The California legislature’s Joint Committee on Climate Change Policies kicked off a public discussion last Wednesday about reauthorizing the state’s Cap-and-Trade Program, which is set to expire in 2030. This discussion and the likely legislation that results from it will impact how the state regulates and puts a price on greenhouse gas emissions and invests the resulting revenue from the state’s Greenhouse Gas Reduction Fund (GGRF). 

As a result of efforts by CalCAN and other agricultural advocacy groups over the past 15 years, agricultural climate programs have received approximately $1.5 billion to date from the Cap-and-Trade Program. While we are grateful for this funding, the agricultural sector has been underfunded relative to its share of statewide GHG emissions and its ability to sequester carbon. Though the sector is currently responsible for 8% of emissions and has the capacity to sequester carbon, the sector has only received 2% of GGRF funds on a continuous basis (for the Sustainable Agricultural Lands Conservation Program, or SALCP) and 5% of all GGRF funds (both continuous and discretionary) to date. 

Moreover, programs like the Alternative Manure Management Program (AMMP), Healthy Soils Program (HSP), and State Water Efficiency and Enhancement Program (SWEEP), have suffered from inconsistent, boom-and-bust funding that have made it difficult to scale up the local technical assistance capacity to support farmers in accessing the funds and adopting climate-resilient practices. This inconsistent funding has also placed significant strain on state agencies administering wildly fluctuating levels of one-time funds. 

In this next reauthorization, CalCAN is advocating for 15% of GGRF revenue to be continuously appropriated to more consistently and robustly support a suite of programs that scale up cost-effective agricultural climate solutions, ensure long-term food security and affordability, and improve farmers’ and ranchers’ resilience to increasingly severe wildfires, floods, droughts, and heat waves. 

How does the Cap-and-Trade Program work?

The Cap-and-Trade Program was first authorized by the state legislature in 2006, launched by the California Air Resources Board (CARB) in 2012, and reauthorized by the state legislature in 2017 through 2030. Leaders in both chambers of the state legislature have indicated they want to reauthorize the program, which requires a two-thirds majority vote, this year in order to avoid uncertainty in the Program and associated market.

The market-based Cap-and-Trade Program establishes a declining limit (“cap”) on emissions on the largest greenhouse gas emitting facilities in the state, including oil refineries, electricity generators, and manufacturing facilities. Collectively, the approximately 400 facilities covered by the cap produce 75% of statewide emissions.

CARB issues a set number of allowances (each allowance permits a facility to emit one metric ton of carbon dioxide equivalent) each year, roughly equivalent to the emissions cap, which declines 4% per year. CARB gives away approximately half of the allowances under the emissions cap each year for free to electric and gas utilities and industries with the intention of protecting consumers from significant cost increases and with the intention of preventing California-based companies from moving their operations outside of California (often referred to as “leakage”). The other half of the allowances are sold at quarterly auctions and the revenues are deposited into the state’s Greenhouse Gas Reduction Fund.

Source: CARB Presentation to Joint Climate Committee, February 26, 2025

The approximately 400 facilities regulated under the Program can comply with the Cap-and-Trade Program’s requirements in three ways:

• Directly reducing their emissions
• Obtaining “allowances” to cover their emissions
• Purchasing “offsets” equivalent to up to 4% of the facility’s emissions to pay for emissions reductions projects somewhere else

The regulated entities can also trade allowances, with some limitations to prevent market manipulation and price spikes. The price of allowances generally increases as the supply of allowances declines each year, which is intended to incentivize the regulated facilities to reduce emissions, starting with the lowest-cost technologies, and to send a broader long-term price signal to markets and investors to spur investment and innovation in low or zero-emissions technologies.

Source: CARB Presentation to Joint Climate Committee, February 26, 2025

 

Historically, the Cap-and-Trade Program has been designed and implemented to keep allowance prices low, and prices have been at or near the Program’s price floor for most of the auctions to date. 

Source: Roy, Domeshek, and Burtraw (2024)

How is revenue from the Cap-and-Trade Program distributed? And how does it benefit agriculture?

Revenue generated through the quarterly Cap-and-Trade auctions goes to the state’s Greenhouse Gas Reduction Fund (GGRF), which is controlled by the legislature. Historically, the legislature has allocated two-thirds of GGRF revenue on a continuous basis, meaning the funding is allocated automatically each year without additional legislative action, to a handful of programs, including high-speed rail (25% of GGRF), affordable housing and sustainable communities (20% of GGRF), transit and intercity rail (10% of GGRF), and safe drinking water infrastructure (5% of GGRF). The only agricultural program that has received a “continuous appropriation” to date has been the Sustainable Agricultural Lands Conservation Program (SALCP), which receives 2% of GGRF as part of the broader Affordable Housing and Sustainable Communities Program (AHSC). SALCP funds conservation easements and local government planning to permanently protect farmland and rangeland at risk of development and prevent urban sprawl.

