SACRAMENTO — The California Air Resources Board updated the rules of the state’s cap-and-invest program on May 29, 2026, voting 10–3 to approve changes that allocate up to $3.5 billion in free emissions allowances to manufacturers and oil refiners for decarbonization projects. The revised program creates a new pool of 118 million allowances above the cap, which companies can receive under a new initiative called the Manufacturing Decarbonization Incentive.

The updates also remove 118 million pollution allowances from the market by 2030 and 900 million after 2030. However, according to the nonpartisan Legislative Analyst’s Office, the changes will likely halve annual revenues for the Greenhouse Gas Reduction Fund, which previously received about $4 billion annually from allowance sales. California Air Resources Board Chair Lauren Sanchez defended the revisions, saying, “Moving forward shows that we can be responsive to affordability concerns, new legislative direction, while also setting a clear signal for Californians, other states and global partners that we remain committed to driving long-term investments in clean energy jobs and reducing pollution in communities.” She added, “It is no secret that climate policy is at a crossroads — under attack by an openly hostile and well-funded opposition and upended by global economic upheaval.”

Caroline Jones, senior analyst with the nonprofit Environmental Defense Fund, criticized the new allowances, saying, “CARB has proposed creating exactly 118.3 million additional allowances outside the cap, the precise number of allowances that must be removed from the cap to keep us on track for our 2030 targets. This undermines the cap’s role in actually limiting climate pollution, which is the core function of this program.”

Jodie Muller, president and CEO of the Western States Petroleum Association, supported the policy, saying, “California refineries need long-term certainty to make the investments that keep energy reliable and affordable for consumers –- and right now, that certainty stops at 2030.”

The updated rules increase funding by $2 billion from 2027 through 2030 for utility bill credits to Californians and set aside about $800 million to help businesses limit costs passed on to residents. The California Air Resources Board also agreed to delay issuing allowances from the new incentive program until its executive officer reviews it and proposes amendments.