Update: On October 20, 2023, the Air Quality Control Commission approved the GEMM 2 rule after revising it. The Commission will publish the final rule language in the public register on the Commission's regulations website.
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Addressing Colorado's Industrial GHG Emissions
OVERVIEW
In July 2021, the Colorado General Assembly created the Colorado Environmental Justice Act. This law requires the state’s industrial sector to reduce its greenhouse gas emissions 20% by the year 2030, compared to 2015 emissions. The law required the Air Quality Control Commission to adopt rules to achieve these reductions. Colorado is one of the first and only states in the country to directly regulate greenhouse gas emissions from specific industrial sources as of 2023.
The Commission adopted the Greenhouse Gas Emissions and Energy Management for Manufacturing Phase 2, or GEMM 2, on October 20, 2023. Per the rule, GEMM 2 covers facilities with manufacturing operations that emit 25,000 or more metric tons of greenhouse gases per year. GEMM 2 builds on GEMM 1, which covers four trade-exposed Colorado facilities that emit over 50,000 metric tons of greenhouse gases per year.
The industrial sector in Colorado includes traditional heavy and light manufacturing. It can also include energy use by other non-manufacturing industries like oil and gas, construction, and agricultural operations. These facilities release greenhouse gases and other air pollution.
GEMM 2 requirements, as defined by the Air Quality Control Commission
The Air Quality Control Commission adopted GEMM 2 to require 18 of Colorado’s highest-emitting manufacturers to collectively reduce their greenhouse gas emissions 20% by 2030, compared to 2015 levels, as required by state law. These manufacturers emit air pollutants when producing a wide range of products, including petrochemicals, microchips, and glass.
The GEMM 2 rule takes effect in 2024.
GEMM 2 covers 18 Colorado facilities. These facilities must:
- Reduce greenhouse gas emissions, which include compounds like carbon dioxide and methane that cause climate change by trapping heat in the atmosphere.
- Cut emissions of co-pollutants like nitrogen oxides and sulfur dioxide that can directly harm human health.
- Prioritize onsite air pollution emissions reductions measures to protect communities located near the facilities.
- Submit a greenhouse gas reduction plan to the Air Pollution Control Division. An independent third-party with no affiliation to the facility must review the plan to confirm that the plan would achieve necessary emissions reductions.
Covered facilities
The Air Quality Control Commission included the following 18 facilities in the GEMM 2 rule:
* Facility is within 1 mile of a disproportionately impacted community and within 15 miles of a residential community.
Protecting local communities
The Air Quality Control Commission voted to include provisions in GEMM 2 to protect disproportionately impacted communities. These are communities overburdened by multiple pollution sources, communities of color, and low-income communities. The Commission’s rule specifies that facilities located within one-mile of a disproportionately impacted community must take extra steps to prioritize greenhouse gas reduction measures that also reduce the greatest amount of co-pollutants.
Compliance options
The rule, as passed by the Air Quality Control Commission, states that each GEMM 2 facility must prioritize onsite reductions. As a secondary compliance mechanism, facilities may purchase greenhouse gas credits from other GEMM facilities. A GEMM 2 facility can only generate greenhouse gas credits when it reduces below its 2030 reduction requirements. GEMM 2 includes detailed reduction requirements for 2024 and 2030.
Onsite reduction requirements
To achieve 2030 pollution reduction requirements, the Air Quality Control Commission’s GEMM 2 rule requires that a facility must implement all onsite, technologically feasible, and cost-effective greenhouse gas reduction measures. Facilities must prioritize measures that reduce the greatest amount of harmful air pollutants when compared to similar greenhouse gas reduction measures. If these measures do not achieve the facility’s required greenhouse gas reductions, then the facility may use additional offsite compliance options.
Greenhouse gas credit trading system
In certain circumstances, the Air Quality Control Commission decided to allow facilities to use a greenhouse gas credit trading system with other GEMM facilities. The system, as defined in the rule, allows facilities to reduce their emissions by purchasing emissions credits from other GEMM 1 and GEMM 2 facilities that have reduced their emissions beyond what is required. The rule states that facilities can only generate credits if they reduce air pollution below their 2030 emissions limits.
The Commission required that the credit trading system be operational by the end of 2024.
As a condition of adopting the GEMM 2 rule, the Commission directed the Air Pollution Control Division to conduct an evaluation of this system. The division will assess whether the credit trading system achieves its purpose and prioritizes reductions of harmful air pollution and local community protections. The division will present its evaluation and findings to the commission by 2025. Based on the results of this evaluation, the division would propose any changes to the credit trading system by the end of 2025.
State-managed fund for commission consideration in 2025
The Air Quality Control Commission directed the Air Pollution Control Division to draft a proposal for a state-managed fund to supplement the greenhouse credit trading system. The division will present a proposal to the commission for consideration by the end of 2025. The fund’s purpose would be to further reduce emissions at or near GEMM 2 facilities located in communities overburdened by pollution.
Economic benefits
The state’s August 2023 economic analysis finds that air pollution reductions from GEMM 2 (both greenhouse gases and co-pollutants) can provide over $1.1 billion in economic benefits from 2015 to 2050. These benefits include:
- Over $950 million from the avoided cost of climate change resulting from greenhouse gas emissions.
- Over $170 million from health benefits of avoiding emissions of co-pollutants.
When calculated against the 2015 baseline, from 2024 to 2030, the combined climate and health benefits are estimated to be worth $235.3 million.
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