CARB’s Cap-and-Invest “Fix” Leaves California Producers Holding the Bag

Last week, the California Air Resources Board released revised 15-day amendments to its Cap-and-Invest regulation package, and while CARB is advertising the changes as near-term relief for refiners and electricity ratepayers, the agency once again left California’s in-state crude producers out in the cold. The amendment package makes clear that CARB was willing to adjust the program where refinery and utility pain became too politically obvious to ignore, but not where California’s upstream oil production sector has been warning for years that the policy structure is misaligned and economically destructive.

That disconnect is not a minor drafting issue. It is a basic policy failure. CARB’s materials emphasize cost containment for refineries and utilities, but California’s refineries do not run on good intentions and PowerPoint slides; they run on crude oil. Reducing pressure on one end of the supply chain while increasing costs and uncertainty on the in-state production sector that feeds it is not coherent climate policy. It is a practical trainwreck dressed up in administrative language.

One of the most consequential problems remains CARB’s retention of the benchmark structure for crude production. The amendments continue the separate benchmarks for thermal EOR and non-thermal crude production through vintage 2032 allocation, before shifting crude oil extraction into a new benchmark beginning with vintage 2033 allocation. In plain English, CARB did not abandon the framework that will drive significant cost consequences for steam-dependent California production, it merely pushed the effective date back. That may buy time, but it does not solve the problem.

CARB also touted its new Manufacturing Decarbonization Incentive, or MDI, as an innovative tool to send Cap-and-Invest value back into industry. In theory, that is a welcome and overdue concept. In practice, CARB excluded crude petroleum and natural gas extraction, natural gas liquid extraction, and petroleum refineries from the ineligible table only by carving out narrow exceptions for certain activities, while clearly listing crude petroleum and natural gas extraction under NAICS 211111 and natural gas liquid extraction under NAICS 211112 among the sectors ineligible for MDI allocation. The message could not be plainer: California producers are expected to absorb rising program burdens, but they are not invited to benefit from the state’s headline decarbonization incentive.

Just as troubling, CARB appears to have erased meaningful visibility into the post-2030 allocation framework for parts of the affected sector. The cap adjustment table in the amendment package continues listing factors for many standard industrial activities through later years, but for the category covering industrial activities with NAICS codes 211111 and 211112, the table runs through 2030 and then drops off. That omission injects needless opacity into long-term planning for producers already operating in one of the most hostile and expensive regulatory environments in the country. For capital-intensive industries, uncertainty is not neutral. Uncertainty is a cost.

This is the central problem with CARB’s latest amendment package. The Board recognized that immediate refinery and utility impacts had to be moderated, but it still refused to grapple with the upstream consequences for California oil production. That is not climate leadership. That is a policy choice to keep squeezing the state’s in-state supply base while pretending the rest of the fuel system will somehow remain stable.

CIPA is preparing formal written comments in response to the 15-day package and will continue pressing CARB to address the serious harm these amendments impose on California’s in-state crude producers.