Modeling cap-and-trade program allowance value through 2045
Danny Cullenward, JD, PhD
Analysis prepared for the Asian Pacific Environmental Network (APEN)
April 28, 2025
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Executive summary
The total value of California’s cap-and-trade allowances is nearly $10 billion a year:
About 45% of the allowance value goes to the Greenhouse Gas Reduction Fund.
About 41% of the allowance value goes to utilities (and their customers).
About 14% of the allowance value goes to industrial emitters.
This study projects how allowance value could evolve in a reauthorized program, based on carbon price scenarios that are consistent with current market rules.
On a 20-year horizon, the total allowance value ranges from $132 to $311 billion.
Two key aspects of the program’s market design — (1) the maximum carbon price allowed and (2) how allowances are allocated in program rules — determine the total value of allowances in the program and to whom their benefits accrue.
Historically, market-design decisions have largely been delegated to the California Air Resources Board. Policymakers may wish to consider providing additional guidance on design features that determine the overall size and distribution of allowance values.
