$3 Billion gone: California’s signature climate program Is bleeding money

Sacramento, California – California may have lost as much as $3 billion in potential revenue over the past year due to faltering results in its landmark cap-and-trade program, according to a new report released Monday by Clean and Prosperous California, a nonprofit research group focused on state climate policy.

At the center of the decline is a sharp drop in “allowance prices”—the cost of the carbon pollution permits that companies must buy under California’s emissions cap. Prices have plunged from a high of $42 per metric ton of carbon dioxide to just $26 this year, near historic lows. That crash has rippled across the state’s climate financing system, starving programs meant to mitigate the worst impacts of climate change.

“These funds would have otherwise been directly invested into communities and used to lower utility bills for ratepayers,” said Clayton Munnings, executive director of Clean and Prosperous California.

The cap-and-trade program, once a pillar of California’s climate ambitions, is beginning to show cracks as market conditions, political pressures, and federal opposition mount. The program operates by setting a limit on overall carbon emissions and issuing a finite number of tradable permits to polluters. But with demand for permits down and legislative uncertainty about the program’s future past 2030, prices have failed to hold.

The result, according to the report, is the loss of hundreds of millions of dollars per quarter—revenue that could otherwise be used to fund electric vehicle subsidies, forest management, public transit, and other projects essential to reaching California’s 2045 carbon neutrality goal.

The authors of the report warn that unless the legislature acts quickly to extend the program’s end date beyond 2030 and the California Air Resources Board (CARB) moves to cut the number of available permits, the state may continue losing between $600 million and $1 billion at each quarterly auction. May’s auction likely fell within that range.

The timing is especially precarious. Following the recent passage of President Trump’s sweeping legislative package—dubbed by critics as “one big, beautiful bill”—Governor Gavin Newsom warned that California’s climate initiatives face new headwinds. The governor’s office said the legislation could slash funding for wildfire prevention, reduce the number of trained firefighting personnel, and eliminate tax incentives for electric vehicles.

The collapse in cap-and-trade revenues leaves the state more exposed than ever. The report suggests that stabilizing prices through a reduction in permit supply could not only restore financial footing, but also help close the growing gap between California’s climate ambitions and its practical ability to meet them.

As the state confronts worsening droughts, more destructive fire seasons, and rising federal hostility to climate action, the stakes are clear: without decisive policy intervention, California risks undercutting the very programs designed to save it.