5 CCR 1001-31
DEPARTMENT OF PUBLIC HEALTH AND ENVIRONMENT REGULATION NUMBER 27 GREENHOUSE GAS EMISSIONS AND ENERGY MANAGEMENT FOR THE MANUFACTURING SECTOR 5 CCR 1001-31 [Editor’s Notes follow the text of the rules at the end of this CCR Document.] _________________________________________________________________________ Outline of Regulation PART A Greenhouse Gas Emissions and Energy Management for the Manufacturing Sector in Colorado
I. Purpose and Applicability I.A. The purpose of this regulation is to evaluate greenhouse gas (GHG) emissions and energy efficiency from certain stationary sources within Colorado’s industrial manufacturing sector and implement best practices for reducing GHG emissions and increasing energy efficiency. I.B. This regulation applies to all energy-intensive, trade-exposed manufacturing stationary sources (EITE stationary sources) in Colorado, with reported direct GHG emissions equal to or greater than 50,000 metric tons of carbon dioxide equivalent per year. I.C. The final audit shall be completed in year 2037, with reductions sustained thereafter.
II. Definitions II.A. “Additional” means GHG emission reductions that exceed any GHG emission reductions otherwise required by law, regulation or legally binding mandate. II.B. “Annual emissions” means the EITE stationary source’s direct GHG emissions for a specific calendar year, reported under Regulation Number 22.
II.C. “Annual emissions limitation” means the number of metric tons CO2e an EITE stationary source may emit as calculated in Section V.
II.D. “Alternate account representative” means an individual designated pursuant to IX.C to take actions on an EITE stationary source’ accounts.
II.E. “Audit plan” means the proposed audit scope, timelines and team submitted by the EITE stationary source to the Division for approval.
II.F. “Audit report” means the resulting document from the audit containing all the information and data required under Section III.C.
II.G. “Audit scope” means the GHG emission units and the energy consumption sources included in the energy and emissions control audit and identified in the approved audit plan. II.H. “Audit team” means one or more persons performing the audit. The audit team must consist of at least one qualified third-party auditor. Additional capabilities and knowledge of the audit team must include, but are not limited to, technical expertise with specific operating and maintenance practices for the industry being audited; expertise in conducting GHG and energy management system audits; and expertise of the EITE stationary source’s domestic and international market. The audit team must include individual(s) with documented audit expertise in the relevant industrial sector.
II.I. “Carbon dioxide equivalent” (CO2e) means a metric used to compare the emissions from various GHG classes based upon their global warming potential (GWP). The CO2e is determined by multiplying the mass amount of emissions (metric tons per year), for each GHG constituent by that gas’s GWP, and summing the resultant values to determine CO2e (metric tons per year). II.J. “Certification body” means a professional organization that has been accredited for a specific sector and can provide compliance certificates.
II.K. “Co-benefits” means the additional benefits associated with the reduction of harmful air pollutants to local communities, including localized air quality benefits. II.L. “Compliance account” means an account created by the Division or its agent for an EITE stationary source to which the Division and/or the EITE stationary source transfers GHG credits to meet its compliance obligations.
II.M. “Direct GHG emissions” means GHG emissions from an EITE stationary source that are reported to the State of Colorado under Regulation Number 22, Part A and/or 40 CFR Part 98. II.N. “Disproportionately impacted community” means those communities that meet the definition contained in § 24-4-109(2)(b)(II), C.R.S.
II.O. “Energy and GHG emission control audit” (the audit) means a rigorous examination of the GHG emissions and energy consumption of an EITE stationary source with the goal of analyzing and recommending GHG BAECT and energy BMPs, and identifying opportunities for reduction in GHG emissions and energy consumption for the facility, conducted consistent with the requirements set forth in this section.
II.P. “Energy best management practices” (energy BMPs) means the best energy efficiency practices available to the EITE stationary source, based on the maximum degree of energy efficiency that is achievable on a case-by-case basis, taking into account energy, environmental, and economic impacts, and is achievable for such facility through application of production process improvements and available equipment or process control methods, systems, and techniques, and includes incorporating all the key elements of SEM, such that the facility continually improves its energy performance, reduces energy costs, and reduces GHG emissions associated with energy use.
II.Q. “Energy efficiency” means using less electricity or fuel to produce the same quantity of product or service.
II.R. “Energy-intensive, trade-exposed manufacturing stationary source” (EITE stationary source) means a source that principally engages in cement and concrete product manufacturing, NAICS code 3273; foundries, NAICS code 3315; iron and steel mills and ferroalloy manufacturing, NAICS code 3311; and/or pulp, paper, and paperboard mills, NAICS code 3221. II.S. “Federal Energy Star Program” means the U.S. Environmental Protection Agency’s voluntary program for industrial manufacturers through which specific energy performance indicators are measured and compared across industries and to which facilities are certified if they are achieving an Energy Star scoring of 75 or greater.
II.T. “Greenhouse gas best available emission control technology” (GHG BAECT) means a GHG emission control technology for a GHG emission unit based on the maximum degree of GHG reductions achievable on a case-by-case basis, taking into account energy, environmental, and economic impacts, employment of which is demonstrated by compliance with the GHG BAECT and energy BMP intensity rate determination.
