A coalition of more than 40 agricultural, climate, and environmental justice groups held a lobby day in Sacramento last week to call for reforms to California’s Cap-and-Trade Program. The coalition, which includes CalCAN and its member organizations, Community Alliance with Family Farmers and California Certified Organic Farmers, is working to redirect oil subsidies to funding tangible benefits for California families and farmers.
In meetings with 23 legislative offices, advocates shared examples of how their communities are increasingly bearing the costs of wildfires, droughts, floods, and heat waves. They asked legislators to prioritize affordability for families and farmers, not multinational fossil fuel companies, in their deliberations over the Cap-and-Trade Program.
Rising Climate Costs Harm Farmers, Families, and Food Security
Increasingly frequent and catastrophic wildfires have led to a more than 20% increase in Pacific Gas & Electric’s electricity rates since 2018 (after adjusting for inflation), increased homeowner insurance premiums by 17% this year, and caused an estimated $250 billion in damage so far in 2025. In addition to paying higher energy bills and insurance premiums, farmers bear the costs of these wildfires in the form of livestock losses, evacuations, disruptions to daily operations, and crop damage. Smoke taint alone is estimated to have caused $3.7 billion in losses to the California wine industry after the 2020 wildfires.
Droughts, which are also becoming more severe due to climate change, cost the California agricultural economy billions of dollars and thousands of lost jobs. For example, the 2021 drought caused crop revenue losses and increased pumping costs of approximately $1.1 billion, with roughly 8,700 full- and part-time jobs lost. And in more recent years, floods have washed away farms, heat waves have decimated crop yields, and longer growing seasons have increased pest pressures. These impacts have, in turn, increased the cost of food for all families.
Cap-and-Trade Program is Supposed to Help, But Needs Reforms
The state’s Cap-and-Trade Program was intended to help California farmers and families address these rising costs by: 1) requiring polluting industries that are the root cause of climate costs to pay for their emissions by purchasing “allowances” to incentivize them to reduce their emissions; and 2) using the resulting revenue to support California in transitioning to a near-zero emissions economy and to support California communities that have been harmed by the fossil fuel industry and climate impacts.
The current Cap-and-Trade Program has made some progress toward these intentions, including investing over $1.5 billion from the Greenhouse Gas Reduction Fund (GGRF) in programs to support farmers in replacing outdated diesel-powered equipment, electrifying and solar-powering irrigation pumps, and reducing reliance on fossil fuel-based synthetic fertilizers.
However, the Cap-and-Trade Program is falling short of its goals in two ways, which the coalition has called on the legislature to address.
1) Eliminate the Nearly $1 Billion Annual Subsidy to the Fossil Fuel Industry
During the 2017 reauthorization of the Cap-and-Trade Program, the fossil fuel industry successfully lobbied the legislature to give them a significant portion of their emissions allowances for free on an annual basis, thus reducing the amount they have to pay the state for their emissions. In 2017, the value of those free allowances was $300 million, but as the price of allowances has increased in Cap-and-Trade auctions, the value of the annual free allowances has risen to $890 million as of 2024.
For the past eight years, those free allowances (included in the yellow “industrial allocation” slice of the pie chart below) have both undermined the incentive for fossil fuel companies to reduce their emissions and decreased the amount of revenue available by hundreds of millions of dollars per year to support California communities in reducing their reliance on fossil fuels and mitigating the impacts of climate change.
Unlike electric and gas utilities, which are required to pass the value of their free allowances (included in the dark blue “utility allocation” slice of the pie chart above) onto ratepayers in the form of bill credits twice a year, the fossil fuel industry is under no obligation to pass the value of those free allowances onto consumers. Meanwhile, the five largest oil companies operating in California continue to make record profits in the order of tens of billions of dollars per year.
In our meetings with legislative offices last week, we heard several offices share our concerns with the 2017 reauthorization deal’s indiscriminate handout of free allowances and an interest in “recalibrating” allowance distribution, while stopping short of committing to eliminate free allowances for the oil and gas industry entirely. This suggests an opportunity to reduce the annual subsidy to the fossil fuel industry and the need for continued education and advocacy on the issue.
2) Eliminate Dubious Offsets that Send Approximately $140 Million Annually Out of State
The Cap-and-Trade Program also allows regulated entities to comply with the Program by purchasing offset credits rather than buying allowances at auction for up to four percent of their emissions. According to the Independent Emissions Market Advisory Committee (IEMAC), which was established to provide independent oversight of the state’s Cap-and-Trade Program, “A growing number of academic studies have questioned whether California’s carbon offsets program is achieving its intended climate mitigation objectives…”
According to a recent policy brief from the UC Berkeley Goldman School of Public Policy’s Carbon Trading Project, “California sends approximately $140 million out of state each year for carbon offsets, most of which have little-to-no actual climate benefit.”
Carbon offset mechanisms within Cap-and-Trade have also failed to yield meaningful and widely accessible benefits for California farmers. There are only two agricultural offset protocols — one for rice production (which no farmers have yet participated in, illustrating the challenges of offset participation) and one for anaerobic dairy digesters. Most California dairies have received little or no benefit from the dairy digester offset protocol, as 85% of dairy digester credits have been generated from projects in 18 states outside California, according to CARB’s offset program data.
In 2012, CalCAN published a carbon market policy brief that outlined six principles necessary to ensure the emerging carbon market in California would be transparent, would prioritize health and environmental co-benefits, and would not cause disadvantages to small and mid-sized producers and producers who are early adopters of climate-beneficial practices. None of these principles have been enacted to date, and we believe offsets have been a failed instrument for incentivizing agricultural greenhouse gas emissions reductions.
In its most recent report, the IEMAC recommended that the legislature consider alternatives to offsets, including phasing out offsets and replacing them with projects or credits procured with dedicated GGRF funding:
“Policymakers could phase out all or some portion of the current offsets program and replace it with dedicated funding from the Greenhouse Gas Reduction Fund. Potential advantages of this approach include increased revenues for the Greenhouse Gas Reduction Fund, the ability to select target sectors and support state policies like the Natural and Working Lands strategy (rather than let the market choose project outcomes), and the ability to choose projects and programs based on any mix of climate, biodiversity, equity, and geographic preferences policymakers like, including Tribal priorities (rather than letting the market choose project outcomes).”
In our meetings at the Capitol last week, staff from several legislative offices acknowledged the critiques of offsets and expressed interest in learning more about potential alternatives or reforms, which we will continue to advocate for.
Invest in Programs that Benefit California Communities, Families, and Farmers
If both reforms were enacted, the state’s Greenhouse Gas Reduction Fund would have over $1.1 billion more per year to invest in programs supporting sustainable agriculture, mitigation for extreme heat, and equitable access to clean water, energy, affordable housing, and transportation. In the current budget deficit context, this additional revenue could be a critical lifeline for sustaining programs that advance climate solutions that reduce Californians’ cost-of-living and exposure to climate impacts. For agriculture, this could include funding for the Healthy Soils Program, State Water Efficiency and Enhancement Program, Alternative Manure Management Program, Organic Transition Program, and more – popular programs that have suffered from inconsistent funding.
The budget deal announced by the legislature last week deferred final decisions on Cap-and-Trade reforms and GGRF investments in climate programs until later in the summer, which gives our broad coalition a window of at least a few more weeks to educate legislators on the merits of our proposed reforms and investments.