On August 12, 2026, the California Senate Budget Subcommittee 2 held a hearing on potential reforms to the state’s Cap and Invest program. As currently proposed, the changes could result in $2 billion losses for the Greenhouse Gas Reduction Fund (GGRF) each year, which funds investments in low-carbon transportation, clean air and water, sustainable agriculture, and more.
The following testimony was provided to the committee by Allison Hilliard, Government Affairs Director for The Climate Center:
The Climate Center would like to express our support for using the general fund to backfill Tier 3 programs for the next budget year at SB 840 levels. In order to continue to fund Tier 3 priorities at levels that more closely approach SB 840, the legislature should consider eliminating the Manufacturing Decarbonization Incentive (MDI), because it is outside the cap and erodes program integrity; it is not aligned with the intent in AB 1207 or SB 840; and it greatly reduces revenue for GGRF. At a minimum, the legislature should establish sensible guidelines and guardrails to limit the damage that the MDI will do to GGRF and other program priorities by:
- Requiring CARB to provide a rationale for setting 118 million allowances as the pool of allowances available for the MDI. CARB must consider whether the objective of the MDI could be achieved with a much smaller allocation of allowances.
- Requiring CARB to do an analysis to evaluate each industrial sector for leakage risk before their inclusion in the MDI program, with special attention paid to whether industries already receive free allowances under the existing program and require additional program support.
- Requiring that all allowances allocated under the MDI must result in equivalent greenhouse gas emission reductions that are real, permanent, quantifiable, verifiable, and enforceable by the state board as an allowance used for compliance obligations. The greenhouse gas emission reduction must occur within a year of when the allowance was issued and is equivalent in amount to a direct emission reduction required by law to reach California’s 2030 and 2045 greenhouse gas reduction goals.
- The total number of allowances allocated pursuant to the MDI program does not exceed 20 million per calendar year.
Thank you for your consideration.