II.U. “GHG BAECT and energy BMP intensity rate” means the total direct GHG emissions per unit of production from the emissions units within the audit scope after GHG BAECT and energy BMPs are operational as determined in Section IV.A.2.d.
II.V. “GHG credit” means a tradable compliance instrument issued pursuant to Sections IV.A.1.b. that represents a GHG emission reduction from an EITE stationary source of one metric ton of CO2e. The GHG credit must be real, additional, quantifiable, permanent, verifiable and enforceable. When issuing a GHG credit, the Division shall assign each credit an identifier that is unique. II.W. “Harmful air pollutant” as used in this section means pollutants designated by EPA as criteria air pollutants (carbon monoxide, lead, nitrogen dioxide, ozone, particulate pollution (PM) (PM2.5 and PM10) and sulfur dioxide) or hazardous air pollutants.
II.X. “International Organization of Standardization” (ISO) means the independent, non-governmental international standard-setting body composed of representatives from various national standards organizations.
II.Y. “ISO 50001: Energy Management Systems – Requirements with guidance for use” (ISO 50001) means the internationally accepted standard which specifies the requirements for an organization to demonstrate that it has a sustainable energy management system in place, has completed the energy planning process, and has a commitment to continual improvement of its energy performance.
II.Z. “Lead auditor” means an individual who has met the requirements of and is certified as a lead auditor through a professional certification body.
II.AA. “Management system” means the policies, processes, and procedures used by an organization to ensure that it can fulfill the tasks required to achieve its GHG emissions or energy management objectives.
II.BB. “Net meter” means a renewable energy resource or renewable energy storage on the EITE stationary source’s property which supply energy directly to the EITE stationary source’s energy provider in exchange for a Power Purchase Agreement where the customer receives credit for the energy production.
II.CC. “Non-GHG BAECT emissions” means the GHG mass emissions from an EITE stationary source that are not covered by the audit.
II.DD. “North American industry classification system (NAICS) code(s)” means the six-digit code(s) that represents the product(s)/activity(s)/service(s) at a facility or supplier as listed in the Federal Register and defined in “North American Industrial Classification System Manual 2007,” available from the U.S. Department of Commerce, National Technical Information Service, Alexandria, VA 22312 (as published August, 2021).
II.EE. “Permanent” means the GHG emission reductions are not reversible, or, when the GHG emission reductions are reversible, that mechanisms are in place to replace any reversed emission reductions to ensure that all reductions that are awarded GHG credits endure. II.FF. “Plain-language” means writing that is clear, concise, well-organized, and follows other best practices appropriate to the subject or field and is easily understandable. II.GG. “Primary account representative” means an individual authorized by an EITE stationary source to make submissions to the Division or its agent in all matters pertaining to this Part that legally bind the authorizing source.
II.HH. “Process” means a specific operation at an EITE stationary source comprising a series of actions or steps which are carried out in a specific order to complete a particular stage in the manufacturing process.
II.II. “Product” means the quantifiable material output of an individual manufacturing process or manufacturing facility.
II.JJ. “Proof of certification” means an official document issued by the formal registrar or certifying body stating the scope of certification, the expiration date and the standards to which the stationary source is certified.
II.KK. “Qualified third-party auditor” means one or more individuals who hold a valid lead auditor certification in greenhouse gas and/or energy management systems and have demonstrated capabilities to evaluate GHG reduction opportunities for large, energy-intensive, industrial manufacturing processes and facilities. Qualified third-party auditors must have worked as an auditor for at least two years, or must have worked as a project manager or lead person for not less than four years (two of which may be graduate level work) in: (1) the development of GHG or other air emission inventories, or (2) as a lead environmental data or financial auditor. The individual must not be affiliated with the EITE stationary source, its subsidiaries, or related entities; there can be no common ownership between the EITE stationary source and the third- party auditor. Capabilities and knowledge of the auditor include, but are not limited to, background, experience, and recognized abilities to perform the assessment activities, data analysis, and report preparation and experience lead auditing GHG or energy management systems for the industry subject to this section.
II.LL. “RACT/BACT/LAER Clearinghouse” (RBLC) means EPA’s central database of air pollution technology information, including past RACT, BACT, and LAER decisions contained in New Source Review (NSR) permits, to promote the sharing of information among permitting agencies and to aid in future case-by-case determinations.
II.MM. “Real” means that GHG emission reductions result from a demonstrable action or set of actions and are quantified using appropriate, accurate, and conservative methodologies that account for all GHG emission sources within the boundary of the regulated source generating GHG credits and account for uncertainty and activity-shifting leakage and market-shifting leakage. II.NN. “Regulated source” means a source of greenhouse gas that is subject to a rule adopted by the Commission under Section 105(1)(e) of the Act that imposes specific and quantifiable greenhouse gas reduction obligations upon that source or group of sources. II.OO. “Retail distributed generation” means a renewable energy resource or renewable energy storage that directly supply building or process energy needs at a metered location, where surplus energy is supplied to the location’s energy provider when energy production is greater than on-site demand and grid energy is supplied through a customer meter to the location during times when on-site production is less than demand.
