This chapter examines the origins and operation of California's cap-and-trade system from broad sets of theoretical frames. It investigates the role of policy diffusion, policy learning, copying and local political economy in shaping the design of that system. The chapter also examines that how organized political concerns within California have affected the design of the system. The Global Warming Solutions Act (AB 32) constitutes the basic building-block legislation that made possible the development of California's climate policy package. AB 32 passed by a simple majority, whether the cap-and-trade auction constitutes a 'tax' or a 'fee' will determine the legality of the current auctioning of state-owned allowances that raise government revenue. Particularly important here are the rules to channel auction proceeds into the Greenhous Gas Reduction Fund and to earmark funds for investments in green infrastructure and projects that support disadvantaged communities.