CARB Approves Cap-and-Invest Overhaul as CIPA Defends California Energy Production

The California Air Resources Board (CARB) has approved significant revisions to California’s Cap-and-Invest program, extending the state’s carbon market framework through 2045 while reshaping how billions of dollars in emissions allowances will be distributed. The decision comes amid growing concerns about affordability, energy reliability, and the economic impacts of California’s climate policies on businesses and consumers.

Under the revised framework, CARB will provide up to approximately $3.5 billion in allowances to manufacturers and refiners that invest in emissions-reduction projects. State regulators argue the changes are necessary to help retain jobs, prevent businesses from relocating outside California, and maintain critical industrial operations. Unfortunately, this pool of support is not available to oil producers despite the fact they face the same threats of being replaced by foreign imports as refiners do. CIPA will be pursuing legislation next year to correct this situation.

Environmental organizations strongly opposed the changes, arguing they could reduce revenues available for climate programs and weaken incentives to reduce emissions.

Throughout the lengthy rulemaking process, the California Independent Petroleum Association (CIPA) worked extensively to ensure California’s independent oil and natural gas producers were represented. Leading those efforts was veteran regulatory strategist Jon Costantino of Tradesman Advisors, who spent months meeting with CARB Board Members and staff, analyzing complex regulatory proposals, and advocating on behalf of CIPA members during one of the most consequential climate policy debates of the year.

CIPA emphasized that California oil production faces unique challenges. Unlike many industries, every barrel of oil no longer produced in California is increasingly replaced by imported crude arriving from foreign nations that often operate under environmental, labor, and safety standards far below those required in California. The association argued that policies discouraging local production do not eliminate demand for transportation fuels. Instead, they shift production elsewhere while increasing reliance on imports and exporting jobs, investment, tax revenue, and economic activity outside the state.

What stood out during the Board’s deliberations was the growing emphasis on affordability. CARB members repeatedly acknowledged concerns about the rising cost of living and the impact that climate policies can have on families, businesses, and consumers.

“California’s energy needs have not disappeared,” said CIPA CEO Rock Zierman. “The question facing policymakers is whether those needs will be met by responsibly produced California energy or increasingly by imports from jurisdictions with far lower environmental, labor, and human rights standards.”

Zierman also warned that increasing dependence on imported crude could lead to higher greenhouse gas emissions, higher fuel prices, fewer California jobs, and reduced revenues for schools, public safety, and local governments.

While CARB approved the overall framework, the Board delayed portions of a proposed industrial incentive program for further review, signaling that important policy debates remain unresolved. For California’s independent producers, the decision reinforces a reality that policymakers are increasingly confronting: energy policy and affordability policy are inseparable. As California loses refining capacity and becomes more dependent on imported crude, the consequences of regulatory decisions are no longer theoretical. They are increasingly reflected in the prices Californians pay every day.

The other significant change is to the carbon intensity benchmark formula used to establish allocations starting in 2030. Currently, there are separate benchmarks for EOR and non-thermal production. Starting in 2030, there will be one combined benchmark that will disadvantage thermal enhanced recovery. CIPA will also be pursuing a fix to this situation before the enactment of the changes in 2030.