II.PP. “Social cost of greenhouse gases” means the monetized damages associated with an incremental increase in carbon emissions in a given year. The social cost of greenhouse gases must include use of a discount rate of not more than two and a half percent; except that the social cost of greenhouse gases that is used may not be lower than that established in 2016, using a two and one-half percent discount rate, by the Federal Interagency Working Group on the social cost of greenhouse gases or than the final social cost of greenhouse gases, using a two and one- half percent or lower effective discount rate, established by the Federal Interagency Working Group on the social cost of greenhouse gases pursuant to Federal Executive Order 13990, dated January 20, 2021, whichever is higher.
II.QQ. “Strategic energy management” (SEM) means a management system-based, continuous improvement approach to energy management that seeks to improve an organization’s energy performance, reduce energy costs, and reduce GHG emissions associated with energy use; drives improvement in facility energy efficiency through equipment upgrades and through operations and maintenance improvements and behavioral changes. II.RR. “Tracking and accounting system” means a GHG credit tracking system designated by the Division where GHG credits are issued, traded and retired by the Division or its agent. II.SS. “Transfer” of a GHG credit means the removal of a GHG credit from one account and placement into another account.
II.TT. “Transfer request” means the communication by an authorized account representative or an alternate authorized account representative to the Division or its agent to transfer allowances between accounts.
II.UU. “Verifiable” means that a reported emission reduction resulting from a GHG credit at a regulated source is well documented and transparent such that it lends itself to an objective review by the Division to verify the emission reduction is real, using monitoring of emissions reductions relative to the baseline.
III. Energy-Intensive Trade-Exposed Stationary Source Audit Requirements III.A. Energy and GHG Emission Control Audits III.A.1. By December 31, 2022, and December 31 every five years thereafter, owners or operators of each EITE stationary source must conduct energy and GHG emission control audits to establish greenhouse gas best available emission control technology (GHG BAECT) and energy best management practices (energy BMPs) and determine whether the stationary source is employing GHG BAECT and energy BMPs at the EITE stationary source, and submit the audit report to the Division. III.A.2. Each EITE stationary source must conduct an audit within twelve (12) months of reporting direct GHG emissions of 50,000 metrics tons CO2e per year under Regulation Number 22, Part A and/or 40 CFR Part 98 and every five years thereafter. III.A.3. Audits must be conducted by a qualified third party auditor and meet or exceed nationally or internationally accepted energy and GHG accounting and management audit standards or protocols.
III.B. Audit Plan III.B.1. Each EITE stationary source must submit an audit plan to the Division for approval at least 120 days prior to beginning the audit as required in Section III.A. The Division will review the audit plan and notify the EITE stationary source within 60 days of submission of any deficiencies. If notified of deficiencies, the EITE stationary source must submit a revised audit plan for final approval no later than 30 days prior to beginning the audit. The EITE stationary source must receive approval from the Division of the audit plan prior to beginning the audit. Such approval shall not be unreasonably withheld. The audit plan must include:
III.B.1.d. Records of any previous third-party audit results that the EITE stationary source proposes to use to support the audit on a supplementary basis or to avoid duplication of data collection efforts that have been performed within three (3) years prior to the planned audit date. To be accepted, supplementary audit data must be verified and validated by a third party and result from an audit that meets or exceeds nationally or internationally accepted energy and GHG accounting audit standards or protocols.
III.B.1.e. A description of the audit team members, including experience, qualifications, and role in the audit, and existing or previous business relationship, and the nature of such relationship with the owner or operator of the EITE stationary source. If there is an existing or previous business relationship, a list and description of work done for the owner or operator of the EITE stationary source.
III.B.1.f. The specific GHG and/or energy audit standards, protocols or procedures to be used for conducting the audit, if applicable.
III.C. Audit Reports III.C.1. Each EITE stationary source must complete the audit report in accordance with Sections III.C.1.a. through III.C.1. and submit the audit report to the Division by December 31 of the audit year that includes the following elements for all GHG emission units listed in accordance with Section III.B. and specified in the Division-approved audit plan, at a minimum.
III.C.1.a.(ii)(A) Notwithstanding Section III.C.1.a.(ii), the audit team must perform a feasibility assessment of carbon capture and underground storage or utilization technology for any single emissions unit evaluated with direct emissions of 100,000 tons per year or greater CO2e in any of the previous five years as reported under Regulation Number 22, Part A and/or 40 CFR Part 98. The audit team shall include this analysis in the audit report.
III.C.1.a.(iii) Rank remaining emission unit control technologies and strategies in descending order based on the reduction in direct GHG emissions per ton of product or output.
III.C.1.a.(iv) Perform a cost-effectiveness analysis on all control technologies and strategies for the emissions unit considering the full lifetime of the equipment. The cost-effectiveness analysis must include an estimate of the net levelized cost per ton of GHG emission reductions ($/ton CO2e) over the life of each proposed control method. The audit team must document in the audit report the discount rate, which is of no more than 8%, used for the cost-effectiveness analysis. The net levelized cost analysis should include, but is not necessarily limited to, the following costs and benefits:
III.C.1.a.(iv)(A) Engineering and design costs;
III.C.1.a.(iv)(B) Equipment costs, including installation; III.C.1.a.(iv)(C) Available tax credits and/or incentive programs; and III.C.1.a.(iv)(D) Changes in the annual costs resulting from the control technology/method including energy costs, operations and maintenance costs, and changes to productivity and/or product quality.
