4th Largest Economy Acts: California Commits to Cap-and-Trade Through 2045

Source: Spectrum News (AP Photo/Rich Pedroncelli)

California lawmakers approved extending the state’s cap-and-trade program through 2045, a program that otherwise would have expired in 2030, giving firms and investors a much longer policy runway.

The package locks in carbon pricing and directs sizable, multi-year revenue to infrastructure, climate programs, and consumer bill relief. Lawmakers also included measures to speed oil permitting and shore up fuel supplies, a political trade-off that drew sharp criticism from the environmental and community advocates.

The deal sends a clear market signal: California will put a price on carbon for decades, but political compromise will shape how that price works in practice

Why This Matters

• California's GDP is $4.1 trillion, 4th largest globally, behind the U.S., China, and Germany, is acting to address climate change (IMF) .

• Carbon pricing will shape costs and investments for the next 20 years.

• Revenues are now more predictable and earmarked for clean infrastructure, transit, high-speed rail, housing, and safe water.

• The package loosens some permitting and review for oil and pipelines to protect fuel supplies and limit price shocks.

• However, the combination of carbon policy and fossil-fuel concessions raises real questions about pollution and protection in communities which are at most risk.

Winners

Energy producers and oil companies gain more room to operate through eased permitting and support for domestic crude production. Infrastructure, transit, and water projects benefit from stable, long-term funding. Consumers may see targeted relief through climate credits tied to utility bills.

Environmental justice advocates warn that weaker oversight or generous offsets could allow local pollution to persist or worsen in vulnerable neighborhoods. There is also a risk that overly lenient allowances or offset rules could weaken long-term emissions outcomes

Next The extension buys California predictability: businesses, utilities, and developers can plan knowing the cap-and-trade regime will remain in place for two decades. That stability can encourage investment in clean energy and public infrastructure.

At the same time, the deal highlights the tension between climate ambition and short-term economic or political pressures. If compromises such as expanded drilling or weak offset rules go too far, they could undermine both environmental integrity and public trust in the policy.

Given California’s economic scale and influence, this package will likely serve as a model or a cautionary example for other jurisdictions weighing carbon pricing, affordability, and energy reliability.

The extension buys predictability and funds clean infrastructure, but it pairs climate goals with concessions to fossil fuels; the net impact will hinge on rulemaking for offsets, allowances, and local pollution monitoring. The question is, will regulators tighten the rules and steer funds to equitable, low-carbon outcomes or will political compromises weaken the program’s climate impact?