Lawmakers worry about power bills as California updates climate plan

Kate Wolffe and Chaewon Chung, The Sacramento Bee on Feb 25, 2026

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California’s marquee climate policy — rebranded last year from “cap-and-trade” to “cap-and-invest” — was back in the Capitol this week as lawmakers scrutinized proposed changes to the program.

The policy, which lets companies and investors buy and trade allowances to emit carbon dioxide, was the central point of last-minute, closed-door negotiations at the end of the 2025 legislative session. Lawmakers were under pressure to reauthorize the existing policy to reassure investors and stabilize the allowance market.

The program has been credited with helping the state meet its 2020 climate goals early, generating $34 billion for climate investments in the state, and for returning $15 billion to customers through their utility bills.

However, legislators revealed Monday that the cap-and-invest market is stabilizing slowly, with allowance prices still low. Meanwhile, the California Air Resources Board, or CARB, has proposed a new set of draft regulations that would change how some allowances are distributed.

During Monday’s informational hearing at the Capitol, lawmakers and air-quality regulators wrestled with the proposed changes. The discussion was the latest foray into how the state can balance its ambitious climate goals with keeping electricity affordable and keeping California’s in-state fuel production stable.

A slide presented by Meredith Fowlie, the chair of California’s Independent Emissions Market Advisory Committee, summed up the conundrum: “Designing one cap and invest program to meet five or six or seven competing objectives means there will be trade-offs.”

CARB defends proposal

CARB’s chair, Lauren Sanchez, took the hot seat Monday, testifying in front of several highly engaged lawmakers about the agency’s proposed regulations, outlining how her staff believes the package will meet California’s climate targets while managing costs and market risks.

Lawmakers told Sanchez they were concerned about a decreasing number of allowances for electricity companies — allowances that are sold by investor-owned utilities like PG&E and returned to customers as “climate credits” on their bills. For publicly owned utilities, the allowances are invested in reducing ratepayer costs and cutting emissions.

Sanchez tried to allay legislators’ fears that the proposal could undermine energy affordability for ratepayers.

“We are continuing the ongoing protection for ratepayers on utility bills by providing free allowances that cover all of the compliance costs that utilities have for this program,” Sanchez said.

Sanchez pointed to CARB staff’s economic analysis showing the proposal would cost less than earlier scenarios by $20 billion and underscored the agency’s focus on affordability. She also encouraged utility companies to weigh in with the agency on how the policy would affect them.

The broad takeaway from the hearing was that CARB is taking a more gradual approach to change, especially in how it plans to redirect allowances from natural gas companies to electricity companies. This is where the tension between the agency and legislators comes from, as lawmakers are urging a faster shift.

CARB is proposing transitioning allowances from natural gas suppliers to electric utilities gradually from 2029 to 2037, a transition timeline that made some lawmakers uncomfortable.

“Natural gas is a fossil fuel. And if we are talking about another 14 to 15 years, I think we’re really missing the urgency of the problem,” said Assemblymember Jacqui Irwin, D-Thousand Oaks.

Cut emissions, avoid unintended consequences

Sanchez said the proposal is designed to cut emissions while avoiding unintended consequences, including companies moving production out of state, sharp increases in energy costs for consumers, and instability in the carbon market.

“This is a staff proposal trying to balance the time it takes to set up systems for a climate credit on a bill, minimizing impacts to those who may take longer to move from gas to electricity such as lower income households, and trying to implement the language in AB 1207,” Lindsay Buckley, a spokesperson for CARB, said in an email Wednesday, referencing one of the pieces of legislation that reauthorized the cap-and-invest program.

“We value the conversations with lawmakers and are interested in hearing what their intent was when the statute was being drafted. ... Our intent is to always be in compliance with statutory direction.”

CARB is collecting public comment on its proposal through March 9, and is expected to vote on the proposal in the spring, with the regulations going into effect in September. Legislators encouraged the agency to meet its deadline.

“We know the world’s watching. We know our markets are watching,” said Assemblymember Henry Stern, D-Sherman Oaks. “Everyone feels, whether you’re living in an EJ (environmental justice) community on the front lines of things or you’re a compliance entity, that everyone wants some certainty out there.”

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