III.C.1.a.(v) Eliminate cost-prohibitive GHG reduction measures considered. GHG reduction measures with a cost-effectiveness of equal to or less than the social cost of GHGs cannot be eliminated as cost-prohibitive, except for a demonstrated, unreasonable burden on competitiveness as analyzed in Section III.C.1.a.(vi).
III.C.1.a.(vi) Consider the economic, energy, and environmental impacts arising from each option under consideration. In this case, economic reasonableness includes an analysis of the economic impact of the emission unit control option on the EITE stationary source’s competitiveness within the marketplace. The audit team must document these determinations and associated analyses in the audit report. III.C.1.a.(vii) Additional required documentation for all control technologies and strategies must include, but are not limited to, overall implementation cost, control efficiency, remaining useful life of the equipment, impacts to land use approvals, and a quantification of any co-benefits. The level of analysis conducted and documented shall consider the nature of the GHG BAECT measure and potential impacts of these additional criteria. III.C.1.a.(viii) The GHG BAECT analysis may reference recently permitted GHG best available control technologies (BACT), operational or process limits in the EITE stationary source’s air pollution permits or in the RACT/BACT/LAER Clearinghouse for similar operations as applicable. III.C.1.b. The energy BMP analysis.
III.C.1.b.(i) Unless the EITE stationary source successfully demonstrates that it currently employs energy BMPs pursuant to Section III.C.1.b.(ii) or (iii) and provides the requisite supporting information pursuant to Sections III.C.1.b.(ii)(A) and (B) or III.C.1.b.(iii)(A) to III.C.1.b.(iii)(C), the audit team must analyze energy BMPs as follows:
III.C.1.b.(i)(A) Identify all available energy efficiency measures for the specific energy consumption sources included in the audit scope. Any energy efficiency measure considered to be a GHG BAECT option but not recommended as GHG BAECT must be included in the energy BMP analysis for that GHG emission unit, as applicable. This analysis can exclude any control technologies that redefine the stationary source.
III.C.1.b.(i)(B) Eliminate technically infeasible energy efficiency measures.
III.C.1.b.(i)(C) Rank remaining energy efficiency measures based on the reduction in energy use per ton of final product manufactured at the facility.
III.C.1.b.(i)(D) Perform a cost-effectiveness analysis on all energy efficiency measures considering the full lifetime of the measure. The cost-effectiveness analysis must include an estimate of the net levelized cost per energy consumption reduction over the life of the equipment. The audit team must document in the audit report the discount rate, which is of no more than 8%, used for the cost-effectiveness analysis. The net levelized cost analysis should include, but is not necessarily limited to, the following costs and benefits:
III.C.1.b.(i)(D)(1) Engineering and design costs;
III.C.1.b.(i)(D)(2) Equipment costs including installation; III.C.1.b.(i)(D)(3) Available tax credits and/or incentive programs; and III.C.1.b.(i)(D)(4) Changes in the following annual costs resulting from the control technology/method including energy costs, operations and maintenance costs, and changes to productivity and/or product quality.
III.C.1.b.(i)(E) Eliminate cost-prohibitive energy efficiency measures considered. Energy efficiency measures with a cost- effectiveness equal to or under the social cost of GHGs cannot be eliminated as cost-prohibitive, except for a demonstrated, unreasonable burden on competitiveness shown in Section III.C.1.b.(i)(F).
III.C.1.b.(i)(F) Consider the economic, energy, and environmental impacts arising from each measure remaining under consideration. In this case, economic reasonableness includes an analysis of the economic impact of the measure on the EITE stationary source’s competitiveness within the marketplace. The audit team must document these determinations and associated analyses in the audit report.
III.C.1.b.(i)(G) Additional required documentation for all analyzed measures include, but are not limited to, cost-effectiveness, remaining useful life of the equipment, impacts to land use approvals and any co-benefits. The level of analysis conducted and documented shall consider the nature of the energy efficiency measure and potential impacts of these additional criteria.
III.C.1.b.(ii) In lieu of performing the energy BMP analysis, certification within 12 months of the audit date under the annual Federal Energy Star Program will be determined as employment of energy BMPs for the EITE stationary source. Annual Energy Star certification documentation for all years subsequent to the previous audit as well as the current certification must be included in the audit report and contain:
III.C.1.b.(ii)(A) Specific BMP energy efficiency measures the EITE stationary source used to achieve the Federal Energy Star Program certification; and II.C.1.b.(ii)(B) The annual Energy Performance Indicator (EPI) benchmarking spreadsheet demonstrating a score of 75 or higher submitted with the Energy Star application.
III.C.1.b.(iii) In lieu of performing the energy BMP analysis, registration to ISO 50001 within 12 months of the audit date will be determined as employment of energy BMPs for the EITE stationary source. Management system documentation must be included in the audit report and contain:
III.C.1.b.(iii)(A) Specific BMP energy efficiency measures the EITE stationary source used to achieve the ISO 50001 Program certification;
III.C.1.b.(iii)(B) Information on the energy management system including the Manual, Objectives and Goals, Energy Policy and results of the most recent energy management system audit; and II.C.1.b.(iii)(C) The valid registration certificate.
