Colorado Moves Toward Unified CO2 Trading Rules

Finalizing Comprehensive Regulations by Year-End

Colorado regulators are on the verge of finalizing comprehensive rules for a CO2 emissions trading system, set to be completed by the end of this year. This initiative aims to significantly reduce industrial greenhouse gas emissions by merging two existing programs, GEMM 1 and GEMM 2, under the new Greenhouse Gas Emissions and Energy Management (GEMM) framework.

Bridging Existing Programs for Greater Efficiency

As of September 30, the Colorado Air Pollution Control Division confirmed that only minor adjustments have been made to the draft rules released in July, based on public feedback. The GEMM rule targets industrial facilities emitting 25,000 metric tonnes or more annually, mandating a 20% reduction in emissions from 2015 levels by 2030.

Integrating Trading Mechanisms

The proposed regulations aim to unify GEMM 1, which employs an intensity-based approach, and GEMM 2, which utilizes a cap-and-trade model. The integration will allow facilities under GEMM 1 to participate in GEMM 2’s trading market, simplifying compliance and encouraging more extensive emissions reductions.

New Trading Features and Flexibility

A notable aspect of the draft is a mechanism allowing GEMM 1 facilities to convert a portion of their emissions credits to be eligible for GEMM 2 trading starting in 2025. These credits must adhere to specific reduction targets, which will tighten over time. Additionally, the trading threshold for facilities achieving emissions reductions will decrease from three years to two, with a more stringent requirement of 20% reductions set to begin in 2027.

Promoting Timely Emissions Reductions

Both GEMM 1 and GEMM 2 credits will have a three-year lifespan to ensure timely emissions reductions. Colorado plans to conduct annual auctions to facilitate credit trading between facilities in both programs, fostering increased market participation and flexibility.