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Colorado to set up ETS for manufacturing sector

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In October 2023, the Colorado government adopted regulations to establish an ETS covering manufacturing facilities, beginning with the first compliance year in 2024The ETS is proposed to contribute to the state’s goals to reduce GHG emissions in the industrial and manufacturing sector by 20% from a 2015 baseline, and to reach net-zero emissions economy-wide by 2050.

The scheme will be unique as it will regulate some facilities based on the quantity of greenhouse gases produced per unit of output (emissions intensity) and others based on the overall quantity of emissions they produce (absolute emissions). Credits will be able to be traded across all participants.

The first category (GEMM 1) covers energy-intensive and trade-exposed manufacturers emitting 25,000 tCO2e or more annually. This category will be regulated based on emissions intensity and is subject to targets for improving greenhouse gas emissions per unit of output. GEMM 1 refers to the Greenhouse Gas and Energy Management for Manufacturing Phase 1 regulation, and currently covers four installations.

The second category (GEMM 2) covers all other manufacturing facilities emitting 25,000 tCO2e or more annually. GEMM 2 will be regulated based on absolute emissions and be subject to an emissions cap. There are currently 18 GEMM 2 facilities.

While GEMM 1 facilities have one year compliance periods, GEMM 2 facilities have two three-year compliance periods (2024-2026 and 2027-2029) with one year compliance periods from 2030 and beyond.

The trading system will be established by 1 December 2024, with the first auction of credits scheduled for 30 June 2025. A technical stakeholder process is underway to develop guidance for how to facilitate trading between GEMM 1 and GEMM 2 facilities. This guidance will be published by 1 December 2024.

The Colorado Department of Public Health and Environment’s Air Pollution Control Division (APCD) will propose the establishment of a state-managed fund to allocate money to finance certain GHG reduction projects by no later than September 2025. Payment into this fund would provide an additional compliance option for GEMM 2 facilities. The rulemaking hearing for the fund is set to be held by December 2025. 

Looking ahead, the APCD will further evaluate the program and submit a petition to the Air Quality Control Commission by September 2025 if it identifies aspects of the system that need to be modified.