Regulatory Action Drives Strong Auction for California’s Cap-and-Invest Program

The California Air Resources Board (CARB) released results today for its quarterly Cap-and-Invest auction held on 19 August 2026. The auction result was strong: participants bought all allowances at a price of $32.48, well above the price floor of $27.94. This auction reflects a considerable uptick in demand compared to the previous auction. The August clearing price was $3.67 (+12.7%) higher than the last Cap-and-Invest quarterly auction held in May. The August auction also brought in $870 million in Cap-and-Invest revenues, $100 million (+13%) higher than the last Cap-and-Invest quarterly auction held in May.

Figure 1 shows that the adoption of the proposed Cap-and-Invest regulation in late May drove much of the gains in allowance prices over the last three months. On the day before hearing, allowance prices rose +$0.43. On the first day of the hearing, allowance prices dropped $-0.25 as the Board began deliberations, focusing on the benefits and costs of the proposed Manufacturing Decarbonization Incentive (MDI). On the second day of the hearing, allowance prices rose +$0.60 as it became increasingly clear that the Board would probably vote yes. On the first full day of trading after the “yes” vote, allowance prices rose +$0.61 with additions to their Resolution to address concerns over the MDI.

Taken together, Elevate Climate interprets price movements as indicating that market participants were more bullish about the rulemaking adoption than bearish about the implementation of the MDI. While stakeholders initially emphasized potential widespread and unfettered use of the MDI, these initial concerns were seemingly tempered as market participants digested the following:

• Early analysis by Elevate Climate demonstrated that if the MDI were fully utilized then a maximum of 27 million allowances would be issued annually.[i] This reassured some stakeholders who were concerned that all 118 million allowances would be issued immediately.

• Later independent analysis by Clear Blue Markets quantified likely usage of MDI of about ~10 million allowances annually in their primary scenario. This further constrained analyst estimates of likely MDI usage.

• The Resolution adopted by the CARB Board contains several additions that allow for opportunities to constrain and/or guardrail MDI issuances including: demonstration of financial need; clawbacks for projects underperforming; and, a future workshop on MDI.[ii]

[i] Elevate Climate, “Policy Note: Manufacturing Decarbonization Incentive”, 17 April 2026.

[ii] CARB Resolution 26-7; Elevate Climate, “Policy Note: Initial Cap-and-Invest Board Resolution Analysis”, 31 May 2026.

contact: clayton@elevateclimate.com