Colorado’s largest manufacturing facilities would be allowed to trade carbon credits next year not just with each other but also with energy-intensive cement and steel plants under a proposal unveiled by the Colorado Air Pollution Control Division this week.
The APCD, a division of the Colorado Department of Public Health and Environment, has worked since February to set up a carbon credit-trading program as part of the Greenhouse Gas Emissions and Energy Management for Manufacturers (GEMM) rule that it approved in September. The idea is that letting factories that go above beyond pollution-reduction requirements to earn credits that they can sell to other plants will incentivize businesses that can reduce emissions more easily to do so and make up for firms in harder-to-decarbonize sectors.
Such a strategy is “vital” to achieving the state’s goals of reducing manufacturing-sector greenhouse-gas emissions 20% by 2030 from their 2015 levels, APCD Director Michael Ogletree explained. A Tuesday night public meeting represented the first reveal of the proposal, which division leaders will continue to refine before a scheduled Nov. 6 follow-up meeting, after which they intend to solidify a final rule in statute.
Colorado Air Pollution Control Division Director Michael Ogletree address a virtual public meeting Tuesday regarding proposed new credit-trading rules.
Since the fall, the biggest questions for the 18 GEMM-regulated manufacturers from Molson Coors Beverage Co. to Suncor Energy U.S.A. have revolved around how companies could earn credits and whether they could trade with firms in other sectors. The new proposal is bringing clarity to both of those areas.
How businesses earn credits
GEMM 1 facilities — the four steel and cement plants whose exposure to global trade leaves potential for relocation if overregulated — must reduce their emissions intensity through best available technology and energy practices and then cut intensity 5% more. They can earn credits if their intensity drops below their annual limits in the proposal, explained Cecilia White, supervisor of the emissions credit-trading program.
GEMM 2 manufacturing facilities, which emit more than 25,000 metric tons of pollution annually, are subject to individual caps on emissions, which get stricter as they get closer to 2030. They can earn credits only after their emissions have fallen below their 2030 limits, and the credits are based upon each metric ton they emit below that limit.
Because GEMM 1 facilities can reduce their carbon intensity — and generate credits — without reducing the tonnage of emissions they produce, APCD officials worried that allowing them to trade too much with GEMM 2 facilities would not create the emissions reductions the state needs. So, they proposed a hybrid solution that would limit GEMM 2 facilities’ access to GEMM 1 credits until they reach certain goals, explained Greg Marcinkowski of APCD’s stationary sources program.
From 2025 through 2027, GEMM 2 facilities must have reduced emissions from 2015 levels by 10% before they can purchase GEMM 1 credits under the proposal. Then, beginning in 2028, they must reduce emissions 20% below 2015 levels before accessing those credits — thus ensuring that the state is on track to meet its goal of reducing sector emissions 20% by 2030, Marcinkowski said.
Balancing credit-trading program with emissions goals
“It really was the biggest part of this challenge — taking this apple and orange and boiling it down to be interchangeable while at the same time ensuring these emissions-reduction goals were not compromised,” added Megan McCarthy, industrial decarbonization program lead for APCD’s climate control division.
A 15-person technical working group comprised of carbon researchers, regulatory officials and industry leaders helped to come up with the final proposal, APCD officials said.
Being able to trade credits not just within a facility’s sector but with other regulated facilities is important because it expands the pool of emissions producers who can go beyond state-mandated limits and reduce emissions further, industry leaders have said.
It’s also key because APCD officials are looking at setting up a carbon-trading program as well when they set emissions-reduction rules, likely in December, for the midstream oil-and-gas sector — the pipelines that carry natural resources from wells to processing plants.
Midstream the next credit-trading program?
Ean Thomas Tafoya, Colorado state director for GreenLatinos
Because the remoteness of that sector’s infrastructure makes it hard to electrify and decarbonize, industry leaders view the ability to trade credits with GEMM 1 and GEMM 2 facilities as vital to achieving state pollution-cutting goals. But environmentalists will fight launching another such program; David Frank, environmental and energy specialist for Erie, specifically urged against creating a midstream carbon-trading program during the public-comments portion of Thursday’s AQCC meeting.
Many environmental groups expressed skepticism about the proposed credit-trading program during last year’s GEMM 2 hearing, saying they worried it could help some facilities buy their way to compliance rather than take greater steps to reduce emissions. They also worried that it could allow emissions producers in disproportionately impacted communities to continue to pollute there while factories in more remote areas took greater steps to clean up.
On Wednesday, Ean Thomas Tafoya, Colorado state director for GreenLatinos, said he still has questions about whether the state should permit trading between the two GEMM categories, as allowing GEMM 2 facilities to buy GEMM 1 credits could hinder the state from reaching its 20% emissions-reduction goals by 2030. He particularly would like the state to require more on-sight emissions-control technology at facilities located within poorer and more polluted communities before those companies could access credits.
“Their rules seem to be getting tighter and tighter to protect disproportionately impacted communities,” Tafoya said in an interview. But they have failed to convince me that trading will magically convince businesses to do extra to make money.”