III.C.1.b.(iv) If an EITE stationary source fails to achieve the annual certification by the EPA Energy Star Program or registration to ISO 50001, the source must submit a compliance action plan to the Division within 90 days of the certification or registration expiration. The plan must include the EITE stationary source’s plan and timeline to implement energy BMPs to either reacquire certification in the EPA Energy Star Program, reacquire ISO 50001 registration, or comply with the requirements in Section III.C.1.b.(i). The energy BMPs must be achieved within twelve months after the compliance action plan is approved by the Division.
III.C.1.c. The GHG BAECT and energy BMP recommendation. III.C.1.c.(i) The GHG BAECT recommendation will include: III.C.1.c.(i)(A) Recommendations on the most effective direct GHG emissions control technology and strategy, or suite of technologies and strategies, for the GHG emissions unit analyzed as GHG BAECT;
III.C.1.c.(i)(D) A calculation of the Non-GHG BAECT emissions. Non- GHG BAECT emissions are calculated by subtracting the reported emissions from units evaluated for GHG BAECT from the facility annual emissions at the time of the first audit. This shall be calculated as follows:
Non-GHG BAECT Emissions = Total direct emissions from the most recent year reported – (reported emissions from the units evaluated for GHG BAECT)
III.C.1.c.(ii) The energy BMP recommendation will include: III.C.1.c.(ii)(A) Recommendations on the most effective energy efficiency measures for the energy consumption sources analyzed to be set as Energy BMPs.
III.C.1.c.(ii)(B) A list of energy efficiency measures with a levelized cost less than or equal to $0;
III.C.1.c.(ii)(C) Recommendations on Energy BMP options that provide greater co-benefits to the surrounding communities where the top emissions unit control technologies or strategies are comparable in terms of cost effectiveness.
III.C.1.d. A plain-language summary of the audit findings, determinations, and recommendations in the top two languages spoken by the community surrounding the EITE stationary source. This summary shall include the list of GHG BAECT options for the emission units analyzed, how they were ranked and why they are being recommended.
III.C.1.e. Confidential business information must be clearly identified and be submitted in a separate, supplementary document to the audit report.
IV. GHG BAECT and Energy BMP Determination IV.A. Within 60 days of receipt of the audit report, the Division will determine GHG BAECT and energy BMPs for the EITE stationary sources as follows:
IV.A.2.b. All control technologies found under Section III.C.1.a. to have a net levelized cost less than or equal to $0, where cost neutrality can be achieved no more than 5 years from operational date of the technology, except where the auditor has established that doing so would pose an unreasonable burden to the facility; and IV.A.2.c. The GHG emission rate per unit of final product at the EITE stationary source for the individual emissions units after implementation of the prescribed measures.
IV.A.2.d. The final GHG BAECT and energy BMP intensity rate determination shall be issued for the EITE stationary source as a rate of total GHG emission (CO2e) for the emissions units included in the audit scope per final product of the facility. This calculation shall be based on the determination(s) in Sections VI.A.1. and IV.A.3. (as applicable) and shall be calculated as follows: GHG BAECT & Energy BMP Intensity Rate Determination = Σ (CO2e per tons of facility product for each emission unit in audit scope).
GHG BAECT & Energy BMP Intensity Rate Determination = Σ (CO2e per tons of facility product for each emission unit in audit scope).
IV.A.3. The energy BMP determination will be issued for each energy consumption source in the audit scope and include:
IV.B. The Division will hold one or more public meetings on the results of the final GHG BAECT and energy BMP determinations.
IV.C. Within 45 days of making its final GHG BAECT and energy BMP determinations, the division will present the determinations at a regular meeting of the Commission. The Commission may approve the determinations or return them to the Division for further analysis. The Division will return to the Commission for final approval at its next regular meeting or as soon as practical.
V. Emission Reduction Requirements V.A. All EITE stationary sources subject to this rule must reduce facility-wide GHG emissions by 5 percent.
V.A.3.a. This interim annual five (5) percent mass reduction shall be calculated by multiplying the EITE stationary source’s GHG BAECT and energy BMP intensity rate, as determined by the Division under Section IV. by the number of units produced in the third calendar year, to result in a GHG BAECT mass emission number. Add the Non-GHG BAECT emissions to this number. Five (5) percent of this mass emissions total represents the mass GHG emissions reduction required in tons of CO2e. The calculation is as follows: ((((GHG BAECT & Energy BMP Intensity Rate Determination) * (Compliance Year Facility Product)) + Non-GHG BAECT determination) * 5%) V.A.3.b. The interim annual emissions limitation is calculated by multiplying the current GHG emissions intensity rate as documented in the most recent audit by the compliance year facility product to result in a mass GHG emissions total. Add the Non-GHG BAECT emissions to this total, and then subtract the 5% reduction calculated in Section V.A.3.a. The calculation is as follows: ((Current GHG Emissions Intensity Rate as documented in the audit report * Compliance Year Facility Product) + Non-GHG BAECT determination) – ((((GHG BAECT & Energy BMP Intensity Rate Determination) * (Compliance Year Facility Product)) + Non-GHG BAECT Determination) * 5%)
V.B. If, at any point after the 2022 audit cycle and before 2030 an EITE stationary source achieves mass based GHG emission reductions equal to or greater than 20% below the source’s 2015 GHG emissions baseline, the 5% emission reduction required under Section V.A. is considered satisfied through the year 2030, provided the 20% mass-based reductions are sustained as demonstrated through annual compliance certifications under Section VII.A.1. An EITE stationary source meeting this requirement must continue to conduct the annual audits and otherwise comply with the requirements of this rule.
