The future of California's cap-and-trade program beyond 2030 is now in doubt
Clean hydrogen production tax credit rules complicate the legislative process
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In July 2024 I highlighted how a series of delays to California’s climate legislation, including rules that would have significantly tightened the carbon market, had caused carbon prices in the state to tumble by more than one-third (see California's emissionary zeal begins to crack: Carbon market tumbles as climate policies are delayed):
In addition to delays in the implementation of a more ambitious emissions cap trajectory, Governor Newsom announced that two landmark pieces of climate legislation related to climate disclosures had also been delayed. Acknowledging that the timetable was now impossible (the rules would have needed to have been finalised by early 2025), Newsom indicated that the delay would give California’s Air Resources Board (CARB) more flexibility to ensure the rules meet the state’s climate goals.
Investors never take kindly to political indecision and delay, especially in markets built on trust in government commitments:
“While a strong carbon price is a signal of trust, a weak carbon price delivers the opposite signal; namely that the market has little trust in the government’s commitment to climate targets. Unfortunately, the ongoing weak sentiment in CCA prices may also reflects the broader malaise that’s hit the state’s climate legislative process.”
Nevertheless, the risks could be much more significant than mere delay. One of the most important, yet hitherto unappreciated risks investors face going into 2025 is that the states cap-and-trade program is currently set to expire in 2030, and it’s future beyond 2030 is far from guaranteed.