AB 1207, introduced by Assembly Members Jacqui Irwin and Robert Rivas alongside Senators Monique Limón and Mike McGuire, was passed and signed in September 2025. The law formally renames the existing cap-and-trade framework as the California Cap-and-Invest Program and extends its authority for two additional decades, from 2031 to 2046.
The Legislature underscored the rebranding as a reflection of the program’s dual mandate: reducing emissions and reinvesting proceeds. “Action taken by California to reduce emissions of greenhouse gases will have far-reaching effects by encouraging other states, the federal government, and other countries to act,” lawmakers wrote in the amended statute.
One of the bill’s defining features is its new emphasis on affordability. Revenues from allowance sales at the program’s price ceiling will flow into a newly established California Climate Mitigation Fund. The fund is designed to:
The California Public Utilities Commission (CPUC) must ensure residential credits appear on customer bills during no more than four high-bill months per year, maximizing visibility and financial relief.
Governor Gavin Newsom emphasized the dual role of affordability and climate ambition at the signing ceremony in San Francisco:
“We’re doubling down on our best tool—Cap-and-Invest—by making polluters pay for projects that support our most impacted communities.”
The law directs the California Air Resources Board (CARB) to transition support from natural gas corporations to electrical distribution utilities by 2031, aligning policy incentives with the state’s electrification and building decarbonization goals.
This shift is intended to reduce ratepayer exposure to volatile gas markets while ensuring that climate credits and program revenues more directly benefit customers of electric utilities as California accelerates its clean energy transition.
AB 1207 also tightens guardrails around the use of carbon offsets. From 2026 through 2045, no more than 6% of a company’s compliance obligation can be met with offsets, and at least half must deliver direct environmental benefits in California—such as local air quality improvements or watershed protections.
The bill preserves the Compliance Offsets Protocol Task Force, which advises on new project types, including carbon removal and natural and working lands solutions. It also continues the role of the Independent Emissions Market Advisory Committee through 2046 to monitor program performance and recommend adjustments.
Recognizing transmission as a key bottleneck for renewable integration, AB 1207 directs 5% of allowance revenues from 2026 to 2031 into the California Transmission Accelerator Revolving Fund, managed by the California Infrastructure and Economic Development Bank.
This funding mechanism supports financing for new transmission projects, addressing one of the most cited barriers to meeting California’s 100% clean energy goals. Industry analysts have warned that without expanded transmission capacity, renewable projects face significant interconnection delays and escalating costs.
California’s extension arrives as carbon pricing spreads worldwide. The World Bank reports that more than 80 carbon pricing initiatives are active globally, covering about 28% of global emissions and generating over $100 billion in annual revenues. Few programs, however, extend as far into the future as California’s, giving the state outsized influence on investor confidence and long-term planning.
Nonprofit analysts, including the Clean Air Task Force, point to California’s offset restrictions and affordability measures as meaningful evolutions in program design. These changes respond to critiques that earlier versions of cap-and-trade did too little to protect vulnerable communities or prevent price volatility.