VI. Emission Reduction Requirement Compliance VI.A. The EITE stationary source must submit a compliance action plan within 120 days of the Commission’s approval of the GHG BAECT, energy BMPs, and GHG BAECT and energy BMP intensity rate determination that includes the EITE stationary source’s plan and timeline to comply with the annual mass emission limit, and interim mass emission limit in Section IV.A.2.d. as applicable and the energy BMPs determination.
VI.B. Beginning no later than the third year after each audit year, EITE stationary sources must demonstrate the additional mass-based five (5) percent GHG emission reduction described in this Section V. through the annual compliance certification in Section VII.A.1. VI.C. When considering compliance options with similar or the same cost-effectiveness, the EITE entity must give increased priority to GHG reduction initiatives that would produce co-benefits to the neighboring communities surrounding the EITE stationary source. VI.D. The Division will review the compliance action plan for approval. VI.E. EITE stationary sources must comply with the compliance action plan once approved by the Division.
VI.F. If in any calendar year an EITE stationary source achieves reported emissions lower than the annual emissions limitation, the Division will award the EITE stationary source GHG credits equal to the difference between the annual emissions limitation and reported emissions. GHG credits will only be issued after emission reductions have been demonstrated. VI.G. If in any calendar year an EITE stationary source fails to achieve the annual emissions limitation, the owners and operators may remedy this noncompliance by surrendering in the EITE entity’s compliance account sufficient GHG credits so as to reduce the actual emissions to the EITE annual emissions limitation.
VII. Reporting VII.A. Owners or operators of EITE stationary sources must submit an annual report to the Division by May 1 of each year (beginning May 1, 2026) that includes: VII.A.1. Annual Compliance Certification Requirements. The account representative of each EITE stationary source must submit a compliance certification to the Division or its agent that certifies:
VII.A.1.d. The EITE stationary source’s annual emissions limitation for the previous year;
VII.A.1.e. The difference, if any, between the EITE stationary source’s actual total direct GHG emissions for the previous year and the EITE stationary source’s annual emissions limitation for the previous year.
VII.A.1.f. For EITE stationary sources that are complying through GHG credits pursuant to Section VI.A.1.b.:
VII.A.2. Current project status to implement GHG BAECT or energy BMPs contained in a compliance action plan under Section VI.A.;
VII.A.3. If the EITE stationary source is determined to be employing energy BMPs through certification to the Federal Energy Star Program or the ISO 50001 standard, the EITE stationary source must submit the information in accordance with Section III.C.1.b.; VII.A.4. Instances of noncompliance with the Division’s approved GHG BAECT and energy BMPs determination, compliance action plan, reason(s) for noncompliance, and actions taken or planned to return to compliance; and VII.A.5. All information necessary for the Division to confirm the EITE stationary source’s emission rate in the prior year.
VII.B. In addition to the annual report, owners and operators of EITE stationary sources must submit a final audit update to the Division within 60 days of the operation of GHG BAECT and/or energy BMPs, which includes verification that all GHG BAECT and energy BMP measures established in Section IV. are operational.
VIII. Recordkeeping VIII.A. EITE stationary sources must maintain records for a period of ten (10) years and make records available to the Division upon request, including:
VIII.A.3. Commission approved GHG BAECT and energy BMP determinations. VIII.A.4. Annual Compliance Certificate.
VIII.A.5. Approved compliance action plans and records reasonably necessary to demonstrate compliance with the approved plan.
VIII.A.6. Current certification or registration documentation to applicable standards to show continued compliance with Section III.C.1.b.(ii) or (iii). VIII.A.7. If the final GHG BAECT is determined to have an operation date that is beyond the next 5-year audit, the EITE stationary source must maintain records of project management documentation related to the implementation of the GHG BAECT measure including project status, timeline, expected operational date as proposed and approved in the compliance action plan.
IX. Accounting and Tracking System and Account Establishment and Registration Requirements IX.A. Establishment of accounting and tracking system and accounts. IX.A.1. The Division or its agent will establish an accounting and tracking system for EITE GHG credits.
