On May 29, the California Air Resources Board (CARB) approved significant updatesto California’s Cap-and-Invest Program following last year’s legislative extension of the program through 2045 under AB 1207 (Irwin, 2025). The amendments are intended to align the program with California’s 2030 and 2045 climate goals, while also addressing affordability concerns, supporting economic competitiveness, and providing greater long-term regulatory certainty for businesses.
The adopted package includes several provisions advocated by CMTA throughout the rulemaking process, including expanded support for manufacturing decarbonization projects, additional compliance assistance for industry, and a future evaluation of policies to address emissions leakage and competitiveness concerns. Click here to read CMTA’s most recent comment letter providing feedback on the 15-Day Amendments.
Expanded Manufacturing Decarbonization Incentives
CARB doubled funding for the Manufacturing Decarbonization Incentive (MDI) Program from $2 billion to $4 billion. Eligible manufacturers, including food processors, cement producers, and refiners, will be able to access funding for emissions-reducing facility upgrades to lower future compliance costs and support continued investment in California operations.
In response to stakeholder and Board concerns, CARB adopted additional accountability and transparency measures for the MDI program. Before applications are accepted or allowances are issued, CARB staff must return to the Board with further implementation details and conduct public outreach on program design.
The Board also directed staff to:
- Hold public workshops
- Provide reporting on approved projects and allowance distributions
- Track MDI allowances separately within the compliance market
- Evaluate the program’s effectiveness by July 2028
These steps will provide manufacturers with additional opportunities to engage as the program is implemented. CMTA will remain engaged throughout the process to ensure manufacturers’ perspectives are reflected in program implementation and any future refinements to the program.
Additional Industry Compliance Support
The Board approved approximately $800 million in additional compliance support for the industry to help address near-term economic challenges and provide greater market stability. These changes are intended to reduce compliance cost pressures while maintaining California’s emissions reduction trajectory.
Greater Long-Term Regulatory Certainty
The updated program establishes more stringent allowance budgets through 2045, including removing 118 million allowances from the market. The new framework provides the clearest long-term signal on allowance supply and price since the Legislature reauthorized the program, giving manufacturers greater certainty for long-term planning and investment decisions.
CMTA Perspective
CMTA engaged extensively throughout this rulemaking to advocate for policies that balance California’s climate objectives with affordability, economic competitiveness, energy reliability, and protection against emissions leakage.
While manufacturers continue to face significant cost pressures from energy, regulatory, and operating expenses, the final amendments include several improvements sought by industry stakeholders, including increased industrial assistance, expanded funding for the manufacturing decarbonization incentive, and future reviews of industrial allocation methodologies and leakage protections.
A special thank you to the many CMTA members who participated in workshops, meetings, and discussions throughout this rulemaking. Your input helped shape CMTA’s advocacy and ensured manufacturers’ perspectives were represented throughout the process.
What Comes Next
The revised regulations are expected to take effect on September 1, 2026, following final review by the Office of Administrative Law.
CARB will also begin several additional implementation efforts, including:
- Updates to compliance offset protocols
- Further development of the MDI program
- Evaluation of potential linkage with Washington’s carbon market
- Coordination with the California Public Utilities Commission on future climate credit provisions
The Board’s resolution also directs CARB to evaluate several issues that could have significant implications for manufacturers in future rulemakings, including:
- Post-2030 industrial allowance allocation methodologies;
- Additional measures to address emissions leakage and maintain competitiveness for California manufacturers;
- Potential refinements affecting the refinery and cement sectors; and
- Approaches for accounting for emissions associated with imported products.
CMTA will continue to engage with CARB as these reviews move forward to ensure that manufacturers’ concerns regarding competitiveness, affordability, and regulatory certainty remain part of the conversation.