It’s time to end Big Oil handouts in California’s cap and trade program

OPINION – California’s Cap and Trade Program is supposed to be one of the best tools the state has for reducing climate pollution and funding climate solutions. But if Big Oil gets its way, the program will amount to a massive handout to corporate polluters funded by California taxpayers.

Cap and Trade is a market-based system in which the state sets a limit on the total amount of emissions allowed, then permits companies to buy and sell pollution credits (called “allowances”) to emit a certain amount of climate pollution. Most of the revenue from these pollution credits goes to the Greenhouse Gas Reduction Fund (GGRF), which supports everything from drought-resistant agriculture to wildfire prevention to clean energy infrastructure.

The problem is, Big Oil isn’t paying its fair share. GGRF revenue is dwindling while California faces ever steeper costs from climate-fueled fires, storms, and heat waves, straining the state’s overall budget. With the program up for reauthorization this year, it’s time for Governor Newsom and state leaders to close the loopholes for corporate polluters by making two key reforms.

First, it’s critical that California eliminate “free allowances” — basically free pollution credits — for oil and gas corporations. These free allowances amount to a billion-dollar subsidy to some of the wealthiest and most polluting corporations in the history of the world. In 2024 alone, a year in which the industry made historic profits, the free allowances given to Big Oil totaled $890 million.

Not only do these free allowances perpetuate toxic pollution in frontline communities, they also rob the state of money that can be invested in the climate and affordability solutions our communities so desperately need.

Second, California should eliminate carbon offsets from the Cap and Trade program. Offsets allow corporations to pollute in California in exchange for “offsetting” their emissions elsewhere. For example, they can claim forest conservation projects outside of California as offsets for pollution emitted from fossil fuel power plants within the state.

But recent studies show that forest offsets are frequently earning far more credits for emissions reductions than they actually deliver. And offsets leave frontline communities in California to cope with ongoing toxic fossil fuel pollution, exposing them to dangerous chemicals proven to cause cancer, birth defects, and other harms.

Eliminating free allowances and offsets in the Cap and Trade program will help California reduce climate pollution, clean up the air in frontline communities, and shift the burden of paying for climate costs from taxpayers to the corporations responsible for the climate crisis.

More money flowing from Big Oil to the state can help working Californians cope with the rising cost of living, too. Right now, a portion of the revenue from Cap and Trade goes to utilities, which provide a rebate to ratepayers known as the “climate credit.” We suggest restructuring this rebate program to instead provide direct, cash payments to low- and middle-income Californians. This will give families the flexibility to use the funds to meet their immediate needs and provide greater transparency about where the money actually comes from.

With debate about the future of Cap and Trade underway in Sacramento, oil and gas lobbyists are pushing hard to maintain the status quo. If they get their way, California would be out billions of dollars and our kids will be more exposed to dirty, unhealthy air from fossil fuel pollution.

Big Oil is already getting special treatment in DC. Lawmakers shouldn’t give them a free ride in California, too. It’s time to fix Cap and Trade, stop subsidizing Big Oil, and start investing in California families.

Ellie Cohen is the CEO of The Climate Center, a climate and energy policy nonprofit working to rapidly reduce climate pollution at scale, starting in California.