The state legislature has historically allocated the remaining one-third of the GGRF through the annual budget process. This annually appropriated portion of GGRF has historically funded a suite of agricultural programs, albeit with significant boom/bust cycles in funding, including three programs CalCAN has championed: the Alternative Manure Management Program (AMMP), the State Water Efficiency and Enhancement Program (SWEEP), and the Healthy Soils Program (HSP). 

The following pie chart shows the distribution of GGRF funds (both continuous and discretionary) to-date to agricultural programs.

Data Source: CARB’s 2024 California Climate Investments Report. *Numbers with an asterisk reflect amounts awarded to date rather than amounts allocated (unavailable in the report).

Cumulatively, over the lifespan of GGRF, these agricultural programs have received just over 5% of total GGRF revenue.

What are some of the key issues being discussed?

Assemblymember Jacqui Irwin, who is the chair of the Joint Committee and whose district was severely impacted by recent wildfires, started the hearing by acknowledging both the climate and affordability crises affecting Californians. Chair Irwin emphasized the need for the state’s climate policies to be efficient, affordable, tangible in terms of their benefits to Californians, and replicable in terms of serving as a model that can inspire other states and countries.

The Joint Climate Committee hearing discussions largely centered around four questions:

• How can the Cap-and-Trade Program and GGRF achieve the state’s climate goals in the most cost-effective manner?
• How can the Cap-and-Trade Program and GGRF lower the cost of living for low and moderate income Californians, especially in terms of electricity prices?
• How can the Cap-and-Trade Program and GGRF make Californians safer from wildfires, floods, and extreme heat?
• How can the Cap-and-Trade Program and GGRF provide certainty and stability to California businesses so they can make sound, long-term investment decisions?

Legislators on the committee and their invited witnesses – which included the Chair of the Air Resources Board, an energy economist, and a climate and energy expert – discussed a number of ideas for reforming Cap-and-Trade and GGRF investments, including:

• Prioritizing existing energy rebates that currently go to all utility customers (regardless of income or geography) for low and moderate-income households in regions that face extreme heat and higher utility bills in the summer
• Reducing or shifting the number of free allowances given to utilities and industries and considering ways to more directly and tangibly lower costs for ratepayers and consumers 
• Eliminating or reforming offsets and considering ways to spur more investments in GHG-reducing projects that directly benefit California communities (e.g. 85% of agricultural offsets purchased through the Cap-and-Trade Program have funded dairy digester projects outside of California)
• Utilizing some portion of GGRF revenue for cost-sharing investments in home-hardening and electric grid transmission infrastructure that is needed to reduce wildfire risk and liability for both utilities and homeowners (the costs of this infrastructure and wildfire liability are the leading causes of higher electricity rates and insurance premiums) 

Unfortunately, the hearing’s discussions on affordability largely overlooked the impact climate change is having on increasing grocery prices and the need to invest in agricultural resilience to ensure domestic food security and affordability in the years ahead. The hearing also lacked any discussion of the state’s targets and strategies to reduce emissions associated with the agricultural sector, which are currently estimated to be 8% of the state’s total emissions.

Chair Irwin has been a leader on agricultural climate solutions, partnering with CalCAN and our coalition members to successfully author legislation to support on-farm composting and establish the Climate Smart Agriculture technical assistance program, and we are hopeful that future Joint Climate Committee hearings will cover these important aspects of the affordability and climate crises.

Our Ask: 15% of GGRF for agricultural climate solutions

As recent years have made abundantly clear, climate change poses a major threat to CalCAN’s vision of a resilient agricultural system that ensures safe working conditions, clean air and water, and access to healthy food. Increasingly frequent and extreme wildfires, storms, droughts, and heat waves are already increasing the cost of food, causing significant economic losses in rural communities and contributing to the loss of an average of 1,500 farms per year in California.

Solving these interconnected crises requires investments in holistic solutions and the capacity to scale them up over time. Therefore, CalCAN is asking the legislature to commit 15% of the state’s Greenhouse Gas Reduction Fund on a continuous basis for a suite of programs that advance agricultural climate solutions and improve food affordability.

California has agricultural climate targets 

Thanks in part to our collective advocacy over the past 15 years, the state legislature and state agencies have established a number of targets for agricultural climate solutions that align with our vision, including the following targets in CARB’s Climate Scoping Plan, SB 1383, and AB 1757:

• Dairy methane: Reduce dairy methane emissions by 40% by 2030
• Organic acreage: Increase certified organic acreage to 10% by 2030, 15% by 2038, and 20% by 2045
• Healthy soils: Increase healthy soils practice adoption on 140,000 additional acres/year by 2030; 190,000 additional acres/year by 2038; and 190,000 additional acres/year by 2040
• Cropland conservation: Conserve 12,000 additional acres/year of croplands by 2030; 16,000 additional acres/year by 2038; and 19,500 additional acres/year by 2045
• Grassland conservation: Conserve 33,000 additional acres/year of grasslands by 2030 & sustain that rate through 2045
• Energy electrification: Electrify 25% of agricultural energy demand by 2030

Existing programs can meet the targets with cost-effective solutions, but they need consistent funding

Recognizing the need for incentives and technical assistance to accelerate agricultural emissions reductions, California has established a number of climate smart agriculture programs. We are requesting a continuous appropriation of 15% of total GGRF revenue to support the following programs (administering agency initials in parentheses):

