The California Legislature gaveled closed at midnight this past Saturday evening and WUD is still assessing the full impact to the State’s dairy industry. In the meantime, here are some of the top highlights:

Cap-and-Invest Extension Secures Key Funding for Transit, Housing, and Climate Initiatives

California lawmakers concluded the 2025 legislative session on Saturday, September 13, by passing a sweeping energy and climate package brokered in the final days between the Governor and legislative leaders. Central to the agreement is a 15-year extension of the state’s landmark Cap-and-Trade program—now renamed Cap-and-Invest—which will run through 2045.

This extension, along with companion budget actions, safeguards both one-time and ongoing funding for major priorities, including High-Speed Rail, public transit, affordable housing, wildfire prevention, and safe drinking water.

Cap-and-Invest: Program Extension and Adjustments

AB 1207 (Irwin) officially extends the Cap-and-Invest program, reinforcing its role in meeting California’s 2045 net-zero emissions target. While initial proposals aimed to overhaul the program structure, the final version opts for measured changes that focus on consumer affordability and increased legislative oversight.

Key provisions include:

• Increased consumer rebates through utility bill credits
• Free emissions allowances for at-risk industries to prevent economic leakage
• CARB must now incorporate affordability considerations into program design
• New requirements for CARB to provide economic analyses and participate in annual oversight hearings

Cap-and-Invest Spending Plan and Budget Action

SB 840 (McGuire & Limon) outlines how Cap-and-Invest auction revenues will be spent, while SB 105 provides one-time allocations for FY 2025–26, restoring earlier commitments to public transit and zero-emission transportation.

A major structural change begins in FY 2026–27, when priority programs—including High-Speed Rail—will receive fixed annual dollar allocations, rather than percentages of auction proceeds. These allocations are still subject to adjustment based on revenue performance.

FY 2025–26 Greenhouse Gas Reduction Fund Allocations:

• High-Speed Rail: 25%
• Affordable Housing and Sustainable Communities: 20%
• Transit and Intercity Rail Capital Program: 10%
• Low Carbon Transit Operations: 5%
• Safe and Affordable Drinking Water Fund: 5%
• Forest health and wildfire grants: $200M
• CAL FIRE operations: $500M
• SB 125 transit funding (2023): $368M
• Zero-emission vehicle infrastructure (MHD): $40M
• Livestock methane reduction: $7M
• Community air quality (AB 617): $100M
• Clean Cars for All program: $25M

Beginning FY 2026–27, Annual Allocations Will Include:

• High-Speed Rail: $1B
• Legislative priorities: $1B
• Affordable Housing and Sustainable Communities: $800M
• Transit and Intercity Rail Capital: $400M
• Community Air Protection Programs: $250M
• Low Carbon Transit Operations: $200M
• Wildfire and Forest Health: $200M
• Safe and Affordable Drinking Water: $130M
• CAL FIRE operations: $90M
• Legislative Counsel Climate Bureau: $3M

Select legislative priorities under the $1B allocation for 2026–27 include:

• Fare-free/reduced-fee transit programs – $125M
• Climate tech innovation and deployment – $85M
• UC Climate Research Center – $25M
• Topanga Park reconstruction – $15M

Other Key Energy and Climate Bills in the Package

• SB 237 (Grayson et al): Streamlines environmental reviews for Kern County oil projects, extends oil spill protections
• SB 254 (Becker et al): Continues the wildfire mitigation fund for IOUs and provides new financing tools for energy infrastructure
• SB 352 (Reyes): Expands community air monitoring programs
• AB 825 (Petrie-Norris et al): Supports regional coordination on Western power grid development

Proposition 4 Bond Allocations for FY 2025–26

Following the passage of Proposition 4 in November 2024, which authorized $10 billion in general obligation bonds for climate and environmental infrastructure, the Legislature appropriated $3.3 billion for FY 2025–26 through SB 105.

Initial Prop. 4 Allocations Include:

• Water resilience and safety: $1.2B
• Wildfire and forest management: $416M
• Parks and access to open space: $466M
• Biodiversity and nature-based projects: $390M
• Coastal resilience and protection: $279M
• Clean air and energy programs: $275M
• Extreme heat mitigation efforts: $110M
• Climate-smart agriculture: $153M

Additionally, SB 105 scaled back a proposed diversion of bond funds to the General Fund from $315.8M to $176M—preserving $140M for existing energy and climate programs.

AB 149, the associated trailer bill, permits state agencies to implement emergency regulations to speed up program rollouts under Prop. 4, ensuring timely implementation while preserving legislative intent.

Looking Ahead

The Cap-and-Invest extension marks a pivotal moment for California’s climate policy. It maintains critical revenue streams for transit, housing, and clean energy while adding new transparency and accountability measures. As implementation ramps up, we will continue monitoring regulatory actions and future budget decisions to keep clients informed of opportunities and impacts.