California Senate Democrats are at odds with Governor Gavin Newsom’s administration over a new program that could redirect billions of dollars away from critical climate initiatives. The dispute centers around a recent overhaul of the state’s carbon market, which Senate Democrats argue undermines a previously agreed-upon climate deal.
The Senate Democrats’ budget proposal, dubbed “Deal is a Deal,” aims to block the new program until the state fulfills the terms of a three-party climate agreement struck last year. This agreement, which extended California’s carbon market through 2045, prioritized funding for high-speed rail, lawmakers’ discretionary projects, and community-focused programs.
Climate Bargain at Risk
California’s carbon-trading program, established in 2013, places a financial value on greenhouse gas emissions. Last year’s agreement set a hierarchy for the billions generated from auctioning pollution permits. High-speed rail was allocated $1 billion annually, another $1 billion went to lawmakers’ projects, and the remainder supported community programs like affordable housing, clean transit, and safe drinking water.
However, last month, the California Air Resources Board adopted new rules that significantly reduce the number of auctioned pollution permits through 2030. This move, backed by Newsom and influenced by the oil industry, introduces a new incentive program offering free pollution permits worth up to $4 billion to companies investing in clean energy. Critics argue this could slash annual auction revenue from $4 billion to $2 billion, jeopardizing community-focused programs.
Senate Democrats’ Counterproposal
In response, Senate Democrats have proposed their own plan to safeguard the $1 billion allocated to lawmakers and redirect up to $2 billion to housing, transit, clean air, and drinking water programs. This would push Newsom’s priorities, such as high-speed rail and wildfire funding, to the back of the line. Senator Jesse Arreguín, an Oakland Democrat, questioned the timing of reducing funding for affordable housing.
Senator Scott Wiener, a San Francisco Democrat, criticized the state’s empowerment of the oil industry, stating it leads to bad policies. Meanwhile, Assembly Democrats have remained silent on the rule change in their budget plan. Assemblymembers Jacqui Irwin and Cottie Petrie-Norris, who chair key climate and energy committees, support the air board’s plan, citing its focus on affordability.
The Stakes and Political Consequences
The budget fight could have significant political repercussions for Newsom as he defends his climate record. The Senate’s opposition threatens to delay several of Newsom’s priorities, including a $200 million proposal for electric vehicle incentives and a sustainable aviation fuel tax credit. The latter, supported by Phillips 66, aims to encourage greener fuel production and boost refinery jobs.
Critics of the new program argue it subsidizes polluters without guaranteeing emissions reductions, potentially hindering California’s ability to meet its 2030 emissions targets. Air regulators maintain that the program includes safeguards to ensure companies cut their emissions and that it will help retain industries in California amid federal support withdrawal.
The Senate’s plan would halt climate-fund spending until the Department of Finance confirms that last year’s deal can be funded. It also seeks to prevent the air board from issuing new industrial permits unless they align with California’s climate targets, lower gasoline prices, and preserve funding for threatened climate programs.
As the June 30 budget deadline approaches, the outcome of this standoff will shape California’s climate initiatives and housing projects for years to come.