IX.B. All EITE stationary sources must complete an application to register with the Division or its agent for a compliance account in the accounting system within 30 days after the Commission approves its GHG BAECT and Energy BMP determination, or within 30 days after the EITE stationary source first reports annual GHG emissions exceeding the 50,000-metric-ton threshold, whichever occurs later. Applicants must provide such information as the Division deems necessary in connection with the application, including but not limited to the following information: IX.B.1. Name, physical and mailing addresses, contact information, date and place of incorporation, and any ID number assigned by the incorporating agency; IX.B.2. Names and addresses of the entity’s directors and officers with authority to make legally binding decisions on behalf of the entity, and partners with over 10 percent control over the partnership, including any individual or entity doing business as the limited partner or the general partner;
X. Division Action on Compliance Certifications and Submittals X.A. The Division may review and conduct independent audits of any compliance certification or other submission to the Division under this regulation.
X.B. If any submission contains false or fraudulent information, that is considered a violation of this regulation, subject to enforcement under § 25-7-115, C.R.S.
XI. Noncompliance XI.A. In the event that an EITE stationary source fails to meet its annual emissions limitation, the EITE stationary source shall be deemed in noncompliance and must surrender three GHG credits for every ton emitted by the EITE stationary source in excess of the annual emissions limitation or be subject to a civil penalty or other enforcement action by the Division. XI.B. Nothing in Section IX.A. shall limit the enforcement powers of the Division to remedy noncompliance with this Part, including but not limited to the Division’s ability to seek additional penalties or fines, and compel actual reductions at any EITE stationary source in noncompliance. PART B Statements of Basis, Specific Statutory Authority and Purpose I. Adopted: October 22, 2021 (Removed from Regulation Number 22 and placed in Regulation Number 27 April 20, 2023) Revisions to Regulation Number 22, Part B, Section II.
This Statement of Basis, Specific Statutory Authority, and Purpose complies with the requirements of the State Administrative Procedure Act, § 24-4-103(4), C.R.S., the Colorado Air Pollution Prevention and Control Act, §§ 25-7-110 and -110.5, C.R.S., and the Air Quality Control Commission’s (“Commission”) Procedural Rules, 5 C.C.R. §1001-1.
Basis In HB 19-1261, now codified in part at §§ 25-7-102(2) and -105(1)(e), C.R.S., the General Assembly declared that “[c]limate change adversely affects Colorado’s economy, air quality and public health, ecosystems, natural resources, and quality of life[,]” acknowledged that “Colorado is already experiencing harmful climate impacts[,]” and that “[m]any of these impacts disproportionately affect'' certain disadvantaged communities. § 25-7-102(2), C.R.S. The General Assembly also recognized that “[b]y reducing greenhouse gas pollution, Colorado will also reduce other harmful air pollutants, which will, in turn, improve public health, reduce health care costs, improve air quality, and help sustain the environment.” § 25-7-102(2)(d), C.R.S.
Consequently, the General Assembly updated Colorado’s statewide greenhouse gas (GHG) pollution reduction goals so as to achieve a 26% reduction of statewide GHG by 2025; 50% reduction by 2030; and 90% reduction by 2050 as compared to 2005 levels. § 25-7-102(2)(g), C.R.S. Statewide GHG pollution is defined as “the total net statewide anthropogenic emissions of carbon dioxide [(CO2)], methane [(CH4)], nitrous oxide [(N2O)], hydrofluorocarbons [(HFCs)], perfluorocarbons [(PFCs)], nitrogen trifluoride [(NF3)], and sulfur hexafluoride [(SF6)] expressed as carbon dioxide equivalent [(CO2e)] calculated using a methodology and data on radiative forcing and atmospheric persistence deemed appropriate by the commission.” § 25-7-103(22.5), C.R.S. § 25-7-105(1)(e), C.R.S., sets forth the framework for developing GHG abatement rules consistent with the statewide GHG pollution reduction goals in § 25-7-102(2)(g), C.R.S. This provision grants the Commission broad authority to regulate GHG emissions in order to accomplish these goals. In order to evaluate the utilization of, and potential emissions reductions from, GHG best available emission control technologies (BAECT) and best available energy efficiency practices (referred to as best management practices or Energy BMP) in energy-intensive trade-exposed (EITE) stationary sources, the Commission adopted in Regulation Number 22, Part B, Section II, rules governing emission control and energy audits from these sources and requiring a five percent reduction in GHG emissions therefrom. Specific Statutory Authority The Colorado Air Pollution Prevention and Control Act (Act), specifically § 25-7-105(1), C.R.S., directs the Commission to promulgate such rules and regulations as are consistent with the legislative declaration set forth in § 25-7-102, C.R.S., and that are necessary for the proper implementation and administration of the Act.
§ 25-7-105(1)(e), C.R.S., authorizes the Commission to promulgate implementing rules and regulations consistent with the statewide GHG pollution reduction goals in § 25-7-102(2)(g), C.R.S. In adopting GHG abatement strategies and implementing rules, the Commission is authorized to take into account other relevant laws and rules to enhance efficiency and cost-effectiveness and solicit input from other state agencies and stakeholders on the advantages of different statewide GHG pollution mitigation measures. § 25-7-105(1)(e)(II) and (IV), C.R.S.
Implementing rules may include regulatory strategies that incentivize development of renewable resources and “enhance cost-effectiveness, compliance flexibility, and transparency around compliance costs.” § 25-7-105(1)(e)(V), C.R.S. Further, in promulgating such implementing rules, the Commission is to consider many factors, including, but not limited to: health, environmental, and air quality benefits and costs; the relative contribution of each source or source category to statewide GHG pollution; equitable distribution of the benefits of compliance; issues related to the beneficial use of electricity to reduce GHG emissions; and whether greater or more cost-effective emission reductions are available through program design. § 25-7-105(1)(e)(VI), C.R.S.
