Grand deal or “Faustian bargain”? Compromise oil-and-gas bills move forward.

Legislators began advancing two bills Thursday that emerged from a “grand deal” between oil-and-gas companies, environmentalists and state-government officials — even as some oil-and-gas firms and one environmental leader said the deal was no good for them.

The Senate Finance Committee approved Senate Bills 229 and 230 on Democrat-led, party-line 4-3 votes, sending both onto the Senate Appropriations Committee as the proposals try to move through both legislative chambers by the May 8 adjournment of the 2024 session. Then members unanimously voted to kill Senate Bills 165 and 166, two of the four business-opposed measures that officials agreed to vacate as part of the agreement.

Officials from several environmental organizations spoke for the two new bills, saying that even if they weren’t exactly what they’d set out to pass this session, they still represented significant steps toward cleaning the air in disproportionately impacted communities. Colorado Oil & Gas Association President/CEO Dan Haley was more tepid in his words, lauding the potential for the bills to bring regulatory certainty to what for five years has been a highly volatile atmosphere but still wanting amendments to clarify parts of SB 229.

“The one thing our industry cares about above all else is certainty and predictability,” Haley told committee members. “Coloradans deserve clean air and clean water. But they also deserve access to affordable and reliable energy.”

Details of new oil-and-gas regulations

As part of the deal announced Monday, both energy and environmental interests agreed to pull down potential initiatives that could result in a pricey ballot battle in November. And legislators agreed to kill SB 165 (which included a summer pause in oil-and-gas preproduction), SB 166 (which sought stiff penalties for repeat air-quality offenders), House Bill 1330 (which sought to ramp up modeling for air-quality permits) and HB 1367 (an attempt to remove a tax exemption for stripper wells).

In place of those proposed regulations is SB 229, sponsored by Democratic Reps. Faith Winter of Broomfield and Kevin Priola of Henderson, which incorporates some parts of the dying bills and mashes together other proposed regulations. Its provisions include:

• Codification of Gov. Jared Polis’ March 2023 executive order for oil-and-gas producers to cut nitrous oxide emissions 25% by 2025 from their 2017 levels of 179 tons per day and then 50% by 2030. Those emissions already dropped to 168 daily tons in 2023, said Trisha Oeth, director of environmental health and protection for the Colorado Department of Public Health and Environment.
• Requirement for the state to provide an annual air-quality report that summarizes the Air Pollution Control Division’s statewide enforcement actions.
• Expanded enforcement authority for state agencies to require that air-quality violators fix broken pieces of pollution-preventing equipment or to revoke operating licenses for permit holders that commit violations causing death or serious bodily injury. The bill also limits a court’s authority to postpone the suspension or revocation of operating licenses and permits prosecuting attorneys to seek injunctive relief to limit recurring violations.
• New protections for disproportionately impacted communities, including the hiring of two community liaisons from such areas and a requirement to minimize ozone precursors in those communities by use of enhance systems and practices.
• Expansion of the state’s orphaned wells mitigation enterprise to help fund the plugging, reclamation and remediation of marginal wells at the highest risk of becoming orphaned.

New fee on oil-and-gas production

Officials from Earthworks, GreenLatinos and Sierra Club lauded the increased protections for the poorest and most polluted communities, as well as the increased cooperation between CDPHE and the Colorado Energy and Carbon Management Commission.

“While SB 229 doesn’t exactly match what our coalition set out to accomplish this session … this bill will make important and meaningful improvements,” said Rebecca Curry, an attorney and policy counsel for Earthjustice.

SB 230, meanwhile, creates two new fees on oil and gas production that rise with the spot price of the products. For example, when oil is selling for $40 a barrel or less, the fee won’t go above 4 cents per barrel, but it can raise to 48 cents per barrel when the spot price climbs to between $70 and $80.

A full 80% of the new revenues will go to transit projects, with 70% of that total divided by formula between local transit systems, 10% to a competitive grant program for local transit systems and 20% to build passenger rail along the Front Range and into the mountains. The other 20% would go to a new Colorado Parks and Wildlife fund to purchase and restore public lands, clean up animal habitats and pay for species reintroduction programs.

Why transit and wildlife?

Senate President Steve Fenberg, the Boulder Democrat cosponsoring SB 230 with Democratic Sen. Lisa Cutter of Morrison, said that both funds will help to mitigate the damage oil-and-gas drilling can produce. The CPW fund will restore areas home to species affected by drilling rigs, and improvements to public-transit systems can help to get people out of their emissions-producing vehicles and into cleaner transportation, he said.

The transit funding, noted Southwest Energy Efficiency Project transportation advocate Matt Frommer, can go to new equipment, new service or more frequent service on existing lines. While cities have transit options, too many routes operate at infrequent intervals, giving commuters no incentive to give up single-occupancy vehicle travel, he said.

“State funding for transit is a long time coming,” Frommer said. “We are stuck in a vicious cycle on transit where service cuts decrease ridership, which leads to more service cuts.”

Several natural-gas and oil industry executives criticized the new fee as nothing but a renamed tax that has no nexus between the industry from which it’s extracting revenues and the way that those revenues will be spent. And it’s a very expensive shadow tax, argued Caerus Oil and Gas president/CFO Jeter Thomas, who estimated that it would have cost his northwest Colorado company $2.7 million, or 10% of its total administrative expenses, had it been in place in 2023.

Industry and environmental pushback

“There is frankly no basis for the fee other than to generate revenues from an industry that you all have tried to drive out of the state,” said Chris McGowne, an oil and gas attorney who represents a range of operators.

Ed Ingve, managing owner of Eastern Plains-focused Renegade Oil and Gas Company, complained that he and other smaller oilfield operators weren’t invited to give input to the “backroom deal” brokered in part by industry leaders Occidental, Civitas and Chevron.

Jan Rose — a Colorado Coalition for a Livable Climate leader who emphasized she was speaking for herself because her organization is still studying the bills that were introduced late Tuesday — also lamented the “Faustian bargain.” She called it ridiculous that the signatories agreed to hold off new ballot measures or legislation for the next three-plus years, did little to truly help marginalized communities and agreed to put the fee revenues to Polis’ “pet Front Range Rail project.”

But the deal even received a thumbs-up from the United Steelworkers, who have opposed most of the jettisoned air-quality bills because they feared their aggressive regulatory actions could shut down plants and lead to big job losses. However, Charles Perko, president of the Local 3267 chapter in Pueblo, asked legislators also to kill HB 1338, which proposes creation of new regulations on petroleum refineries, of which there is one — the Suncor Energy USA plant in Commerce City — in Colorado.