Summary

• California's cap-and-invest program overhaul accelerates the annual carbon allowance cap reduction to 11% through 2030, tightening supply and supporting higher prices.
• CCAs now feature an inflation-linked auction reserve price floor, rising 5% plus CPI annually, and upper-bound containment mechanisms to stabilize price volatility.
• Offset credits are incorporated into the cap, with a 6% compliance limit and new industrial flexibility via the Manufacturing Decarbonization Initiative, though MDI supply is expected to be limited initially.
• Current CCA prices remain 39% below the discounted 2045 reserve price, offering significant upside as cumulative supply is projected to be depleted by 2033.

After more than two years in the making, California has approved a major overhaul of its cap-and-invest program, the state's primary market-based tool for accelerating investment in low-carbon technologies and one of the fastest-growing commodity markets. This milestone