California’s climate spending fight just went public at the Capitol. On Thursday, May 28, senators on a key budget panel voted to reject Gov. Gavin Newsom’s plan for using carbon-auction money, a sharp rebuke of how the administration is managing the state’s main climate fund.
At the center of the clash is the Greenhouse Gas Reduction Fund, or GGRF, which bankrolls high-speed rail, wildfire response and dozens of clean-transportation and community programs. The standoff lands right as regulators weigh a major rewrite of California’s cap-and-invest rules that feed this multibillion-dollar pot.
Inside the Rebuke
The Senate’s Budget Subcommittee No. 2 on Resources, Environmental Protection and Energy voted to turn down the governor’s proposed GGRF expenditure plan, a move widely seen as an attempt to pressure the Newsom administration to honor last year’s legislative spending deals, according to E&E News.
The Legislative Analyst’s Office has flagged just how big the stakes are. The GGRF has recently been pulling in roughly 3 billion to 4 billion dollars a year from permit auctions, and changes to auction rules could reshape which programs get funded and when. The Legislative Analyst’s Office has urged lawmakers to sketch out prioritization plans for several possible revenue scenarios so they are not scrambling if auction receipts drop.
Billions on the Line
The GGRF is filled by quarterly sales of emissions allowances and then paid out according to a strict hierarchy. Certain obligations come off the top, including high-speed rail and CalFire, followed by a slate of transportation, housing and drinking-water programs if there is money left.
That pecking order means any sustained slide in auction revenue would land hardest on so-called Tier 3 programs, such as the Affordable Housing and Sustainable Communities Program, community air protection efforts and low-carbon transit. A Senate subcommittee background paper warns that those would be the first to feel the pinch, and the Senate background materials spell out how the tiers are structured and why members argue cuts would hit frontline communities most directly.
Why CARB’s Plan Spooked Lawmakers
Driving much of the anxiety is a proposal at the California Air Resources Board that would set up a Manufacturing Decarbonization Incentive, known as MDI, along with a Build Up California Reserve. The idea is to add new allowances above the cap and steer many of them to industry.
Independent analysts at UC Santa Barbara’s Environmental Markets Lab found that if the MDI is widely used, it could cut auction revenue by as much as 4 billion dollars over 2027 to 2030, which would mean roughly a 2.3 billion dollar hit to the GGRF over that same period under some scenarios. The Environmental Markets Lab modeled several possible levels of uptake to highlight the fiscal risk, and coverage from Canary Media lays out how those numbers could translate into shortfalls for existing climate and community programs.
Capitol Pushback Builds
Sen. Eloise Gómez Reyes led the subcommittee move, casting the vote as a way to force the administration to stick with the spending priorities lawmakers hammered out last year. E&E News characterized the rejection as a “shot across the bow,” and legislators say they want firmer assurances that any regulatory tweaks will not hollow out programs serving disadvantaged communities.
What Comes Next
California Air Resources Board staff released revised cap-and-invest proposals in April and set a board hearing for late May. The agency’s rulemaking site lists a May 28 hearing date for the cap-and-invest amendments and related documents. The California Air Resources Board rulemaking page includes the staff report, 15-day modifications and the board book used for the hearing.
On the legislative side, the Senate subcommittee background paper urges lawmakers to draw up contingency spending plans now so their climate and equity priorities can be protected if auction revenues drop. The same Senate background materials outline options for steering GGRF dollars under lower-revenue scenarios, signaling that the budget fight over California’s climate cash is only getting started.
