Background
The Colorado Department of Health and Environment (CDPHE) Air Pollution Control Division (Division) has released a draft guidance for the Emission Reduction Credit (ERC) program that significantly alters how companies apply for and trade emission reduction credits. The guidance expands on the recently passed Air Quality Control Commission (AQCC) Regulation No. 3, effective January 14, 2026. ERC program eligibility, certification process, and transfer of credit procedures are listed in Part A, Section V of Regulation No. 3.
While the ERC program itself is not new, the draft guidance introduces many changes in the application process, credit availability, transfer processes, and application fees. The draft guidance document outlines the ERC certification process and eligibility, establishes a public credit registry to streamline credit trading, and introduces substantial fee increases for ERC applications. The document also provides directions on the use of ERCs purchased as offsets for nonattainment New Source Review (NANSR). Colorado’s Denver Metro/Northern Front Range (DMNFR) is currently classified as “severe” nonattainment for the 2008 ozone standard and may be reclassified as “extreme” in the future. Therefore, the ERC trading program will become increasingly important for major sources in the DMNFR area.
What is the ERC Program?
Through the emission reduction credit program, companies can earn credits for verified emission reductions resulting from emission reduction actions such as permanently shutting down emission units or installing control devices. Once certification is received, companies can use the credits as emission offsets for future projects at that site or a nearby site. Alternatively, companies could choose to sell their emission credits to other facilities in the area. The program is designed to reduce or maintain air quality while still providing opportunities for industrial growth.
While the ERC program is designed to encourage companies to continue economic expansion in the state, the emission credits are not a 1:1 offset, thereby requiring emissions to be reduced by an amount larger than to the associated emissions increase. The emissions offset ratio currently in effect for the DMNFR nonattainment area is 1.3:1 due to the severe nonattainment classification. If the region is reclassified as extreme nonattainment, the ratio of offset will be 1.5:1 in order to provide a pathway back to attainment. These emissions offset ratios are established by Colorado Regulation No. 3 and the U.S. EPA.
Highlights of the ERC Guidance
Key items addressed within the guidance document include:
- Definitions of creditable reductions and basis for calculating baseline and reduction quantities;
- Steps for the application process and issuance of ERCs. Note that all applications will be submitted online on the CDPHE application portal website;
- Establishment of a public facing credit registry to view all ERC credit owners and tons of credit certified to streamline the credit trading process;
- Guidance on the use of ERCs for offsets under NANSR;
- Guidance on transfer of ownership of ERC’s; and
- ERC application and certification fees.
- Fees will be charged for all submitted applications, whether the facility receives certification or not. Fees applicable to the ERC application are listed below. While hourly processing fees cannot be determined until the application is processed, filing and certification fees are fixed. Fees for the use of ERC’s will be based on the applicable APEN filing fees, Permit Unit hourly processing fees, and ERC unit hourly processing fees associated with the applicable application.
- All ERC application fees are listed in the table below:
