R48314 — The California Cap-and-Trade Program: Overview and Considerations for Congress

California’s cap-and-trade program, launched in 2013, is one example of a market-based, greenhouse gas (GHG) emissions reduction policy adopted and implemented in the United States. Insights into the design and results of California’s cap-and-trade program may be informative for federal policymakers considering market-based climate policies. Additionally, Congress may be interested in certain aspects of the cap-and-trade program, such as the state’s Greenhouse Gas Reduction Fund (GGRF) or the state’s program for issuing offset credits. By establishing a limit or “cap” on total emissions and a market for entities to “trade” emissions allowances, “cap-and-trade” creates an economic incentive to reduce emissions. California’s cap-and-trade program is part of the state’s broader strategy to reduce (i.e., mitigate) GHG emissions and meet its GHG targets. The California legislature has established GHG targets for 2020, 2030, and 2045—and requires the state to achieve net-zero GHG emissions, a status where human-caused GHG emissions to the atmosphere are balanced by removal of GHGs from the atmosphere. California’s program is often referred to as the first “economy-wide” GHG cap-and-trade program due to its broad scope: It covers the majority—approximately 80%—of statewide GHG emissions from multiple sectors of the economy, including electric power, industry, transportation, and buildings. California state policymakers have historically described the role of the state’s cap-and-trade program as a “backstop” to other climate policies, with the emissions cap providing a measure of certainty for the state to achieve its GHG targets. Further, the cap-and-trade program creates a financial incentive for entities to identify and implement emissions reduction opportunities—at the lowest cost—and provides a signal to the market to transition to an economy that emits fewer GHG emissions. According to California policymakers, the role of the program may evolve as the state works toward its GHG targets for 2030 and 2045. The economic impacts of cap-and-trade are largely driven by emissions allowance prices. Allowance prices have generally been at or near the price floor until 2021. California’s program design includes a number of elements to contain costs for covered entities; these elements have likely helped mitigate cost impacts on consumers. For example, the state allocates approximately half of emissions allowances to industry and utilities at no cost, and a portion of these allowances are used to fund a statewide dividend for customers’ energy bills. GHG emissions have decreased in California, and the state met its GHG target for 2020 ahead of schedule. It is uncertain what level of emissions reductions can be attributed solely to the cap-and-trade program. California estimates that GHG reductions from projects funded by cap-and-trade allowance auctions total nearly 110 million metric tons of carbon dioxide equivalence. The revenue the state has received from auctioning allowances—approximately $28 billion to date—has provided a new source of funding for the state’s programs. California created a new fund, the GGRF, for these monies and requires at least 35% of GGRF appropriations to be directed to projects located in and benefiting disadvantaged and low-income communities and projects that benefit low-income households. The California cap-and-trade program has broadened its impact by linking with Québec’s cap-and-trade program. It also provides a model for others to consider. New York, Washington, and Oregon have adopted similar programs.

Curated by CRS — every bill listed in this report's relatedMaterials. Edge type cited_in_report, gold confidence.

• HR 6665 — MARKET CHOICE Act · 118th Cong
• HR 6622 — Clean Competition Act · 118th Cong
• HR 5744 — Energy Innovation and Carbon Dividend Act of 2023 · 118th Cong
• S 3422 — Clean Competition Act · 118th Cong
• HCONRES 86 — Expressing the sense of Congress that a carbon tax would be detrimental to the United States economy · 118th Cong