The new framework is slated to take effect on September 1, 2026.

California regulators revamped the cap-and-trade program, now called cap and invest, by creating a Manufacturing Decarbonization Incentive and allocating about $3.5 billion in free allowances to manufacturers and oil refiners for emissions-reducing projects.

Environmentalists and climate advocates warn the changes could undercut funding for climate programs and reduce incentives for real emissions cuts, potentially slowing progress toward state targets.

About $800 million is added to shield consumers from cost transfers at the gasoline pump.

The reform emerged after extensive public comment and lobbying from environmental groups and the oil industry, with concerns over guardrails and potential program misuse.

Industry views are mixed: some see long-term certainty for energy reliability and investments, while others warn higher imports and costs if affordability is hurt.

Reactions split along lines of stakeholders, with oil interests seeking price relief and environmental justice groups viewing the plan as a retreat from strong climate action.

Regulators frame the plan as balancing energy affordability with continued emissions reductions, though critics warn of higher emissions if climate funding declines.

Regulators paused issuing new allowances from the incentive program pending tighter review and possible amendments by the agency’s executive officer.

The board signaled ongoing scrutiny of the incentive program with further public comment and potential changes before any new allowances are issued.

The policy aligns with California’s legally mandated targets of cutting emissions to 40% below 1990 levels by 2030 and 85% by 2045, while grappling with affordability and external energy-market pressures.

Support comes from utility giants like PG&E and Southern California Edison, with lawmakers urging guardrails to ensure alignment with climate targets.