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| Colorado CO2 |
Colorado regulators are preparing to finalize comprehensive rules for the state's CO2 emissions trading system by the end of this year, marking a pivotal move toward reducing industrial greenhouse gas emissions. The proposed regulations seek to streamline two existing emissions programs, known as GEMM 1 and GEMM 2, under the broader Greenhouse Gas Emissions and Energy Management (GEMM) rule.
New Mechanisms Aim to Bridge Emissions Programs
On September 30, the Colorado Air Pollution Control Division confirmed that the final version of the trading rules only includes minor modifications from the draft released in July. These adjustments were made after considering public feedback received through mid-August. The GEMM rule covers industrial facilities with annual emissions of 25,000 metric tonnes or more, requiring them to cut emissions by 20% from 2015 levels by 2030.
GEMM 1, introduced in 2021, uses an "intensity-based" approach, setting emissions limits per unit of production, offering flexibility for different types of facilities. GEMM 2, implemented in 2023, follows a more conventional cap-and-trade model, imposing strict overall emissions caps across 18 facilities. The new rules aim to integrate these two systems by allowing GEMM 1 facilities to participate in GEMM 2's trading market, providing a clearer pathway for compliance and encouraging broader emissions cuts.
A key feature of the draft rule is a mechanism that will let GEMM 1 facilities convert a portion of their emissions credits to be "GEMM 2 eligible," starting in 2025. These credits must meet specific reduction targets, with the requirements becoming stricter over time. Under the proposed changes, facilities can trade these credits if their emissions are 10% below a set level for two consecutive years, down from the original three-year requirement. Starting in 2027, this threshold will rise to 20%, pushing facilities to adopt deeper cuts.
Both GEMM 1 and GEMM 2 credits will have a three-year use limit, ensuring that emissions reductions are achieved promptly. To facilitate this trading, Colorado plans to hold annual auctions, allowing facilities from both programs to buy and sell credits, thereby enhancing flexibility and market participation.
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