While federal clean-energy policy is rolling backward, California is charting a different course. State lawmakers have passed a long-term extension of the California cap-and-trade program, strengthening its climate framework even as Washington scales back tax credits and dismantles regulations.

Story Highlights

• Federal reversal: Clean-energy tax credits reduced; new regulatory barriers delay projects; major projects halted.

• California action: Cap-and-trade program extended to 2045 to align with net-zero goals.

• Program scope: Covers 85% of California emissions in transportation, energy and industry.

• Economic benefits: Generates billions for climate investments and market-based pollution reduction.

• Affordability steps: Electricity bill credits, refinery relief, and regional grid participation.

• Broad support: More than 40 companies, including IKEA U.S. and Rivian, backed the law.

Federal Backsliding on Clean Energy

Across the United States, federal clean-energy incentives are shrinking. Tax credits have been rolled back, new regulatory barriers are delaying energy projects and some nearly completed facilities have been halted. Investors are unsettled, jobs are at risk and costs are climbing. At the same time, the administration is moving to repeal core rules for regulating climate pollution, threatening both public health and U.S. leadership in global clean-technology markets.

“The rollback of clean-energy policy is creating real uncertainty,” said one energy-market analyst. “It unnerves investors and raises costs for everyone.”

California’s Forward Path

California, now the world’s fourth-largest economy, has chosen a different path. First launched in 2013, the California cap-and-trade program sets limits on carbon pollution across transportation, energy and industrial sectors, covering about 85% of the state’s emissions. By putting a price on climate risk, it encourages businesses to reduce emissions in the most cost-effective way and has generated billions for local climate projects.

“It has been central to our emissions reductions,” said a state environmental official. “Market-based policies like this one are proven to work.”

Need for Long-Term Certainty

The program was due to expire in 2030. Uncertainty over its future had begun to rattle markets and put billions of dollars in revenue at risk. Although the system had proven effective, its pollution cap was not projected to meet California’s net-zero target by 2045.

In response, lawmakers moved to strengthen and reauthorize the California cap-and-trade program through 2045. Governor Gavin Newsom signed the bill into law shortly after its passage.

“At a time that demanded leadership, California answered the call,” Newsom said in a statement. “This ensures policy certainty and keeps our climate goals on track.”

Business and Community Support

More than 40 companies—including Dignity Health, Franklin Energy, Grove Collaborative, IKEA U.S., REI Co-op, Rivian and Sierra Nevada Brewing Company—publicly endorsed the legislation. They cited policy stability, program efficiency and local investment benefits.

“California’s long-term commitment gives businesses confidence to invest in clean technology,” said a spokesperson for one supporting company.

Addressing Affordability Concerns

Cost-of-living pressures remain a major issue across the country. Critics of the extension argued that it could raise energy prices in a state where electricity is already expensive. Some environmental advocates also questioned whether market-based systems reduce local air pollution.

To address affordability, lawmakers paired the extension with other measures, including relief for oil refineries to mitigate gas price spikes, authority for California’s grid operator to join regional electricity markets and twice-yearly credits applied to Californians’ peak-season electricity bills.

“These steps help merge climate action with pocketbook concerns,” said an industry group representative who dropped opposition after the package came together.

A Pragmatic Model for States

While not all critics were satisfied, the final package marked a pragmatic approach to balancing consumer affordability with climate action. California has shown that cost-of-living concerns—currently top-of-mind for voters—can be integrated with clean-energy policy, which often feels more abstract.

As federal policies move in the opposite direction, California’s example offers a template for other states seeking to integrate economic and environmental priorities through market-based solutions.

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