Dive Brief:

• The California Legislature yesterday authorized extension of the state's greenhouse gas cap-and-trade market for 10 years, while also approving several changes meant to strengthen the market.
• Among the program changes outlined in AB 398, lawmakers opted to reduce free carbon allowances by 40% by 2030 and require offsets to be sourced in California.
• Lawmakers also cleared Assembly Bill 617 (AB 617), a companion measure to AB 398 that requires to improve air quality in certain communities by increasing monitoring and passing stricter pollution penalties. 

Dive Insight:

California has aggressive environmental and carbon goals, and strengthening the state's carbon market is one way to help meet them. The measure already has the backing of Gov. Jerry Brown. 

Chris Busch, director of research for Energy Innovation, said the changes lawmakers approved will help stabilize the market and create demand for offsets. The state wants to cut greenhouse gas emissions by at least 40% below 1990’s level by 2030.

"Future auctions will sell out completely in the coming years, at least through 2020," Busch said in a statement. “Our analysis finds adopting this legislation should generate about $1 billion in additional carbon allowance auction revenue between now and 2020."

Energy Innovation those funds, which go towards the state's Greenhouse Gas Reduction Fund, will grow more than $26 billion in new revenue for the GGRF from 2021 to 2030.  Additionally, the bill directs proceeds from the auctions towards clean energy development, particularly in low-income areas.

Democrats have a supermajority in California's legislature, and the vote was largely split along party lines, with the Assembly passing the measure with a vote of 55 to 21. Reuters notes that only a single Republican Senator voted in favor.

Passing the extension with a two-thirds supermajority was important to protect the market from legal challenges. In the past, the California Chamber of Commerce filed a lawsuit arguing that a 2006 law that is the basis of the cap-and-trade program does not authorize the state to conduct an auction, which they say is the equivalent of a tax increase. The program is part of law that was not passed with a supermajority required in both houses to pass a tax measure in California. 

NRDC's Annie Notthoff writes that the legislature's decision is "a signal to the rest of the world that California is intent on continuing its global climate leadership." The group says California climate policies have injected $48 billion into the state's economy already.