SACRAMENTO, California — California regulators handed Gov. Gavin Newsom a narrow political victory on Friday: an overhaul of the state’s signature carbon market that lets the 2028 potential presidential contender claim he’s advancing his climate agenda, while also fending off attacks over affordability.
The California Air Resources Board voted 10-3 to extend and change its rules for the state’s cap-and-invest program, which forces big polluters to pay for their greenhouse gas emissions.
For Newsom, the vote achieves several things at once: It keeps California’s marquee carbon market moving forward, advances his goals for blue-state climate cooperation, and gives oil companies some relief after Chevron warned an earlier version of the reforms risked adding more than $1 per gallon to gas prices by 2030.
Regulatory staff forecasted on Friday that the approved changes to the rules wouldn’t increase gas prices, though aren’t likely to decrease them, either.
The deal matters for a governor who has worked to establish California as a leading voice in global climate politics while he prepares for a possible national campaign in which his state’s high energy costs are certain to be a liability.
“While Trump sows ongoing chaos and uncertainty, California is staying focused by protecting our economy, safeguarding public health, and doubling down on the clean energy future all Californians deserve,” Newsom said in a statement shortly after the vote.
California’s cap-and-invest program has been a central piece of the state’s climate strategy since 2013, helping cut emissions while raising billions of dollars for climate programs, and inspiring copycats around the world. It works by forcing polluting companies to buy permits covering their emissions all while decreasing the number of permits over time.
Friday’s overhaul eases costs for in-state refineries and creates a new incentive for companies that invest in cleaner technology, meaning some companies could reduce part of what they owe by showing they are spending money on projects that cut emissions.
But the move also shows how far the politics of climate have shifted: Even in deep-blue California, politicians have moved from setting ambitious climate goals to scrambling to hold the line against a cost-of-living backlash.
It is the latest sign of Newsom’s recalibration on energy, following a deal to streamline oil permitting in Kern County as refinery closures and gas prices posed serious political problems.
“I don’t see it as pulling back,” CARB chair Lauren Sanchez, a former top Newsom aide, said in an interview this week. “The federal headwinds are unprecedented, and it is even more important now that California moves forward, to continue to show the world that we can balance our climate ambitions and these affordability concerns.”
And the pressure is likely to outlast Newsom. In the 2026 governor’s race, two Democrats running to succeed him have criticized the carbon market on the campaign trail, while Republicans are trying to turn CARB into a symbol of California’s affordability crisis.
Environmental groups and progressive Democrats warned the changes would make California’s goal to reduce emissions to 40 percent below 1990 levels by 2030 impossible to reach, and amounted to a handout of billions of dollars to polluting companies.
Transit, water, housing and community groups opposed the new changes for a different reason: A weaker market means less revenue for the projects that helped make cap-and-invest politically durable in the first place. That double backlash led members of a state Senate budget panel to vote on the eve of CARB’s meeting to reject Newsom’s climate spending plan for the year unless changes to the package were made.
“I still fail to see the rationale for significantly cutting California's public investments while providing billions of dollars in new funding to industrial emitters,” said state Sen. Eloise Gomez Reyes, a Democrat, before the vote.
Newsom’s allies have argued that the fight is bigger than Sacramento politics, saying that anything other than voting to extend the program now would cede ground to President Donald Trump, who is moving to undercut California’s climate authority. To them, the vote shows California holding steady, while others retreat.
“If we fail now to adopt the proposed amendments to cap-and-invest, it would be without a doubt the greatest victory that the Trump administration could possibly hope for to achieve against California's climate policies this year,” state Assemblymember Jacqui Irwin, who wrote last year’s state law extending the program through 2045, told the regulators before the vote.
In Pennsylvania, Gov. Josh Shapiro — another Democrat widely viewed as a possible 2028 contender — signed a budget deal pulling the state out of the Northeast’s own version of a carbon market, saying he wanted to move past the fight and focus on energy costs.
New York has moved to weaken parts of its landmark climate law after warnings about costs, while pushing off plans to create its own cap-and-invest program.
And the European Union, whose carbon market is larger than California’s, has also slowed parts of its climate agenda amid concerns about costs.
The vote now also paves the way for Newsom to take the next step toward linking California’s carbon market, which it already jointly operates with Québec, with Washington state’s. That would create a larger pool of permits and potentially make the system more stable. It would also give Newsom a concrete example of blue-state climate cooperation as Trump attacks California’s authority to set its own ambitious climate rules.
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