- Governor Newsom signed a bipartisan energy-and-climate package that extends and renames California’s Cap-and-Trade program to Cap-and-Invest through 2045.
- The laws commit at least $60B to electricity-bill relief via expanded Climate Credits and tighten offsets with a 6% compliance cap and stronger in-state benefit requirements.
- Companion measures aim to stabilize fuel and power markets by enabling targeted Kern County oil production, expanding utility wildfire oversight and funding, and allowing participation in a Western regional electricity market.
- Markets get longer-term policy certainty and new investment pipelines, but execution risks remain around rulemaking complexity, leakage and offset integrity, and ratepayer cost allocation.
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The legislative package signed by Governor Gavin Newsom in September 2025 marks one of the most ambitious reauthorizations of climate policy in California in recent memory. AB 1207 and SB 840 reestablish the Cap-and-Invest program until December 31, 2045, providing market certainty beyond the previous end date of 2030 under AB 398. This extension is crucial for long-term planning and reducing regulatory risk for emitters, project developers, utilities, and financial investors.
On affordability, the bills commit over $60 billion in electricity bill refunds for households and small businesses. The California Climate Credit will be expanded and applied during high-bill months, with greater support targeted toward low-income Californians. These measures seek to dampen backlash over rising utility costs while preserving momentum toward decarbonization.
Regarding emissions mitigation, the reform also strengthens offset rules: California now caps offset credits used for compliance at 6 % of entities’ obligations, with at least half required to deliver direct environmental benefits in-state. Existing offset protocols must be revised by 2029 and then every five years starting in 2034. This indicates a move to improve offset quality, align incentives, and prevent reliance on external or weak emissions reductions.
The package also addresses near-term energy stability and fossil fuel volatility: SB 237 opens the door to increased, localized oil production in Kern County under stricter environmental scrutiny; utility wildfire funds are expanded and more rigorously overseen; AB 825 allows for integration with a regional electricity market to improve operational efficiency and share clean generation capacity. These are measures to bolster resilience and price stability amidst climate and geopolitical threats.
For investors, businesses, and utilities, this package provides a clearer regulatory horizon and opportunities: carbon markets will extend, auctions and allowance allocations are reformed, new funds created, and project pipelines in clean energy, housing, transit, and nature-based solutions are expected to expand. However, implementation will face time lags (offset protocol updates starting in 2026, full reauthorization only effective through extended timeline, etc.), as well as the complexity of balancing economic competitiveness, ratepayer protection, and environmental justice.
Open questions and risks include: how emissions leakage will be monitored and addressed; whether offsets, particularly nature-based ones, will meet scientific and integrity standards; how costs imposed on utilities and refiners will be allocated without overburdening consumers; and whether expansion of oil production in Kern County can coexist with net zero by 2045 without legal or reputational backlash.
Supporting Notes
- The Cap-and-Trade program (renamed “Cap-and-Invest”) is now extended through December 31, 2045.
- AB 1207 maintains a 6 % cap on offsets from 2026-2045, with at least half of offsets delivering direct environmental benefits in California.
- The legislation commits “at least $60 billion” toward lowering utility bills for households and small businesses.
- The California Climate Credit will be issued during high-bill months to maximize impact.
- SB 237 legalizes a targeted and environmentally accountable increase in oil production in Kern County to stabilize supply.
- AB 825 authorizes participation in a western regional electricity market to reduce costs and improve grid reliability.
- SB 254 expands wildfire oversight over utilities and creates an expanded Wildfire Fund.
- Provisions require Orange County (via CARB) to update offset protocols by January 1, 2029; every five years thereafter.
- AB 1207 includes urgency clauses triggering effect upon signature, enabling immediate enforceability of key provisions.