California Lawmakers and Governor Newsom at Odds Over Climate Fund Future
California state lawmakers are set to clash with Governor Gavin Newsom over the future of the state's climate fund, generated by the cap-and-invest program. New rules approved by the California Air Resources Board will significantly reduce the program's revenue by…
San Francisco Oakland San Jose, CA, August 3, 2026 —
A fiscal debate is emerging in California as state lawmakers and Governor Gavin Newsom face diverging views on the allocation of funds generated by the state’s cap-and-invest program. The core of the disagreement centers on the future revenue stream for the climate fund, which is financed through the sale of pollution permits.
New regulations recently approved by the California Air Resources Board (CARB) are poised to significantly impact the program’s financial output. These rules introduce an increased number of pollution permits that will be distributed to industries at no cost. This shift is projected to substantially decrease the revenue collected by the state, with estimates suggesting that annual deposits into the climate fund could be cut in half.
The reduction in available revenue necessitates difficult choices regarding how to allocate the remaining funds. Governor Newsom has consistently underscored the cap-and-invest program’s foundational objective: to drive down greenhouse gas emissions. He has stated that the program’s purpose is not to serve as a perpetual source of funding for a wide array of state initiatives.
Conversely, many state lawmakers are advocating for the continued allocation of climate fund resources to programs such as affordable housing and public transit. These legislators argue that these initiatives are essential for achieving broader state goals, including environmental justice and economic development. The tension arises from the potential decrease in funds available for these critical areas due to the CARB’s new rules.
The cap-and-invest program, designed to put a price on carbon pollution, generates revenue through auctions of allowances that companies must hold to cover their emissions. The recent decision by CARB to increase the free allocation of these allowances directly affects the number of allowances available for auction, thereby reducing the overall revenue collected. This policy change is expected to reshape the financial landscape for numerous state programs that have come to rely on the climate fund.
Story summarized from the original created by Steph Rodriguez on ww2.kqed.org, see more information here.
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