"Affordability" narrative weighs on California's carbon market

On 10th September California's governor Gavin Newsom and the state's legislative leaders announced that an agreement had been reached reauthorising the now renamed Cap-and-Invest Program. Nine days later Newsom signed bill AB 1207 into law, formally extending the carbon pricing mechanism to 2045.

Although CCA futures price surged above $30 in the immediate aftermath of the announcement, the market has remained languid ever since. The poor performance foiling those who suggested that reauthorisation would quickly see a rapid upward readjustment in the CCA price. A case of buy the rumour, sell the fact maybe. More likely traders were instantly looking ahead and pricing in the rapidly evolving political narrative, not liking what they saw.

To see why we have to look at what is happening in electoral battlegrounds elsewhere in America. Last week's victories by Democratic candidates (to be the next mayor of New York City and governors of New Jersey and Virginia) were arguably built on campaign promises to address the cost of living; whether that be housing costs, electricity bills, or something else. One key word captures the concerns of voters and the angst that the victors - Mr Mamdani, Ms Sherrill, and Ms Spanberger respectively - tapped into: "affordability".

In a recent article, co-writer of the book Abundance, Derek Thompson argues that it's no use just talking about affordability between now and November 2028, the Democrats need to demonstrate that where they can at least help control the outcome, their actions have made a difference:

"Affordability is good politics, and a Democratic Party that focuses on affordability at the national level, and supports motley approaches to solving the cost-of-living crisis at the local level, is in a strong position going into 2026. But saying the word affordability over and over doesn’t necessarily guarantee good policy outcomes. In fact, it doesn’t guarantee anything. Which is why at some point on the road back to relevance, the Democratic Party needs to become obsessed with not only winning back power but also governing effectively in the places where they have it."

It's here that we come back to California. It's clear that Gavin Newsom, who once insisted that he had “sub-zero interest” in running for the White House, is now finally recognising his presidential ambitions. Newsom is the current favourite to be the Democratic nominee at the next presidential election in 2028. Newsom no doubt realises that affordability - and demonstrating he can do something about it - could become a pivotal factor in him achieving his goal of becoming the next president. The price of electricity is likely to be one of the key indicators upon which he will be judged.