New rules for cutting emissions at Colorado natural gas facilities will be 'tough for everybody'

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Colorado air-quality regulators this week will tackle one of the more complicated rules the state has drafted, ordering about 40 natural gas companies to reduce their greenhouse-gas emissions or pay into a system designed to help businesses lower their carbon output.

The Colorado Air Quality Control Commission is set to create the new regulation during what's expected to be a grueling three-day hearing starting Wednesday, at which air regulators will try to follow state law, preserve the state's oil and gas economy and satisfy environmentalists who want to slow climate change and improve public health.

"This rule is very, very hard," said Christy Woodward, regulatory affairs adviser for the Colorado Oil and Gas Association. "It's going to be tough for everybody."

The Air Quality Control Commission was tasked by the state legislature through 2021's Environmental Justice Act to force natural gas companies to reduce their greenhouse-gas emissions, particularly in communities where the pollution is concentrated.

The commission also must figure out how to roll those companies into a developing carbon credit trading system through which those that are successful in reducing emissions can sell credits to those unable to meet reduction goals.

Under the new rule, midstream natural gas operators—there are about 40 in Colorado—would need to reduce their greenhouse gas emissions by 20.5% below a 2015 baseline by 2030. Overall greenhouse gas emissions in the state would be reduced by 1 million metric tons if the goal is met.

Greenhouse gases are carbon dioxide, methane and other substances that trap heat in the atmosphere, contributing to the climate change that leads to more intense wildfires, hurricanes and other disasters. They also impact human health, especially for children, the elderly and those who suffer from lung diseases.

Each company will be given an individual cap on emissions, based on its track record since 2015, and then be expected to hit that goal. If companies exceed their goals, they will earn credits that can be sold on a trading market, which the state is creating and will be operational in 2025. Companies that do not meet their goals will be able to buy credits to offset their shortcomings.

Midstream natural gas operators do not extract gas from underground but instead run the systems that help push natural gas to end-line users, including manufacturers who need it to fire boilers and other equipment, and to homeowners who use it for heat. The companies also extract other chemicals such as propane from the natural gas and send it to other suppliers.

The midstream companies use big engines in compressors and turbines as well as boilers, heaters and other equipment that run off fossil fuels to get the gas to where it's needed. Most of the companies are located in Weld, Garfield and Rio Blanco counties, although there is a smattering in other parts of the state.

'Historic' rulemaking hearing this week

The state has been working on the proposed rule for two years and created an advisory board of industry representatives to help. The impacted companies have filed extensive reports with data on their equipment and current emissions levels.

Michael Ogletree, director of the Colorado Department of Public Health and Environment's Air Pollution Control Division, said in a statement to The Denver Post that his team has been preparing for a "historic" rulemaking hearing.

"We worked hard to develop a proposal that puts communities first while still being cost-effective," he said. "We've been engaging with impacted community members, industry and more on this topic for over two years. At every step of the way, we've done as much as possible to help answer questions and listen to feedback from anyone interested in the upcoming hearing."

But criticism on the proposed rule exists on both sides.

Woodward, of the oil and gas association, said the midstream operators will need to invest millions of dollars to comply. That's because they will have to convert equipment that now runs on natural gas to electricity. Companies that operate in more rural areas will need to spend millions more to run electrical lines to their sites.

"This is probably the most expensive rulemaking I've ever been a part of—and I've been a part of a lot of them," she said.

The state's largest midstream companies, including Phillips 66, Rocky Mountain Midstream and Western Midstream, process about 65% of the natural gas extracted in the state, Woodward said. They are more able to afford the equipment upgrades than smaller companies.

A carbon credit trading system is already underway in Colorado, but so far only steel and concrete manufacturers and about 18 other industrial facilities fall under the rules that govern it.

A trading program for natural gas operators would allow companies that meet their goals faster to sell credits to smaller, more rural companies that might have challenges, Woodward said. But those credits also are likely to be costly, although prices later will be determined by the market.

And new companies that want to start doing business in Colorado would have to buy carbon credits to enter the marketplace, she said.

"We're optimistic and we're hopeful, but this rule still doesn't work for everyone," she said. "There's a lot of inequity in it and it's definitely going to be hard for smaller companies and companies in rural areas to comply."

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'Feels like they are really missing the mark'

On the environmental side, there is pushback on how the state is choosing to incentivize companies to reduce emissions in communities where people who are largely Latino and Indigenous and often have income levels lower than the state average breathe dirtier air than those who live in other parts of the state.

As part of the proposal, the Air Pollution Control Division created a map that encompasses the nine-county Front Range region and will incentivize companies to make cutting emissions in that zone a priority.

However, GreenLatinos, an environmental advocacy group, is critical of the map, saying it doesn't put a focus on the disproportionately impacted communities that breathe the dirtiest air. Only 28% of the Front Range is considered disproportionately impacted, so the map leaves out Latinos and others who breathe dirty air in Pueblo or on the Western Slope, said Patricia Garcia-Nelson, who works on fossil fuel issues for GreenLatinos.

"When we go back and look at the Environmental Justice Act, this feels like they are really missing the mark and they are not prioritizing disproportionately impacted communities," Garcia-Nelson said.

But state officials wanted to encourage reductions in the Front Range because the region is in severe violation of federal air quality standards and is being penalized by the Environmental Protection Agency until it lowers ozone pollution. And reducing carbon emissions from natural gas operators will help that problem.

The Environmental Defense Fund submitted its recommendations for how the emissions should be cut with a focus on whether or not the plan will be as successful as the state is predicting.

Katie Schneer, a senior climate analyst with the fund, said the 20.5% reduction does not align with Gov. Jared Polis's goals in his Greenhouse Gas Roadmap, which outlines how the state will eliminate carbon emissions by 2050.

The roadmap predicts industrial emissions will fall at a much faster rate than 20.5% by 2030, Schneer said. The roadmap calls for all greenhouse-gas emissions across various economic sectors to be reduced by 50% by 2030.

"There's a stark gap between the pollution standards the state has proposed in this rule and the much rosier reductions they are taking credit for in the roadmap," Schneer said.

The Environmental Defense Fund will propose the Air Quality Control Commission set a date to revisit the progress, and if the state's greenhouse gas emissions are not falling as quickly as predicted, it should update the program, Schneer said.

"It's not clear if this rule proposal will drive any further progress on cutting pollution compared to the status quo," she said.

But Colorado officials insist the state is on track to meet its roadmap and that air regulators are putting together one of the most progressive plans in the United States to help slow climate change.

"Colorado has long been a national and world leader in climate policy, especially when it comes to creating innovative policies that address emissions from the oil and gas industry," Ogletree said. "This hearing is an incredible opportunity for us to continue that groundbreaking work."

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