Greenhouse Gas Emissions and Energy Management for Manufacturing 2 (GEMM 2) Rule, as approved by the Air Quality Control Commission

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. These manufacturers emit air pollutants when producing a wide range of products, including petrochemicals, microchips, and glass.

The GEMM 2 rule took effect on December 15, 2023.

GEMM 2 facilities must:

• Reduce greenhouse gas emissions, which include compounds like carbon dioxide and methane that cause climate change by trapping heat in the atmosphere.
• Prioritize onsite greenhouse gas emissions reductions measures to protect communities located near the facilities from co-pollutants like nitrogen oxides and sulfur dioxide.
• 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 achieves required 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.

GEMM 2 includes detailed greenhouse gas reduction requirements for these facilities that went into effect in 2024 and more stringent requirements that will go into effect in 2030.

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 goes beyond its 2030 reduction requirements. GEMM 2 includes detailed reduction requirements which go into effect in 2024 and 2030.

Compliance with requirements before 2030 will be on three-year compliance cycles, where a GEMM 2 facility must achieve the total emission reductions required for the applicable three-year compliance period. Total emission reductions may include retirement of greenhouse gas credits. Starting in 2030, the compliance periods will become annual. 

Onsite reduction requirements

To achieve 2030 greenhouse gas reduction requirements, the GEMM 2 rule requires facilities to implement all onsite, technologically feasible, and cost-effective greenhouse gas reduction measures. If these measures do not achieve the facility’s required greenhouse gas reductions, then the facility may purchase and retire greenhouse gas credits to make up the remainder of the required reductions. The requirement for a GEMM 2 facility to implement its 2030 Greenhouse Gas Reduction Plan before purchasing greenhouse gas credits begins in 2030. 

Over 60% of the greenhouse gas emissions from GEMM 2 facilities originate from combustion sources that also emit local air pollutants. While the main purpose of GEMM 2 is to reduce greenhouse gas emissions, the final rule that the commission adopted will also reduce emissions of co-pollutants like nitrogen oxides and sulfur dioxide in communities near regulated facilities. 

Protecting local communities 

The Air Quality Control Commission voted to include provisions in GEMM 2 to protect disproportionately impacted communities. These are communities that may be overburdened by multiple pollution sources, including communities of color, and low-income communities.

Fourteen of the 18 GEMM 2-covered facilities are located within a mile of disproportionately impacted communities and within 15 miles of a residential community. The rule specifies that these facilities, if they cannot make all required greenhouse gas reductions onsite, must take extra steps to reduce greenhouse gas co-pollutants, as described further below.

In particular, each facility’s Greenhouse Gas Reduction Plan must include the following additional information:

• Listing available greenhouse gas reduction measures that increase the average cost of the facility’s plan up to 50% more than the 2030 social costs of greenhouse gases.
• Quantifying the maximum amount of harmful air pollution reduction achievable with these measures.
• Proposing implementation of onsite controls that cut harmful air pollutants by that achievable amount. 

For facilities located in or near residential disproportionately impacted communities, this mechanism increases the likelihood of more harmful air pollution reductions.

In addition, if any GEMM 2 covered facility has two technically feasible portfolio options that are similar in cost and estimated greenhouse gas emissions reductions, the facility must choose the one that reduces more harmful air pollution. This requirement applies to all GEMM 2 facilities, not only those located in or near disproportionately impacted communities.

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 to meet their compliance requirements. 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 GEMM 2 facilities can only generate credits to sell to other facilities if they reduce air pollution beyond their 2030 emissions reduction requirements.

A GEMM 2 facility’s division-approved Greenhouse Gas Reduction Plan may include the facility’s intent to use credits for compliance in 2030 and beyond. The plan may only include an intent to use credits for compliance if a facility cannot achieve its 2030 emissions reduction requirement through cost-effective, technically feasible and commercially available onsite emissions reduction measures.

The Air Quality Control Commission required that the division establish a credit trading system by the end of 2024. Starting May 2025, the division will issue credits to GEMM 2 facilities based on the facility's annual emissions being below its 2030 emissions reduction obligation. Greenhouse gas credits expire three years from the date they are issued. GEMM 2 facilities may retire unexpired credits or trade unexpired credits at any time. Trading credits can be done bilaterally or through an annual auction. 

