How the state’s approach to cap-and-invest, clean fuels, and corporate disclosure offers a working model for climate policy everywhere else

By Tanya Peacock, Managing Director of California and Hydrogen Markets, EcoEngineers

California ranks as the world’s fourth largest economy. Alongside its substantial economic progress, the state has cut its greenhouse gas emissions by 121 million metric tons each year since 2004. Impressively, California met its 1990 emissions target ahead of schedule, a milestone few other countries or states have achieved. This success is no coincidence. The state’s climate initiatives are designed to complement each other and understanding how these components fit together is essential to grasping why this approach is effective.

A Policy Legacy Rooted in Air Quality

California’s climate leadership traces back to a public health crisis. For decades, air pollution (smog) was so severe that people growing up in Los Angeles couldn’t see the mountains for half the year, and thanks to leaded gasoline, children carried blood lead levels far higher than would be considered a public health emergency almost anywhere else in the country today. That crisis helped shape the Clean Air Act of 1963 and its later amendments, including a provision giving California the unique authority to set its own vehicle emissions standards, an authority now adopted by 17 states and the District of Columbia. The pattern set during that period has repeated many times since: identify an intractable problem, solve it with policy, and let the benefits spread outward.

How the Pieces Fit Together

From that foundation grew California’s modern climate architecture: First Assembly Bill (AB 32), which required reducing GHG emissions to 1990 levels by 2020, and then Senate Bill (SB) 32, which targets a 40% cut in emissions below 1990 levels by 2030. The state’s 2022 Scoping Plan Update reviews progress toward meeting the 2030 goal and charts a path to carbon neutrality by 2045. Underneath that umbrella sit the programs businesses actually interact with, including the Low Carbon Fuel Standard (LCFS), adopted in some form by Oregon, Washington, and New Mexico; the Renewable Portfolio Standard (RPS); and Cap-and-Invest, formerly cap-and-trade.

Of these, the RPS is probably the most significant contributor to reducing California’s GHG emissions to date, with energy efficiency standards and programs next, followed by vehicle efficiency standards and Advanced Clean Cars. Then we have the LCFS and Cap-and-Invest, which function as an economy-wide backstop. None of these programs was designed to work alone. Together, they contribute to the state’s overall emissions reduction trajectory.

Turning Disclosure Into Opportunity

SB 253, California’s corporate climate disclosure law, requires companies with revenues of $1 billion/year or more doing business in the state to report Scope 1 and 2 emissions in 2026, regardless of where they are headquartered, with Scope 3 reporting required in 2027. Third-party verification requirements phase in starting 2027 through 2030.

Businesses should treat this as market access rather than a compliance exercise, even if their revenues are under the SB 253 threshold. A company that measures its greenhouse gas emissions and builds a credible inventory satisfies its SB 253 reporting obligations and, at the same time, lays the groundwork for exporting products into other markets such as the EU and meeting sustainability and reporting requirements imposed by its customers (e.g., parts suppliers for automobile manufacturers). This is the essence of competing with carbon: using rigorous carbon accounting to open doors with sustainability-minded customers and international markets.

Addressing the Cost Question

Climate regulation is often criticized for driving up gas and electricity prices for ordinary Californians, and that criticism deserves a direct answer. Two factors are usually left out of the debate. The first is energy efficiency: rates may be high, but bills tend to stay manageable when consumption drops. The second is avoided healthcare costs. Reducing pollution is considerably cheaper over time than treating the cancer, asthma, and other medical effects that pollution causes. Regulatory certainty is an economic asset in its own right, since businesses can only commit capital to long-term decarbonization when policy direction stays steady.

Where Hydrogen Fits Next

Hydrogen plays a key role in the 2022 Scoping Plan Update for hard-to-electrify sectors such as long-haul freight, heavy-duty trucks, rail applications, port and off-road equipment, marine applications, and aviation. Hydrogen also is expected to contribute to the decarbonization of non-transportation end uses in sectors such as chemicals (like ammonia), refining, cement, and high-temperature manufacturing processes. While hydrogen has moved through a hype cycle that cooled in recent years, renewed momentum is visible in specific corners of the market: ammonia production for fertilizer, increasingly tied to food security concerns; transit buses; and early movement toward methanol and hydrogen used to replace bunker fuel in shipping applications. In the power sector, hydrogen’s advantage as long-duration energy storage (since it doesn’t degrade in storage the way batteries do), positions it as an increasingly important complement to the grid, even with near-term growth concentrated in a handful of data center-related use cases.

The Biggest Lever Left to Pull

Permitting is the single largest obstacle standing between California’s climate goals and their execution. The state needs more certainty and control over the timeline for siting new projects, and it must be able to build them. Even a well-designed climate framework depends on the ability to actually build the projects it’s meant to enable.

For more information on “California’s Climate Playbook,” watch our webinar, Carbon Counts: California’s Climate Playbook and Its Global Impact, which was held in September of 2026.

Tanya Peacock leads EcoEngineers’ hydrogen and California decarbonization practice. She previously worked on California climate policy at Bloom Energy and Sempra Energy and was involved in the original development of the state’s cap-and-trade program. She can be reached at tpeacock@ecoengineers.us.