On this page: Addressing Colorado's industrial greenhouse gas emissions | Requirements | Covered facilities | Protecting local communities | Compliance options | Onsite reduction requirements | Greenhouse gas credit trading system | State-managed fund for commission consideration in 2025 | Economic benefits | How community input informed the Air Quality Control Commission’s GEMM 2 rule | Division-approved forms and guidance | Future public participation opportunities
Update: On October 20, 2023, the Air Quality Control Commission approved the GEMM 2 rule after revising it. The commission published the final rule language (Regulation 27) in the public register on the commission's regulations website.
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Addressing Colorado's industrial greenhouse gas emissions
In July 2021, Colorado 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 2 rule, 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 25,000 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 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.
Fourteen of the 18 GEMM 2-covered facilities are located in disproportionately impacted communities and within 15 miles of a residential community. 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.
In particular, the rule requires GEMM 2 facilities located in disproportionately impacted communities and within 15 miles of a residential community to adhere to more requirements for their Greenhouse Gas Reduction Plan. These requirements restrict these facilities’ ability to use greenhouse gas emissions credits for compliance in 2030 and beyond.
These additional requirements for the Greenhouse Gas Reduction Plan include:
- Listing 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.
In addition, if a 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 also reduces other air pollutants the most.
For facilities located in disproportionately impacted communities, the division-approved portfolios will mean more air pollution reductions.
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 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. 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.
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 part of 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 facilities can only generate credits to sell to other facilities if they reduce air pollution beyond their 2030 emissions limits.
To access the credit trading program in 2030 and beyond, a GEMM 2 facility’s division-approved Greenhouse Gas Reduction Plan must include the facility’s intent to use credits for compliance in these years. The plan may only include an intent to use credits for compliance if a facility cannot achieve its 2030 emissions limit through all technically feasible and commercially available onsite emissions reduction measures.
The commission required that the credit trading system be operational by the end of 2024. Starting in May 2025, on the first Tuesday of May each year, 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 retirement. 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.
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, 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.
State-managed fund for commission consideration in 2025
The Air Quality Control Commission directed the Air Pollution Control Division to draft a proposal for use 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 any such fund would be to further reduce emissions at or near GEMM 2 facilities located in communities overburdened by pollution.
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 October 2023 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 commission’s 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.
- Facilities can only generate greenhouse gas credits in any year if they reduce beyond the facility’s 2030 reduction goal.
- Specific enforcement language requiring a facility to reduce excess greenhouse gas emissions two-fold if the facility exceeds its greenhouse gas emission limit in any compliance period.
Division-approved forms and guidance
Regulation 27 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 division will finalize guidance and forms in late 2024. The documents will be posted in this section once available.
Future public participation opportunities
The Air Quality Control Commission will revisit GEMM 2 as necessary. The rule provides several opportunities and requirements for revisions.
Future public participation opportunities will be posted 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.