Last week, California Governor Gavin Newsom presented the budget revision, which was of high interest to Western Climate Initiative (WCI) participants given ongoing discussions to extend California’s program beyond 2030.
Indeed, the budget included a proposal to extend the program through to 2045 and renamed the program from “Cap-and-Trade” to “Cap-and-Invest”, emphasizing the program's benefits to Californians. The California program has come under recent threat, given the Federal administration’s anti-climate agenda and an April 8th Executive Order that directly called out the program’s integrity for state overreach. Washington’s program is also strategically called “Cap-and-Invest” to emphasize the community benefits derived from such programs rather than implying a tax component, which typically has negative political optics.
The program extension to 2045 underscores the state’s commitment to combating climate change through market-driven mechanisms. The program has been a key component of California's climate strategy since 2013, and sets a statewide limit on greenhouse gas emissions and allows businesses to buy, sell, or trade allowances under that cap. Extending the program gives much-needed regulatory certainty for businesses and investors, encouraging sustained innovation and investment in clean energy technologies. This move aligns with California's ambitious goal of achieving net-zero emissions by 2045, ensuring a steady decline in carbon emissions while maintaining economic growth.
The affirmation of the 2045 carbon neutrality goal suggests the program fundamentals must tighten, though how the Governor, the Legislature, and California Air Resources Board (CARB) view the future cap trajectory and cost containment must still be clarified.
Quebec’s government has not made any comment at the time of writing, following this announcement. Quebec’s carbon market operates in a linked market with California through the WCI, however, this pertains to the joining of markets, but not program design itself. Therefore, legislative changes to California’s program don’t directly affect Quebec’s program design. Nonetheless, any changes that impact allowance pricing are notable to Quebec given California’s substantially larger size as a market player. Quebec is also undergoing a program review to align its program design with emission reduction goals. While Quebec has the authority to implement and design its program independently from California, it may choose to wait for further clarity from California to align program revisions.
This update is notable for participants under Quebec’s carbon program, which operates in a linked market with California through the WCI. Legislative changes to California’s program integrity don’t directly affect Quebec, as WCI pertains to linked markets for allowances, but each jurisdiction retains its own authority to implement and design its programs; however, changes to California’s program impact pricing given its substantially larger size as a market player.
California Carbon Allowances (CCA) prices traded up throughout the day of the announcement, as participants awaited the Governor’s press conference. However, CCAs evened out, as participants had already anticipated the Governor’s proposal weeks prior. Furthermore, President Trump's April 8th Executive Order still overhangs the market, with the Attorney General due to present her report to the President on June 8th.
ClearBlue will continue to monitor these developments and will update clients as needed.