Governor Gavin Newsom has signed legislation extending California’s cap‑and‑trade program through 2045, rebranding it as “cap‑and‑invest.” The program, which was set to expire in 2030, is one of the state’s most significant tools for reducing greenhouse gas emissions. By extending it, California has committed to aligning its emissions policy with its broader goal of achieving carbon neutrality by 2045.
The law was signed on September 19, 2025, at the California Academy of Sciences in San Francisco. According to U.S. News, the extension includes new investments in affordable housing, transportation, and environmental justice programs. It also directs revenue toward the state’s high‑speed rail project and wildfire prevention efforts.
How Cap‑and‑Trade Works
Cap‑and‑trade is a market‑based system designed to reduce greenhouse gas emissions. The state sets a declining limit, or “cap,” on the total amount of emissions allowed from major polluters such as oil refineries, power plants, and large manufacturers.
Companies must either reduce their emissions to stay under the cap or purchase allowances from the state or other businesses. Each allowance represents the right to emit a specific amount of carbon dioxide. If a company emits less than its allowance, it can sell the excess to others. If it emits more, it must buy additional allowances.
The revenue generated from these sales funds climate‑related projects across California. These include clean transportation, renewable energy, affordable housing near transit, and rebates on utility bills known as the California Climate Credit.
By rebranding the program as “cap‑and‑invest,” lawmakers emphasized that the money collected from polluters is reinvested into programs that benefit residents and communities most affected by pollution.
Why the Extension Matters
The extension of cap‑and‑trade through 2045 provides long‑term certainty for businesses, investors, and regulators. Without it, the program would have expired in 2030, creating uncertainty about how California would meet its climate targets.
Supporters argue that extending the program strengthens California’s position as a national leader in climate policy. It also ensures that the state has a consistent mechanism to reduce emissions while funding projects that improve air quality and public health.
Critics, however, have raised concerns about the program’s impact on energy prices. Some lawmakers and industry groups argue that requiring companies to buy allowances could increase costs for consumers, particularly in gasoline and electricity. According to CalMatters, the broader climate package also included measures to stabilize gas supplies and provide relief on electricity bills, aiming to balance affordability with environmental goals.
Balancing Climate Goals with Economic Growth
California’s economy is the largest in the United States and the fifth‑largest in the world. Any major climate policy must consider both environmental and economic impacts.
The cap‑and‑trade extension reflects this balance. On one hand, it sets a clear path toward reducing emissions and achieving carbon neutrality by 2045. On the other, it includes provisions to support industries and protect consumers from sudden cost increases.
For example, the legislation directs $1 billion in program revenue to the state’s high‑speed rail project, $800 million to affordable housing, and $250 million to community air protection programs. These investments are designed to create jobs, improve infrastructure, and reduce pollution in vulnerable communities.
At the same time, the package allows for new oil drilling permits in Kern County to prevent refinery shutdowns that could raise gas prices. Utilities also received expanded protections against wildfire liability, which supporters say will help stabilize electricity rates.
This combination of measures illustrates the state’s effort to pursue ambitious climate goals while addressing immediate economic concerns.
What This Means for Californians
For residents, the extension of cap‑and‑trade may not be immediately visible. However, its effects will be felt in several ways:
Utility Bill Credits
The California Climate Credit, funded by cap‑and‑trade revenue, appears twice a year on utility bills. This credit will continue under the extended program, providing direct financial relief to households.
Cleaner Air and Health Benefits
By requiring polluters to pay for emissions, the program encourages cleaner technologies and reduces air pollution. This can improve public health, particularly in communities near industrial facilities.
Infrastructure and Housing Investments
Revenue from the program will fund projects such as affordable housing near transit, high‑speed rail, and community air monitoring. These initiatives aim to improve quality of life while reducing emissions.
Economic Stability
The extension provides certainty for businesses planning long‑term investments in clean energy and technology. It also helps California maintain its role as a hub for climate innovation.
Looking Ahead
California’s cap‑and‑trade program has been in place since 2013 and has already generated billions of dollars for climate projects. Extending it through 2045 ensures that it remains a central part of the state’s climate strategy.
The program will continue to face scrutiny. Supporters see it as a practical tool for reducing emissions while funding public benefits. Critics argue that it allows polluters to buy their way out of reductions and may increase costs for consumers.
What is clear is that California has chosen to double down on its climate commitments. By extending cap‑and‑trade, the state has provided a framework for reducing emissions, investing in communities, and balancing environmental goals with economic realities.
