On October 29, 2025, the California Air Resources Board (CARB) held a workshop to discuss potential amendments to its Cap-and-Invest Program, outlining plans for a faster rulemaking process and key updates to allowance budgets, offset treatment, and allocation methods. The presentation slides released ahead of the session provided important insight into how CARB aims to align the program with recent legislative extensions and long-term decarbonization goals.
Allowance Budget Adjustments
CARB confirmed plans to adjust future allowance budgets beginning in 2027, reflecting the timeline needed to complete the rulemaking process. The agency proposed removing 118 million allowances between 2027 and 2030, a more moderate reduction than the 180 million previously discussed under an earlier scenario. According to CARB, this approach is intended to minimize disruption for compliance entities while managing affordability for consumers.
Offset Usage and Allowance Removal
A major focus of the workshop was AB 1207, which mandates allowance removals to account for offset use under the cap. CARB is still determining how best to implement this requirement, as a direct removal process could cause allowance supply fluctuations every three years due to compliance cycles.
Instead, CARB is considering an approach where allowances are gradually transferred to the APCR based on expected offset use. This method may potentially provide a more stable supply outlook and avoid abrupt market impacts. CARB has opened the issue for public comment, particularly regarding how offset removals should be managed between now and 2030, given that some provisions for this period are already in place.
Free Allocations
CARB is also seeking feedback on maintaining elevated free allocations for industrial sectors despite the tighter cap trajectory, a reflection of the state’s continued emphasis on affordability and competitiveness. The agency is evaluating how to incorporate AB 1207’s requirements for transferring a portion of free allocations from natural gas utilities to electricity utilities, with timing and scope still under consideration.
Next Steps and Outlook
CARB aims to bring the proposed amendments to its Board for consideration by April 2026, with implementation targeted for September 2026. The workshop signals a bullish outlook on allowance prices due to confirmed supply reductions and an accelerated regulatory timeline. The tighter post-2030 cap trajectory suggests that cumulative deficits could build sooner than expected, potentially leading to earlier activation of the APCR tiers. ClearBlue will continue to follow these developments and provide updates.
For more information about ClearBlue's advisory services or market intelligence coverage, please contact us.