The date of credit expiration or retirement determines the compliance period to which those credits apply. At the end of a credit's three-year banking period it will automatically expire and be retired towards the active compliance period at the time of expiration. Retired credits cannot be attributed to future compliance periods. 

• Credits that are retired on or before September 30, 2027 will count towards the 2024-2026 compliance period with a compliance report due September 30, 2027.
  Credits that expire or are retired between October 1, 2027 and September 30, 2030 will count towards the 2027-2029 compliance period with a compliance report due September 30, 2030. 
• Credits that expire or are retired between October 1, 2030 and September 30, 2031 will count towards the 2030 compliance period with a compliance report due September 30, 2031. This same format continues for future annual compliance years.

The Air Quality Control Commission directed the Air Pollution Control Division to conduct an evaluation of this system. The division will assess the impacts of the credit trading system on harmful air pollution and local communities, and whether the credit trading system achieves its purpose. The division will present its evaluation and findings to the commission in 2025. Based on the results, the division would propose any changes to the credit trading system by the end of 2025.

The division and commission will seek public input on any future rulemakings. Updates will be published on this website.

Find more information on Colorado’s credit trading programs on the Greenhouse gas credit trading in Colorado web page. Technical information for GEMM 1 and 2 facilities is available on the Greenhouse Gas Crediting and Tracking System web page.

Find public information on the system through Colorado’s Public Access Viewer. The following search criteria is available:

• To find the unique identification number of a registered entity, select “CDPHERM Environmental ID Form Query” in the dropdown. 
• To view additional information on registered entities, select “CDPHECATS AIR GHG Credit Trading Entity Search” in the dropdown. 
• Type the company name into the appropriate search field to see information on a specific company. Type an asterisk into the company name search field to see all entries.

State-managed fund for commission consideration in 2025

The Air Quality Control Commission directed the Air Pollution Control Division to propose the establishment of 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. 

Use of such a fund was not established in the rule. This fund is not a current compliance pathway under GEMM 2 as adopted by the commission in October 2023.

The division and commission will seek public input on any future rulemakings. Updates will be published on this website.

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.

How community input informed the Air Quality Control Commission’s GEMM 2 rule

The GEMM 2 rule adopted and revised by the Air Quality Control Commission changed in several ways based on community input. 

Changes reflected in the final rule include:

• Required transparency measures to help ensure compliance information is available to the public. This includes plain language descriptions of common compliance documents in English and Spanish.
• Community engagement best practices for all public meetings related to GEMM 2 compliance. This includes providing language interpretation upon request, offering participation stipends and childcare stipends, and hosting meetings at convenient times and locations with advance notice.
• A strengthened onsite pollution reduction requirement. The final GEMM 2 rule looks at the weighted average cost of multiple greenhouse gas reduction measures, rather than the cost of an individual measure. This “portfolio approach” to the cost effectiveness threshold means more onsite measures could be considered to directly help reduce pollution in local communities.
• A strengthened requirement to reduce more emissions of harmful air pollution. This included increasing the cost effectiveness threshold for onsite measures for GEMM 2 facilities within one mile of a disproportionately impacted community and within 15 miles of a residential area.
• A limitation that facilities can only generate greenhouse gas credits in any year if they reduce beyond the facility’s 2030 reduction requirement.
• Specific enforcement language requiring a facility to reduce excess greenhouse gas emissions two-fold if the facility fails to meet its greenhouse gas emission reduction requirement in any compliance period.

Division-approved forms and guidance

The GEMM 2 rule contains requirements for the division to issue guidance documentation for certain parts of the rule. It also contains requirements for GEMM 2 facilities to submit specific documentation using division-approved forms. The finalized division guidance and forms are available below. Stay tuned for additional updates.

• Guidance for: EITE (GEMM 1) and GEMM 2 Greenhouse Gas Credit Trading.
• Guidance for: Greenhouse Gas Reduction Plan and Co-pollutant Analysis.
• GEMM 2 Early 2030 Emissions Requirement Commitment Form APCD-501.
• GEMM 2 GHG Reduction Plan Certification Form APCD-502.
   

Future public participation opportunities

Future public participation opportunities related to the GEMM 2 rule will be posted on this web page, and on the commission’s website and meetings calendar.

The Air Pollution Control Division also shares upcoming public participation opportunities on its website. The division will seek public input before it proposes any future rules to the commission.

Back to Climate Change Program page.