Democratic California Gov. Gavin Newsom on Wednesday released the May revision of his state budget proposal for 2025-2026, which included an extension to a cap-and-trade program that some analysts warn could raise gas prices, while also helping fund a problem-ridden high-speed rail project.
Newsom’s revised budget proposal, first reported by Politico, includes a 15-year extension of California’s cap-and-trade program — which launched in 2013 and was established to limit greenhouse gas (GHG) emissions in the state. While the program is currently set to expire in 2030, the state’s Legislature is considering extending it, which some have cautioned could lead to a spike in gas prices in the state over the next few years.
The state’s cap-and-trade system requires natural gas power plants, coal power plants and other companies to purchase allowances to offset emissions, according to the U.S. Energy Information Administration. The program “establishes a declining limit” on major sources of GHG emissions throughout the state and also incentivizes companies to invest in “cleaner, more efficient technologies and energy,” according to the California Air Resources Board (CARB). (RELATED: What Corporate Media Isn’t Telling You About Trump’s Cuts To Decades-Old Energy Efficiency Program)
Analysts have warned that Californians could face potentially massive gas price hikes over the next several years due to the potential reauthorization of the state’s the cap-and-trade program, as well as the planned closings of two major California oil refineries.
“California refining capacity is dying, it is dwindling,” Marlo Lewis Jr., a senior fellow at the Competitive Enterprise Institute, told the Daily Caller News Foundation. “Two major [oil] refineries in California are set to close this year … California also has the highest gasoline tax in the continental U.S., which also increases the cost [of gas]. California basically has to produce its own oil and gas or import it by rail and ship. That’s all part of what I call California’s climate obsession.”
Californian households could pay an additional cost of roughly 74 cents per gallon of gas if the state’s Democratic-dominated legislature extends its cap-and-trade program, according to a May report from California’s Legislative Analyst’s Office. The potential increase in gas prices could be “particularly burdensome” for the state’s lower-income households, as they tend to spend a higher portion of their incomes on transportation fuels than higher-income households do, according to the report.
“This represents an extreme scenario that does not reflect the reality of the program,” Lindsay Buckley, a spokesperson for CARB, told the DCNF. “The Legislative Analyst’s Office recognized this is a hypothetical situation that would occur only if allowance prices were to reach the price ceiling. Cost containment measures are in place to prevent price spikes to high levels and the analysis does not consider the large number of allowances, purchased at lower prices, which have been banked by companies in the program which would also avoid such spikes. In fact, extending the program provides market certainty and attracts liquidity to manage price volatility. This is observed in historical data when the program was extended past 2020 under AB 398.”
In April, President Donald Trump unveiled an executive order targeting certain programs similar to California’s cap-and-trade system, claiming such initiatives “discriminate” against energy producers while also raising the cost of energy.
“These high fuel prices in California have nothing to do with corporate greed, they have nothing to do with collusion by oil companies to manipulate the markets,” Lewis told the DCNF. “They have everything to do with the energy infrastructure of California, which is driven by California energy policy and the climate policies.”
“You can either get rid of the [climate] policies that are ruining the market, or if not, maybe you ought to try and provide some type of even playing field for the industries that you have targeted for destruction,” Lewis added. “It certainly wouldn’t go against Gavin Newsom’s moral compass, because picking winners and losers and interfering with the marketplace is what progressive energy policies are all about.”
NEW YORK, NEW YORK – SEPTEMBER 18: California Gov. Gavin Newsom speaks onstage during the Clinton Global Initiative September 2023 Meeting at New York Hilton Midtown on September 18, 2023 in New York City. (Photo by Noam Galai/Getty Images for Clinton Global Initiative)
“There are essentially no upsides to any of these policies aimed to curb climate change, including California’s cap and trade program,” Kevin Dayaratna, a senior research fellow at the Heritage Foundation’s Center for Data Analysis, told the DCNF. “They come with significant economic costs and essentially no meaningful environmental impact. We have modeled these types of policies at the federal level, and they come with significant economic costs and essentially no environmental impact.”
Newsom’s proposed state budget would also shell out a minimum of $1 billion annually to help fund his state’s beleaguered high-speed rail project.
The California High Speed Rail Authority (CHSRA) was established in 1996 to supervise the buildout of a high-speed railway in California, but the project has been marred by significant setbacks, including far exceeding its proposed budget and experiencing significant delays. The railway project was initially projected to cost $33 billion and be completed by 2020, but now is expected to cost between $89 billion to $128 billion, and only 119 of the planned 776-mile railroad is actively under construction thus far.
“The problem [with Newsom’s budget proposal] is that right now that California’s high-speed rail is about $100 billion dollars short of the money it needs to go between San Francisco, Los Angeles and Anaheim,” Marc Joffe, a visiting fellow at the California Policy Center, told the DCNF. “That is not enough money to solve the problem. They would have to hope they could get more money from the government to fund the high-speed rail, or a private company would have to fund it. But it is pretty unlikely that a private company would fund California’s high-speed rail, as it has not really met any of its objectives so far.”
In February, the Trump administration’s Department of Transportation announced that it was launching an investigation into the CHSRA to determine whether to rescind “roughly $4 billion in taxpayer money” for a proposed project to build a high-speed rail system in California’s Central Valley. Secretary of Transportation Sean Duffy wrote in a February press release that American taxpayers have “subsidized” the “massively over-budget and delayed California High-Speed Rail project” for too long.
“I don’t think that they [California lawmakers] have the right incentives to really aggressively move forward and complete the [high-speed rail] project,” Joffe told the DCNF.
California is notably facing a budget shortfall of roughly $12 billion, which Newsom has blamed on economic impacts from the Trump’s tariffs. The Golden State’s spending has grown significantly since the governor took office in 2019, with California’s state budget increasing over 63% from that year to June 2024, according to a May 2024 report from the Hoover Institution, a conservative think tank.
Moreover, a large number of Californians have left the state during Newsom’s time in office, with many of them citing the high cost of living in the state as a key factor for leaving.
“We appreciate Governor Newsom’s commitment to delivering the nation’s first high-speed rail system right here in California,” CHSRA CEO Ian Choudri said in a statement shared with the DCNF. “The cap-and-trade commitment of a minimum of $1 billion per year will help us finish the Merced to Bakersfield line and build on that momentum to extend out to the Bay Area and Los Angeles. It puts us on the right track to attract and utilize private investment in the system and get clean, electrified fast high-speed rail delivered as soon as possible.”
Newsom’s office referred the DCNF to a fact sheet about the cap-and-trade program when reached for comment.
“California won’t bend the knee to a federal administration hellbent on making America polluted again,” Newsom said in a statement provided to the DCNF. “Cap-and-Invest is the next chapter for one our most effective tools to clean the air and keep our communities healthy. We’re going to make polluters pay for solutions to the climate crisis they helped create — including CAL FIRE’s world class fire protection and prevention operations and holding the line on high-speed rail, providing a stable source of funding critical to delivering this project. We will do all of this while continuing to get money directly back to people’s wallets – making $60 billion available to help Californians with their utility bills.”
A Newsom spokesperson told the DCNF that since the cap-and-trade program was established, “it’s estimated to have created 122,000 jobs and has delivered $15 billion directly back to Californians in the form of utility bill credits that have averaged more than $1,100 per household since 2014.”
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