On February 26, 2025, the California Joint Legislative Committee on Climate Change Policies held a hearing on the state’s Cap and Trade program. California’s Cap and Trade program. The program is supposed to be one of the most effective tools California has for both reducing climate pollution and generating funds to invest in climate solutions. But as it’s currently structured, the program gives Big Oil far too much license to pollute.
The following testimony was given to the committee by Allison Hilliard, Legislative Manager for The Climate Center:
Hello Chair and committee members. My name is Allison Hilliard and I am the Legislative Manager for The Climate Center.
The goal of Cap and Trade is to decarbonize our economy and lower greenhouse gas emissions.
We must rapidly phase out free allowances to polluting firms to maximize their incentives to adopt carbon-free technologies. Currently, the Cap and Trade program provides free allowances to oil and gas production and refining, amounting to nearly $1 billion in subsidies each year. This gives no incentive for decarbonization.
Instead, we should create incentives for these companies to reduce their emissions and use the funds generated to help Californians struggling with rising energy costs. This can be done through state programs, but we believe a significant amount should also be provided as direct rebates to low- and middle-income households to support them with rising energy and gas bills. A rebate more visible than the Climate Credit, which is buried on their utility bill, will assist them in the transition to a cleaner economy and help build political support for climate investments.
California should introduce an allowance adjustment mechanism to rectify the oversupply of compliance instruments, which results in very low carbon prices. This will lead to a more balanced and efficient carbon market and more stable revenue for the Greenhouse Gas Reduction Fund.
We strongly recommend an emission containment reserve, like the one used in Europe, which will reduce the number of allowances when there is oversupply or very low carbon pollution prices. California should also eliminate offsets as a compliance instrument since they are unreliable. We suggest replacing them with direct and creditable emissions reductions.
To effectively decarbonize and lower greenhouse gas emissions, the Cap and Trade program must phase out free allowances for polluting firms and create stronger incentives for emission reductions. Some revenue from the program should be directed to help Californians with rising energy costs. Finally, measures like an emission containment reserve should be introduced to stabilize the carbon market and ensure more reliable emissions reductions.
Thank you.
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