Regulators’ coming decisions could determine future of carbon capture in Colorado

Ben Teschner, solid minerals manager for the Colorado State Land Board, discusses a potential carbon sequestration project on state property with the Colorado Chamber of Commerce's Environmental and Sustainability Task Force in 2023.

Colorado is about to begin setting rules for companies seeking to pump carbon dioxide underground — a new technology that state leaders call necessary to reduce emissions but that business leaders warn won’t come to Colorado if regulations are too strict.

Carbon capture occurs when companies pull carbon dioxide from the emissions emanating from industrial sources and then use wells to inject that gas into deep-rock formations, where it can be stored permanently. Some companies also are working to develop direct air capture where the carbon dioxide can be pulled straight from the atmosphere, but that technology remains nascent.

Currently, the U.S. Environmental Protection Agency is responsible for permitting carbon-capture projects, but the process is slow and leaves any such permitting outside the control of Colorado and local governments. A 2023 law permitted Colorado to join a handful of other states in seeking permitting primacy from the federal government, and the Energy and Carbon Management Commission has been working on proposed permitting rules in advance of a Dec. 2 hearing.

State regulators are seeking to walk a fine line in offering protection to local communities and environmental groups who worry that these Class VI injection wells may be dangerous and making permitting permissive enough to attract such projects to the state. Companies already are building wells in states like North Dakota and Wyoming that have permitting primacy, and the Colorado Energy Office and sponsors of a 2024 bill further defining potential rules said carbon capture can create new economic opportunities.

Worries about rules on carbon sequestration

But energy-industry leaders and companies looking to build wells have expressed concern since draft rules came out that what Colorado is proposing will serve as a hindrance to attracting or allowing construction of carbon capture and underground storage systems. And these worries are being heightened in the aftermath of the ECMC’s October creation of rules to limit the cumulative impacts of multiple emitting projects on a given area — rules industry leaders say will make it harder to develop oil and gas wells in much of the state.

The draft rules regulate CCUS in much the same way that the state regulates drilling, requiring 2,000-foot setbacks from homes, alternative-location and cumulative-impact analyses by operators and proof that wells won’t have a net negative cumulative impact on disproportionately impacted communities. State law defines DICs as areas that are poorer, have higher minority populations or have higher pollution, and they make up about 48% of Colorado lands, ranging from urban centers like Commerce City to remote rural locations with lower-income residents.

However, Class VI injection wells operate much differently than oil-and-gas well pads. They put materials into the ground rather than extracting them and, hence, produce no emissions that could harm communities. They do not require companies to use compressors or other equipment on site. And unlike well pads that can feature multiple wells drilled from one site, the nature of these wells means they are single wells that must be placed a significant distance apart.

Plus, the 2023 law allowing the state to seek primacy also gave significant deference to local communities to regulate surface siting within their boundaries, setting up another regulatory hurdles that they must clear. That law went so far as to allow local governments to establish fees to purchase emergency vehicles to protect against well explosions, despite a lack of substantial evidence that such disasters could occur.

Are draft rules too strict or too lenient?

The laws from 2023 and 2024 — the latter of which added valuable clarification over nuances like pore-space ownership and the unitization process that allows for pooling of rights if 75% of rights owners approve — created interesting dynamics. Although sponsors and leaders at the Colorado Energy Office said carbon storage is necessary for the state to reach emissions-reduction goals, particularly in hard-to-decarbonize sectors, some environmental groups called the technology dangerous and said the state should focus its efforts on stopping extraction of fossil fuels that create emissions.

Many of the groups who opposed the sanctioning of CCUS have filed for party status in the upcoming ECMC rulemaking, and they are likely to argue for very strict rules that will make it difficult, if not impossible, to permit Class VI injection wells. That will set up a dynamic where industry leaders like Chevron and Carbon Storage Solutions will seek regulations that streamline permitting of wells while groups like 350 Colorado, Earthworks and Wild Earth Guardians will push for even tougher rules.

“One accident is too many,” 350 Colorado climate policy analyst Heidi Leathwood told the Senate Agriculture & Natural Resources Committee during an April 25 hearing on House Bill 1346. She also said that she would like to have the state ban geologic storage of injected carbon within 10 miles of communities and to see the state incentivize removal of carbon from the manufacturing process rather than incentivizing carbon capture.

One of the key aspects to the rulemaking could be how difficult the ECMC makes it to drill Class VI injection wells in DICs.

Rules could keep carbon-capture projects from Colorado

Industry leaders have said repeatedly that they have no interest in putting these wells in urban areas like Denver. But rules that would amount to blanket prohibitions of drilling in any DICs could quash otherwise likely investment in poorer rural areas where homes are sparser and the jobs that could come with the wells could be more impactful.

“ECMC should consider potential economic impacts on carbon sequestration projects for portions of the proposed rules that are more stringent than EPA regulation,” wrote Dan Sanders, president of Windsor-based Carbon Storage Solutions, in an Aug. 21 letter to ECMC officials. “In creating more stringent rules, ECMC decreases the state’s attractiveness for project sites, which reduces the potential for the state to reach its greenhouse gas (GHG) emission goals.”

At stake in the rulemaking is the future of carbon-reducing technologies that Sen. Chris Hansen, the Denver Democrat who cosponsored the 2024 law, called “part of a comprehensive climate strategy that will benefit all Coloradans environmentally and financially.” Once the ECMC determines what will be a part of its rules, it then must send them to the EPA, which will determine if they merit the state getting permitting primacy.

But industry leaders and environmental groups will have to haggle over details that could determine if Colorado will be able to deploy that strategy or if it will watch as other Rocky Mountain states dominate the carbon-capture landscape instead.