California regulators approved changes to the state’s cap-and-invest program in May meant to limit increases in fuel and electricity costs. But climate advocates warned the decision could reduce funding for key climate programs paid for through the state’s Greenhouse Gas Reduction Fund, many of which also address affordability issues.
The California Air Resources Board (CARB) voted to revise the cap-and-invest program, which requires large polluters to purchase allowances for their emissions through the state. Proceeds from allowance auctions are used to fill the fund. But with the aim of reducing greenhouse gas emissions 85% by 2045, the number of allowances — and fund dollars — have been steadily reduced, or capped, by the state’s climate goals.
Those dollars have already helped fund new transit improvements and affordable housing in Sacramento. Spokesperson Jessica Gonzalez said the grants have helped Sacramento Regional Transit, or SacRT, expand its rail service, purchase new light rail vehicles and build transit-oriented housing.
Affordable Housing and Sustainable Communities Program
The Affordable Housing and Sustainable Communities (AHSC) Program is one of several that uses state climate dollars to support projects connecting affordable housing with public transit and pedestrian infrastructure. The program has awarded billions of dollars across the state since it launched in 2014.
Gonzalez said SacRT has received roughly $67 million over the past decade to fund 10 projects supporting the construction of 3,000 affordable housing units with housing partners planning another 10,000 near existing and future transit corridors and stations.
In its latest report to the legislature, CARB detailed how billions of fund dollars have already been spent to create more affordable housing and improve access to transit, among other things. The report also indicates that some funding is yet to be implemented, and an additional $8 billion in proceeds is expected to be generated by cap-and-invest by 2030. However, at an estimated rate of $2 billion per year, that’s still less than what the fund has generated in the past and about half the amount needed to fully fund critical transit, affordable housing and clean air and water programs.
Screenshot from the Legislative Analyst’s Office of the 2026-27 Cap-and-Invest Expenditure Plan.(Courtesy/Legislative Analyst's Office)
A recently completed project is a new light rail station in the Sacramento Railyards that will soon connect the region to Sacramento’s new soccer stadium, which is currently under construction.
“It’s bringing better service to our community and that grant funding really goes a long way,” Gonzalez said. “It actually is able to bring way more money into the region than just that grant alone.”
The grants allowed SacRT to recently purchase four new light rail vehicles as it continues to replace its aging fleet.
“If anyone’s riding our Blue Line right now, you can see these are 35-year-old trains,” Gonzalez said. “They’re past their useful lives and we’re just keeping them chugging along until we can get these new trains.”
Gonzalez said reduced climate funding would have significant consequences for housing and transit. She added that SacRT and its housing partners have already identified six additional projects requesting nearly $60 million in future AHSC funding.
“We have lots of college students using our transit [and] we know our state workers need transit — they can’t necessarily afford to pay for parking downtown and they also don’t want to fight the traffic that it takes to come in,” Gonzalez stressed. “We get one fifth of a penny of local sales tax compared to our peers that are getting [a] penny, a penny and a half. So we’re really relying on a lot of our grant funding that we’re getting to spread that money and really make Sacramento the best transit service possible.”
Sacramento Regional Transit spokesperson Jessica Gonzalez Tuesday, July 14, 2026, at the 7th & Railyards light rail station in Sacramento. Gonzalez says the station will help connect people to the new soccer stadium currently under construction.(Gerardo Zavala/CapRadio)
Climate advocates argue projects like these highlight what’s at stake if California’s Greenhouse Gas Reduction Fund brings in less money than expected over the next several years.
Climate advocates warn of a funding shortfall
Jonathan Cole, Transit and Rail lead for Climate Action California, said updated revenue projections show the Greenhouse Gas Reduction Fund may not generate enough money to support all of the climate programs that rely on it.
“It looks like the projections for income are going to be low enough that some of these what are called Tier 3 programs like the affordable housing, clean air and water and transit programs may not receive any funding at all,” he said.
The California Air Resources Board recently approved changes that will likely reduce future auction revenue flowing into the Greenhouse Gas Reduction Fund. Lawmakers also made changes to how dollars are allocated in last year’s budget creating a three-tier funding system that gives funding priority to Tier 1 and Tier 2 programs — mainly utility and industry dollars. That leaves many affordable housing, transit and other climate programs in Tier 3 more vulnerable if revenues fall short.
CARB staff argued that increasing the number of allowances available to electric and natural gas utilities will help keep fuel and electricity prices down for consumers as Californians continue struggling through an affordability crisis.
Budget analysts with the nonpartisan Legislative Analyst’s Office also warned that projected Greenhouse Gas Reduction Fund revenues may not be enough to fully fund all Tier 3 programs. State law requires funding for those programs to be reduced proportionally if revenues fall short.
During the 2024-2025 fiscal year, the state raised $3.4 billion in auction proceeds for the fund, fulfilling only about 70% of the dollars needed to fully support Tier 3 programs.
That’s why lawmakers recently introduced a budget trailer bill that expresses the Legislature’s intent to fully fund all three tiers up to $5.8 billion annually — with a stipulation that only legally required expenditures, like Cal Fire and emergency services, be funded if the bill is rejected. Cole said the bill is meant to get Governor Gavin Newsom to return to the bargaining table on how the state will fund climate programs long term.
“It’s a way of kind of forcing negotiations between the governor and the Legislature trying to find a different and better way to fund these programs,” he said.
Even some CARB members acknowledged the funding challenge extends beyond the regulations they approved.
Lawmakers disagree on funding strategy
Democratic State Senator Henry Stern, of Los Angeles, served on the board and said the state has become too reliant on the fund to pay for ongoing climate programs.
“I don’t think it’s smart to address the operating budgets of major departments with the Greenhouse Gas Reduction Fund,” Stern said during a late May board meeting. “We don’t think that’s a wise idea. The Senate rejected that idea. We need the other two parties to come to the table with a similar baseline of understanding.”
Stern was referring to negotiations between the Senate, Assembly and Governor Newsom over how California should pay for its climate priorities after lawmakers approved last year’s budget. Senate Democrats have argued the state should rely less on volatile cap-and-invest revenue to fund climate programs long term.
Construction workers Abel Muñoz (left) and Carlos Barrera putting in optic fiber for the Republic FC Stadium Tuesday, July 14, 2026, in the Sacramento Railyards.(Gerardo Zavala/CapRadio)
In Sacramento, Gonzalez said investments in public transit benefit more than just the people who ride buses and trains.
“We’re helping to reduce cars in front of you,” she said. “We see what the highways are looking like and to take just a few cars off the road is going to help you get from point A to point B, so it really should be something that everyone should be invested in.”
A CARB spokesperson said the changes are still scheduled to take effect in September. The new regulations will affect future auctions while lawmakers continue negotiations on how to fund climate programs in the future.
This story was produced by the Climate Solutions Studio, a project of the Central Valley Journalism Collaborative and its partner newsrooms. CapRadio is a founding partner.
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