Assembly presses CARB on cap-and-invest amendments; LAO warns of lower GGRF revenue and program risk

California Air Resources Board staff told the Assembly Budget Subcommittee that proposed 15-day amendments to the cap-and-invest program reduce the cap through 2030 (an 11% rate for the next three years then 7% thereafter), increase some free allocations to utilities, and create a Manufacturing Decarbonization Incentive (MDI) that would make up to roughly 118 million additional allowances available for industrial facilities to fund permanent decarbonization investments.

CARB said the MDI is intended to "pull forward" permanent emissions reductions at otherwise hard-to-abate facilities by giving value now for investments such as converting natural-gas boilers to electric systems, paired with third-party verification and reporting requirements. "We plan to make applications public and provide regular reporting," CARB staff said, emphasizing verification and monitoring.

The Legislative Analyst's Office and several Assembly members pushed back. LAO analysts said adding new allowances and reallocating supply could depress auction prices and materially reduce GGRF revenues, potentially lowering available funds to roughly $2 billion a year under some scenarios. LAO flagged three broad concerns: (1) the proposed changes are significant compared with January and current law; (2) the MDI could undermine the integrity of the cap if not tightly constrained and verified; and (3) reductions to GGRF revenues would force reprioritization of tiered programs, including wildfire prevention, transit and affordable housing.

Lawmakers expressed sharply divergent views. Some urged CARB to remove the MDI and retire the extra allowances to protect GGRF funding and environmental ambition; others argued limited allowances could blunt cost impacts on consumers and preserve industrial jobs while still achieving reductions if strict reporting and verification are enforced. Multiple environmental, transit and housing organizations testified during public comment urging CARB to eliminate the MDI and to prioritize GGRF spending on frontline community programs and wildfire prevention.