According to a report by a panel that advises state officials, oil refineries, utilities, and other companies that must pay to emit greenhouse gases in California have saved up so many credits allowing them to pollute that it may jeopardize the state’s ability to meet its ambitious climate goals.

California operates one of the world’s largest carbon markets, known as “cap-and-trade,” which requires businesses to buy, trade, or receive pollution “allowances” equal to how much pollution they intend to emit. As allowances become scarcer and more expensive, the state makes fewer allowances available over time, with the goal of encouraging companies to pollute less.

California’s market has been closely watched by both supporters and detractors of efforts to control emissions through market forces rather than mandates. The state is required to reduce emissions by 40% below 1990 levels by 2030, an ambitious target, and the state has previously stated that cap and trade will account for more than a third of those reductions.

However, participating companies have saved so many allowances — 321 million — that the program’s ability to force significant emissions reductions may be jeopardized, according to a report released last week by the Independent Emissions Market Advisory Committee, a group of five experts appointed by lawmakers and the governor. The banked allowances are roughly equivalent to all of the carbon emitted by the companies in a year, and they far exceed the emission reductions cap and trade is supposed to achieve by the time it expires in 2030.

The report comes as the California Air Resources Board is preparing a “scoping plan” to assess the state’s progress toward its climate goals. It’s the first plan of its kind in five years, and the committee urged the board to thoroughly investigate the role cap and trade should play.

One allowance equals one metric ton of carbon dioxide equivalent emissions, which is roughly the same as driving a car 2,500 miles. Last year’s quarterly allowance auctions cost between $17 and $28 per allowance.

The air board does not reveal who has banked allowances, and there is a limit to how many an individual emitter may have. If the program expires as planned in 2030, companies will no longer be required to pay to pollute, and any unused allowances will be rendered ineffective.

Rajinder Sahota, the air board’s deputy executive officer for climate change and research, said the agency has tools in place to ensure that banked allowances don’t jeopardize the program’s goals, such as selling fewer allowances in future auctions or taking them off the market if they don’t sell within 24 months.

According to Sahota, the air board has already removed some allowances from the auction market in response to the large bank of credits. This is consistent with approaches taken in other carbon markets in Europe and the northeastern United States. Companies subject to cap and trade collectively emitted less between 2018 and 2020 than they did between 2015 and 2017, according to air board data. Some of those reductions can be attributed to a drop in economic activity at the start of the pandemic.

Shell Energy and the California Council for Environmental and Economic Balance, a coalition of labor and business groups, have warned against changing the amount of allowances through new measures, claiming that doing so would jeopardize the program’s “market integrity.”

According to the air board’s most recent scoping plan, cap and trade would account for 38% of the state’s emissions reductions — essentially anything that those other programs couldn’t achieve. The role of cap and trade is likely to be reduced in the 2022 update. Any changes to the program and the number of allowances sold would have consequences that went beyond cap and trade. Through quarterly auctions of allowances, the state has raised more than $18 billion, which will go toward other programs aimed at reducing emissions. A quarter of the auction proceeds will be used to fund the state’s long-delayed and vastly overbudget high-speed rail project.

California launched the program in 2013 with the intention of having it expire in 2020. However, lawmakers and then-Gov. Jerry Brown extended it until 2030 in 2017. Environmental justice advocates have long opposed it, claiming that it does little to improve air quality for people who live near large polluters.