittee rejected Newsom’s climate spending plan rejected Newsom’s climate spending planover the changes. The issue will likely come up this weekend, as lawmakers iron out a budget compromise in advance of their June 15 deadline.  

By way of background

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 fund is the main source of funding for several state grant programs, including affordable housing.

In April of this year, the California Air Resources Board proposed several changes to the program. The new rules will result in a roughly 50% drop in annual funding — a $8 billion total reduction through 2030. The changes could impact the Legislature’s discretionary funding and lead to reductions (or zero funding) for essential programs in Tier 3, including for affordable housing and wildfire mitigation.

The 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.

What happens next?

If the Legislature does not reverse course on proposed changes to Cap-and-Trade, cities will lose out on opportunities for critical funding for affordable housing, wildfire prevention, safe drinking water, transit, and air quality programs, as well as electricity bill rebates. The state will need to determine if and how they want to continue funding these programs.

Cities should stay alert for updates from Cal Cities on the budget outcomes next week and bills that trail the budget in the final months of the legislative session.