Greenhouse Gas Reduction Requirements Impacting Colorado Manufacturers

On October 20, 2023, the Colorado Air Quality Control Commission (AQCC) adopted the Greenhouse Gas Emissions and Energy Management for Manufacturing Phase 2 (GEMM 2) rule. The GEMM 2 rule impacts all manufacturing sources in Colorado with greenhouse gas (GHG) emissions of 25,000 metric tons per year (mtpy) or more. The rule is codified under Colorado Regulation 27 and identifies 18 facilities by name. The rule sets mass-based emission limits in the 2024-2029 interim period and a 2030 final limit for each named facility. The rule also creates a limited credit trading program. Facilities that have excess GHG emission reductions (credits) and facilities that demonstrate they have implemented all technically and economically feasible controls and still need to purchase credits to achieve their mass-based emission limit are eligible. The rule does not address or cover future manufacturing facilities that may be built and have emissions over 25,000 mtpy.

Emission limits in 2024 – 2030 for each named facility are based on GHG emission reductions that facility has achieved in the past. A facility’s direct GHG emissions in 2015 are compared to the greater of their 2021 or 2022 GHG emissions. The larger the reduction over this period the less future GHG reductions are required for that facility going forward. A facility’s reduction requirements are also based on their percentage of overall GEMM 2 group’s total emissions. Those facilities with a larger portion of the total emissions from all named facilities will be required to reduce GHG emissions more. Emission reductions in the interim period of 2024-2029 range from 0% from the greater of the 2021 or 2022 (GHG Baseline) to 1.75% reduction. By 2030, additional reductions from the GHG Baseline range from 1% to 15.5%.

The final rule specifies two interim compliance reporting periods: 2024-2026 with a compliance report due in 2027 and 2027-2029 with a compliance report due in 2030.

By September 30, 2025, each named facility must submit a GHG reduction plan. If a facility can meet their 2030 limit by reporting year 2025 a full GHG reduction plan is not required. The GHG reduction plan must include each type of GHG emitted, the list of GHG reduction measures that are technically feasible, the cost effectiveness analysis of each measure including a portfolio of measures as compared to the 2030 social cost of GHGs, and an analysis how GHG emission reductions will reduce impacts from other harmful air pollutants on any nearby disproportionately impacted community. Additional requirements apply to facilities wishing to use the credit trading program as detailed in the section below. The GHG reduction plan must be certified by the responsible agent and then independently reviewed and certified by a third party prior to submitting to Division. The GHG reduction plans will be subject to public comment and Division review.

A GEMM 2 facility is eligible for the GHG credit trading system if it implements a portfolio of measures that are equal to or less than the 2030 social cost of GHGs but still needs credits to meet its’ compliance obligation. In addition, for facilities near a disproportionately impacted community, measures up to 50% above the 2030 social cost of GHGs must be evaluated for their impact on other harmful air pollutants. These facilities must implement measures to reduce harmful air pollution in an amount equal to the amount achievable by measures up to 50% above the 2030 social cost of GHGs to be eligible to purchase GHG credits.

The GHG credit trading system will also be eligible to the four GEMM 1 facilities also known as energy intensive trade exposed facilities. Each ton of excess GHG emissions reduction can be sold for a one-ton GHG credit through private transaction reportable to the Division or through an annual auction. The first annual auction will occur on June 30, 2025. A separate auction will occur for each vintage year of GHG credit.

The AQCC also directed the Division to propose a state-managed fund to receive and allocate monies to finance projects to reduce GHG emissions from GEMM facilities by September 2025, with rulemaking hearing no later than December 31, 2025. A facility unable to meet reduction targets after implementing all technical and economically feasible methods could achieve “compliance” by paying into the state-managed fund. The funds would then be used to fund less cost effective GHG reduction projects, with priority going to GHG and harmful air pollutant reductions in disproportionately impacted communities.

The first compliance year in 2024 is imminent and named facilities should immediately begin evaluating controls, compliance options, and determining the most cost-effective strategy to achieve GHG reduction goals. The final rule will be posted soon. See the Division’s GEMM 2 webpage for the latest information.

Trinity Consultants’ Denver office has experienced and qualified consultants to support your facility in determining the best strategy for your facility. Reach out to our team today at 720.638.7647.