• Alternative Manure Management Program (CDFA)
• Biologically Integrated Farming Systems Program (CDFA)
• California Underserved and Small Producer Program (CDFA)
• Clean Off-Road Equipment Vouchers (CARB)
• Climate Adaptation and Resilience Program (WCB)
• Climate Ready Program (SCC)
• Climate Smart Technical Assistance Program (CDFA)
• Farmland Access & Conservation for Thriving Communities (DOC)
• Healthy Soils Program (CDFA)
• Organic Transition Program (CDFA)
• Regional Equipment-Sharing Program (CDFA)
• Renewable Energy for Agriculture Program (CEC)
• State Water Efficiency & Enhancement Program (CDFA)
• Sustainable Agricultural Lands Conservation Program (DOC)
• UC Small Farms Team (UCANR)
• Urban Agriculture Program (CDFA)

These programs collectively address all of the agricultural sector’s sources of emissions: methane from livestock; nitrous oxide from overapplication of fertilizer and irrigation; carbon dioxide from agricultural burning, combustion engines, and production of fossil fuel-based inputs; and the loss of above and below-ground carbon from soil disturbance and farmland conversion. These programs are also some of the state’s most cost-effective climate programs. In fact, the four climate smart agriculture programs CalCAN has historically championed are all in the top 20 most cost-effective programs (out of 90 total). The SALCP program alone has achieved 15% of the GGRF’s emission reductions despite receiving only 2% of its funding.

Programs CalCAN Has Historically Championed	Cost Per Ton of GHG Reduced ($/CO2e)	Cost-Effectiveness Rank (of 90 GGRF programs)
Sustainable Agricultural Lands Conservation Program (SALCP)	$10	3rd
Alternative Manure Management Program (AMMP)	$67	12th
State Water Efficiency and Enhancement Program (SWEEP)	$83	17th
Healthy Soils Program (HSP)	$108	19th

 

These programs also have a multitude of benefits beyond GHG reduction, including that they:

• Save farmers thousands of dollars per year on energy, water, fertilizers, and pesticides; 
• Increase farm and community resilience to extreme weather; 
• Increase biodiversity and wildlife habitat;
• Reduce dust, pesticides, nitrates, and other sources of air and water pollution that disproportionately affect farmworkers and low-income rural communities. 

Farmer demand for these programs has typically outpaced available funding by two to three times. These short-term incentive programs have durably changed agricultural practices: a recent CalPoly program evaluation of CDFA’s climate smart ag incentive programs found that 3 out of 4 grant recipients plan to continue the practices they were funded to adopt after the incentive funding runs out.

However, these programs have suffered from inconsistent funding that has made it difficult to scale up the technical assistance workforce to support farmers in accessing the funds and limited their adoption of climate-resilient practices. This inconsistent funding has also created significant challenges for state agencies administering fluctuating levels of one-time funds. 

Agriculture is underfunded relative to its current emissions and GHG reduction potential

As we noted at the top, agriculture has been underfunded relative to its share of statewide GHG emissions and its ability to sequester carbon. Though the sector is currently responsible for 8% of emissions and has the capacity to sequester carbon, the sector has only received 2% of GGRF funds on a continuous basis and 5% of all GGRF funds (both continuous and discretionary) to date. Enhanced stewardship of California’s working lands is essential to meet the state’s climate goals, protect its ground and surface waters, restore its soils and biodiversity, and ensure a resilient and economically viable agricultural future for California. 

The agricultural sector of the economy is also harder to decarbonize relative to other sectors because it requires intervening in complex natural processes (i.e. carbon, nitrogen, and methanogenic cycles) and requires the voluntary participation of a large number of implementers, including farmers, farmworkers, and landowners. At the same time, decarbonizing the agricultural sector also creates many co-benefits, such as generating ecosystem services, supporting agricultural livelihoods, creating healthier foods, and reducing pollution and associated costs in communities and ecosystems. Moreover, the government has a strong public interest in protecting a healthy, affordable, and secure domestic food supply.

Under-investment in holistic agricultural climate solutions has a price: in the grocery bills of California families, in the loss of multigenerational family farms, in the permanent loss of farmland, and in the missed opportunity to turn a source of emissions into a sink. In reauthorizing the Cap-and-Trade Program this year, the legislature has a rare, once-in-a-decade opportunity to prioritize climate solutions that meet basic human needs – healthy food, clean air, and clean water – by investing 15% in programs that advance agricultural climate solutions.

Will you join us?

On March 11, farmers, ranchers, and advocates in CalCAN’s network will gather at the capitol to lobby nearly 30 legislators (one-quarter of the state legislature) and share their stories of how these programs have positively impacted their farms, ranches, customers, and communities.

If you’d like to support them and support this campaign, please email CalCAN’s Partnership Engagement Manager CC Ciraolo at cc@calclimateag.org. There will be a number of ways to show your support in the weeks and months ahead, including signing onto a letter, calling your legislators, or hosting a farm tour or in-district meeting.