California Governor Gavin Newsom's climate policy faces a major setback as regulators slash allowances for his tax-and-cap program. The move effectively reduces the revenue potential of the state's carbon pricing mechanism, which was designed to fund environmental initiatives while penalizing high-emission businesses.

The decision comes amid growing pressure from businesses and industry groups who argue the program's costs are stifling economic growth. Newsom's administration had positioned the tax-and-cap policy as a cornerstone of California's climate strategy, aiming to reduce emissions while generating billions for green projects. However, the regulatory cutback signals internal conflicts over the policy's implementation and effectiveness.

This development represents a significant blow to Newsom's environmental agenda and raises questions about the future of California's climate leadership. The reduced allowances could force the state to seek alternative funding sources for its ambitious climate goals, potentially delaying key environmental projects. For businesses operating in California, the regulatory uncertainty creates additional challenges in planning long-term investments and compliance strategies.