CIPA Warns CARB: Rewrite Cap-and-Invest Before California Regulates More Energy Out of State

In formal comments submitted March 9, the California Independent Petroleum Association warned that CARB’s proposed Cap-and-Invest amendments arrive at exactly the wrong time, when the state is already wrestling with energy affordability, visible sector leakage, and the steady erosion of its own energy infrastructure. CIPA’s point is not that carbon policy should vanish. It is that CARB’s latest rewrite goes too far, too fast, and in a way that punishes in-state production while rewarding imports.

At the heart of CIPA’s warning is cost. The association says the proposed amendments would raise program costs on a per-barrel basis by roughly 2x to 4x in the next several years, with compliance costs exceeding $4.30 per barrel by 2034 under conservative carbon-price assumptions. That is not pocket change. That is capital that would otherwise go into continued production, methane reductions, renewable power on site, thermal energy storage, carbon management, and other operating improvements. Instead of encouraging lower-emission California production, the state risks draining money away from the very investments it claims to want.

CIPA also drives home the point Sacramento never seems to learn: if California makes local crude uneconomic, California will not stop using crude. It will simply import more of it. The letter notes that oil is a global commodity, and the world market is fully capable of replacing barrels no longer produced here. That is why CIPA again makes the common-sense case that the last barrel of oil used in California should be produced in California, under California labor, safety, health, and environmental standards, not under weaker regimes overseas.

The association’s most specific warning is aimed at two technical changes that would have very non-technical consequences. First, CIPA opposes CARB’s plan to collapse separate extraction benchmarks into a single benchmark, arguing that steam-based production is a fundamentally different industrial process from non-thermal production and should not be jammed into the same bucket. Second, CIPA objects to the dramatic step-down in the Cap Decline Factor between 2031 and 2032. Taken together, the group warns these changes would slash industrial assistance allocations by 73 percent by 2034 while the program floor price rises 73 percent, a blunt-force price shock for in-state producers, especially steam operators, and a direct invitation to sector leakage.

What makes this even more notable is that CIPA is not crying wolf in isolation. The state’s own Independent Emissions Market Advisory Committee (IEMAC) is also warning that CARB is trying to balance competing goals, climate ambition, affordability, cost containment, and leakage mitigation, without fully resolving the tradeoffs. The IEMAC report notes that higher carbon prices will increase natural gas and gasoline prices, stresses the importance of transparent communication about those price impacts, and recommends that CARB publicly review and update industrial leakage risk classifications and allocation parameters based on the latest evidence. In other words, even the policy wonks in the machine are acknowledging that affordability and leakage are not side issues. They are central design problems.

Then there is the money problem. IEMAC observes a substantial disconnect between CARB’s projected Greenhouse Gas Reduction Fund revenues and the spending commitments contemplated in SB 840, noting that staff projections never reach the revenue levels lawmakers appear to have counted on. The Legislative Analyst’s Office lands in much the same neighborhood. Its February budget report says the Department of Finance does not expect GGRF revenues to be sufficient to fully fund Tier 3 programs in 2026-27, with those programs projected to receive only about 70 percent of the amounts specified in statute and possibly face proportional reductions in future years as well. That matters because CARB is not just trying to redesign an emissions market. It is also leaning on a revenue picture that may not hold together.

So the broader story here is bigger than one trade association comment letter. CIPA is warning that CARB’s proposed rewrite will hit in-state crude producers with a steep new cost burden and accelerate leakage. IEMAC is warning that the state still has not honestly squared climate ambition with affordability, leakage, and revenue reality. The LAO is warning that the money may not be there to satisfy the spending promises built around the program. That is not a stable foundation. That is a warning light on the dashboard, and Sacramento would be foolish to ignore it.

The thrust of CIPA’s position remains straightforward and hard to refute. California still needs petroleum. California still needs in-state production. And California still needs a policy framework that does not punish local supply harder than imports. A Cap-and-Invest program that drives California energy investment out of state while failing to deliver the revenues lawmakers expect is not smart climate policy. It is a self-inflicted wound dressed up as virtue. CARB should revise this proposal before it does lasting damage to California jobs, California production, and California’s control over its own fuel supply.