Colorado’s Next Big Climate Solution Is Reducing Industry Emissions

This article was written by Nik Sawe, Policy Analyst – Industry

Colorado is implementing a groundbreaking plan to reduce greenhouse gas (GHG) emissions in an often overlooked but critical economic sector— industry. The state is the first to propose such ambitious plans to cut carbon pollution from industry, which includes processes like cement, steel, and chemical production.

Colorado has been a clean energy policy trailblazer for the United States. It was the first state to limit methane pollution from oil and gas wells and set new clean hydrogen standards, and it aggressively expanded geothermal energy generation through new regulations, grants, and consumer education.

Now, the state aims to set a new policy precedent with its proposed GEMM 2 rules (Greenhouse Gas Emissions and Energy Management for Manufacturing Phase 2). GEMM 2 would curb the emissions of major industrial facilities, from breweries to microchip manufacturers, that each emit in excess of 25,000 metric tons of GHGs annually.

The proposal is part of a larger initiative to reduce Colorado’s industrial sector emissions by 20% of their 2015 levels by 2030, and aligns with an array of newly signed laws to move the state toward the ambitious climate goals of its 2021 GHG Pollution Reduction Roadmap, which plans to cut overall GHG emissions to half their 2005 levels by 2030 and eliminate GHG emissions by 2050.

The industrial sector accounts for almost a quarter of the U.S.’s GHG emissions, with 84% of its energy-related emissions stemming from burning fossil fuels to yield heat for industrial processes. In Colorado alone, the sector accounted for 14% of emissions in 2015: 18.52 million metric tons (MMT) of carbon dioxide (CO₂), equivalent to the annual emissions of over 4 million gasoline-powered cars or 47 gas-fired power plants.

GEMM 2 would tackle the emissions of 18 industrial facilities, including factories owned by Suncor Energy
SU
, Molson Coors
TAP
, and Microchip Technology
MCHP
, with anticipated emissions savings of 14 MMT of CO₂ through 2050 (Figure 1). These 18 facilities make up 46% of the emissions burden of Colorado’s large stationary manufacturing sources. (In 2021, GEMM 1 focused on even larger emitters, who made up an additional 36%.) The affected facilities have individual targets based on their own recent emissions history and reduction efforts. Collectively, the targets aim to bring the GEMM 2 facilities’ emissions to 20% under their 2015 emissions levels by 2030.

Health Benefits of Emissions Reductions

GEMM 2 considers more than just GHG emissions, and its pollution reductions will provide $1.13 billion total benefits. It prioritizes emissions reduction plans that also lower co-pollutants that can have serious health impacts, and accounts for impacts on communities near the facilities. Calculations incorporating the social cost of carbon project GEMM 2 GHG emissions reductions avoid $968.2 million of future costs through 2050, and health benefits of co-pollutant reductions add a further $170.6 million.

The ruling’s emphasis on protecting disproportionately affected communities is a crucial one: 15 of the 18 covered facilities are located within a mile of such a community (qualifying factors include the proportion of inhabitants who are experiencing poverty or are people of color, or socioeconomic or environmental factors in the area that may cumulatively exacerbate health and climate impacts).

For facilities within both one mile of an impacted community and 15 miles of a residential community, Colorado’s GEMM 2 rule provides rigorous protections. When evaluating potential emissions reduction solutions, the rule requires that all possible onsite measures costing up to $89/MMT of CO₂ reduced (the 2030 social cost of carbon) be implemented before alternatives can be considered. Additionally, the rule has an increased cost threshold of $134/MMT CO₂ reduced (150% of the 2030 social cost of carbon) for assessing the amount of other types of co-pollution aside from GHG’s that a facility must reduce.

Together, with the stipulation that all facilities must favor actions that reduce co-pollution, GEMM 2 promotes solutions that have tangible benefits for surrounding communities.

Allocating Emissions Reductions

While GEMM 2 aims for 20% emission reductions in the 18 facilities as a group, each facility has a different responsibility based on the reductions they’ve achieved since 2015. It also provides additional weight to the state’s largest emitters since their proportional reductions would have an outsized effect. Facilities must list all on-site measures they could take to achieve reductions, then prioritize those which reduce co-pollutants and weigh them against the social cost of carbon to determine feasibility. Only if these measures prove insufficient could facilities consider off-site options, including reducing the emissions of smaller company holdings within Colorado or potentially contributing to direct air carbon capture and other climate change mitigation projects.

GEMM 2-covered facilities that cut their emissions by more than their assigned target would receive free carbon credits from the state, which they could sell to other GEMM 2-covered facilities. Carbon credits would have a lifespan of three years before expiring, preventing a glut of banked credits and ensuring a continued balance of supply and demand. The focus on on-site measures helps ensure the benefits of emissions reductions stay grounded and measurable within the state, bettering the economy and health of its communities.

The emissions reductions, however, are not yoked to production. Benchmarking the emissions intensity of production of say, a microchip in 2015 and requiring a concomitant reduction in CO₂ emissions per microchip produced by 2030 would ensure that a facility adopts cleaner manufacturing processes rather than simply ramping down production to hit its emissions targets. Under the current rule, in theory, a corporation could ramp down production in Colorado and ramp up in other locales with no net benefit to global emissions and be awarded free carbon credits for doing so, which they could then sell in-state for additional revenue.

Incentivizing Emissions Reductions

GEMM 2 is part of the state’s comprehensive approach to industrial climate policy. Colorado’s new law, House Bill 23-1272, will help draw down the cost of clean energy technologies for Colorado businesses. It includes tax credits for industrial and manufacturing facilities to reduce GHG emissions through measures such as onsite energy generation, carbon capture, efficiency, and electrification/fuel switching. It also provides funding for heat pump installations and geothermal energy projects. Colorado’s recent law, Senate Bill 22-193 (Air Quality Improvement Investments), also provides Clean Air Program grants for reducing emissions from the industrial sector.

These state-level incentives complement a wealth of recent federal programs supporting industrial decarbonization. Manufacturers looking to adopt clean processes can look for support from the Department of Energy’s new Industrial Efficiency and Decarbonization Office, Office of Clean Energy Demonstrations, Loan Programs Office, and several provisions of the Inflation Reduction Act, including the Advanced Energy Project Credit (section 13501), the Advanced Industrial Facilities Deployment Program (section 50161), and for firms producing certain energy-related products, the Advanced Manufacturing Production Credit (section 13502).

The Way Forward

GEMM 2 is an impressive effort on Colorado’s part to cut pollution from the state’s industrial sector, especially within the context of its larger GHG reduction plans and incentives. To build on this accomplishment, policymakers should extend and tighten the emissions caps beyond 2030, following a trajectory that is compatible with Colorado’s 2050 net-zero GHG target.

Rules for ensuring that newly built facilities are treated equivalently to current facilities would also be important; with no 2015 baseline to go on, facilities could either have targets based on existing analogous sites and/or industry best practices or would need another equitable method of establishing a meaningful emissions reductions target. Linking emissions targets to production as discussed earlier could provide emissions intensity metrics applicable to both existing and new facilities.

Colorado is at the forefront of state-driven policies to combat climate change and offers lessons for other states interested in cutting GHG emissions while boosting their economies. Policymakers across the U.S. should take note of GEMM 2 (and Colorado’s complementary incentives and other policies) as they design their own approaches to promote clean and modern industry.

To learn more about efforts to decarbonize industry across the globe, sign up for Energy Innovation’s Industry program mailing list to be notified of future research, including Zero-Carbon Industry, our forthcoming book from Columbia University Press.