Electrical Distribution Utilities — utility allowances are allocated freely to protect ratepayers from rate shocks. Investor-owned utilities are required to return a portion of the value to consumers via the California Climate Credit on their utility bill.

Industrial Sectors — allocation is determined by exposure to leakage and transition assistance needs. Free allocation declines over time; the November 2024 amendments accelerate that decline through 2030 and beyond to align with the SB 32 and AB 1279 trajectories.

CARB holds two allowance auctions quarterly:

• Current Auctions offer current and previous year vintages.
• Advance Auctions offer vintages of the subsequent calendar years.

Entities submit bids in a single-round, sealed-bid format. Allowances are awarded starting with the highest bids until supply is exhausted. The “settlement price” is the lowest accepted bid, and all winning bidders pay that price (or the auction reserve price, whichever is higher). Auctions have been held jointly with Québec since November 2014; results from joint auction #1 onward are charted at the top of this page.

See CARB’s auction information page for the schedule and recent settlement prices.

For each auction, CARB sets an Auction Reserve Price — a minimum price below which allowances cannot be sold. The original Regulation set the 2012 and 2013 reserve at $10/allowance. Starting in 2014, the floor escalates annually by 5% plus the change in the Consumer Price Index for All Urban Consumers; the 2026 floor is $27.94/allowance. Several recent auctions have cleared right at the floor, indicating soft demand.

The cost-containment structure was overhauled by the 2017-2018 amendments and took effect in 2021. The previous three-tier Allowance Price Containment Reserve (1% of CP1 budget, 4% of CP2, 7% of CP3, with three pre-set tiers) was replaced with:

• A two-tier APCR, with allowances released at fixed prices below the ceiling.
• A hard Price Ceiling — CARB sells unlimited allowances at this price to keep prices bounded. Set at $65/allowance in 2021 and escalating annually by 5% plus inflation; the 2026 ceiling is $102.52/allowance.

For more, see CARB’s cap-and-trade program page.

Proceeds from state-owned allowance auctions must be used to mitigate GHGs or the harmful effects of GHGs (per a series of legal precedents summarized by the LAO).

SB 535 (2012) requires that at least 25% of proceeds benefit disadvantaged communities, with at least 10% spent within them. AB 1550 (2016) later raised those floors to 25% within disadvantaged communities and 5% within low-income communities or households.

Proceeds flow into the Greenhouse Gas Reduction Fund (GGRF) and are appropriated through a two-step process established by AB 1532 (2012):

1. State agencies draft three-year investment plans with priorities for auction-proceed investment.
2. The legislature and governor appropriate funding through annual budget acts.

For programs and projects funded from the GGRF, see CARB’s California Climate Investments page; as of November 2024, cumulative investments totaled $12.8 billion across more than 590,000 projects.

2013-2014 (CP1): First deliverers of electricity (in-state and imported) and large industrial facilities.

2015 onward: Distributors of transportation fuels, natural gas, and other fuels added. The program has covered all four sector groups continuously since.

CARB maintains a current list of covered entities.

Generally, facilities that exceed annual emissions of 25,000 MTCO₂e (per mandatory GHG reporting) are covered. Since 2015, all emissions from electricity importers are covered with no threshold.

Required participants if thresholds are met:

• Operators of industrial facilities
• Operators of electricity generation in California
• Importers of electricity from out of state
• Fuel suppliers and distributors
• Carbon dioxide suppliers

Compliance periods so far:

• CP1: 2013-2014 — first program period; covered electricity and large industry.
• CP2: 2015-2017 — transportation fuels and natural gas added.
• CP3: 2018-2020 — California met its 2020 statutory target four years early.
• CP4: 2021-2023 — first SB 32-era period; cost-containment structure switched to a hard price ceiling.
• CP5: 2024-2026 — current period; the November 2024 amendments tighten post-2030 supply.

Each year, covered entities report previous-year emissions in September and submit required allowances in November:

• Annually, entities must surrender allowances for at least 30% of covered emissions from the previous year.
• The year after a compliance period ends, entities must surrender allowances for the remaining covered emissions in that period.

Covered entities can save (“bank”) allowances for future compliance to guard against shortages or price swings. They cannot use future-year vintage allowances against past compliance obligations (no “borrowing”).

An offset is a credit for greenhouse gas reductions achieved by an activity outside the capped sectors. Each compliance offset credit equals one MTCO₂e.

Offset usage limits have tightened over time:

• 2013-2020 (CP1-CP3): up to 8% of compliance obligation.
• 2021-2025 (CP4 + first half of CP5): up to 4%, of which at least half must come from projects providing direct environmental benefits in California.
• 2026 onward: up to 6%, with the in-state benefit requirement continuing.

Credits can only be quantified using CARB-approved Compliance Offset Protocols. CARB has adopted six protocols to date:

• U.S. Forest Projects
• Urban Forest Projects
• Livestock Projects
• Ozone Depleting Substances Projects
• Mine Methane Capture Projects
• Rice Cultivation Projects (added 2015)

California’s program linked to Québec’s on January 1, 2014. Joint auctions began in November 2014 and have continued quarterly ever since — the chart at the top of this page shows every joint auction since.

Ontario joined the joint California-Québec market on January 1, 2018, but withdrew on July 3, 2018 following a change in provincial government, before any joint auction with all three jurisdictions cleared. CARB removed Ontario as a recognized linked program through December 2018 amendments.

Washington State’s Cap-and-Invest Program launched January 1, 2023 under the 2021 Climate Commitment Act, holding its first auction on February 28, 2023. In September 2024, California, Québec, and Washington jointly announced their intent to share information and pursue linkage; the formal compatibility analysis and rulemaking is ongoing under SB 1018.

See CARB’s program linkage page for status updates.