§ 25-7-105(1)(e)(IX), C.R.S., authorizes the Commission to require energy-intensive, trade-exposed [(EITE)] stationary sources, “to execute an energy and emission control audit, according to criteria established by the [C]ommission, of the source’s operations every five years through at least 2035.” The intent of the audit is to determine whether covered sources are employing “best available emission control technologies for [GHG] emissions [(GHG BAECT)] and best available energy efficiency practices [(Energy BMP)]”.
§ 25-7-105(1)(e)(XIII), C.R.S., adopted in House Bill 21-1266, directs the Commission to “require a five percent reduction in the [GHG] emissions associated with [EITE] stationary sources that currently employ [GHG BAECT and Energy BMPs], as determined by the Commission, pursuant to [§ 25-7-105(1)(e)(IX), C.R.S.].”
§ 25-7-106, C.R.S., provides the Commission “maximum flexibility in developing an effective air quality program and [promulgating] such [a] combination of regulations as may be necessary or desirable to carry out that program.” § 25-7-109(1), C.R.S., authorizes the Commission to adopt and promulgate emission control regulations that require the use of effective practical air pollution controls for each type of facility, process, or activity which produces or might produce significant emissions of air pollutants. An “emission control regulation” may include “any regulation which by its terms is applicable to a specified type of facility, process, or activity for the purpose of controlling the extent, degree, or nature of pollution emitted from such type of facility, process, or activity. . . .” § 25-7-103(11), C.R.S. Emission control regulations may pertain to any chemical compound including GHG pollution. See § 25-7-109(2)(c), C.R.S. Purpose The Commission adopted Regulation Number 22, Part B, Section II to give effect to the requirements of §§ 25-7-105(1)(e)(IX) and (XII)(B), C.R.S., and to further the reduction of statewide GHG pollution consistent with § 25-7-102(2)(g), C.R.S., as applicable to EITE stationary sources. § 25-7-105(1)(e)(IX), C.R.S., authorizes the Commission to require EITE stationary sources, “to execute an energy and emission control audit, according to criteria established by the [C]ommission, of the source’s operations every five years through at least 2035.” The intent of the audit is to determine whether covered sources are employing GHG BAECT and Energy BMPs. The last audit shall occur in the year 2037.
The audit and GHG emission reduction requirements contained in Part B, Section II are applicable only to stationary sources that principally engage in defined manufacturing activities and have direct GHG emissions equal to or greater than 50,000 tons CO2e per year as reported under 40 CFR, Part 98 and/or Part A of this Regulation Number 22. Based on 2019 data, there are only four stationary sources meeting these requirements: EVRAZ Rocky Mountain Steel’s mill in Pueblo, with reported GHG emissions of 305,674 tons CO2e; CEMEX Construction Materials South’s Lyons Cement Plant, with reported GHG emissions of 268,643 tons CO2e; GCC Rio Grande’s cement manufacturing plant in Pueblo, with reported GHG emissions of 743,403 tons CO2e; and Holcim-Lafarge’s cement plant in Florence, with reported GHG emissions of 985,222 tons CO2e.
The fifth highest GHG emission sources in one of these enumerated manufacturing activities reported GHG emissions of approximately 27,000 tons CO2e in 2019.The four EITE stationary sources over 50,000 tons CO2e per year in 2019 remained the only sources over this threshold in 2020 as well. It is notable that, based on 2019 reported data, these four stationary sources contribute approximately 54% of Colorado industrial and manufacturing sector’s GHG emissions. Accordingly, this emissions threshold guarantees that the state’s largest EITE sources of GHG emissions are employing GHG BAECT and Energy BMPs in their manufacturing processes while appropriately limiting the regulatory burden on smaller sources.
Critical to the success of the GHG BAECT and Energy BMP audit program is the selection of sufficiently rigorous audit protocols and qualified auditors. Accordingly, Section II.C.2. and the associated definitions in Section II.B. establish the minimum qualifications for the auditor and audit team and the criteria and processes by which the audits are to be performed. Under Section II.C.2.a.(v)(A), the Division can reject an auditor if the auditor has a previous or existing relationship with the source that is so pervasive that the auditor would be unable to conduct the audit in an unbiased and independent manner. The Division should consider the extent to which the auditor has advocated on behalf of the EITE stationary source before the Commission; whether the relationship is currently or recently pervasive, compared to a relationship primarily in the past; whether the auditor has primarily acted as an advocate for the EITE stationary source as opposed to a scientific or technical advisor; and whether the work conducted on behalf of the EITE stationary source would, in any way, inhibit the auditor’s ability to conduct an independent and unbiased audit.
Prior to executing an audit, the EITE stationary source must submit to the Division for its review and approval of the audit plan, which identifies the audit scope, the audit team and any standards or protocols planned for use in the audit. The Division’s review should ensure that the plan is sufficiently rigorous and meets or exceeds national and/or international standards for such audits. Examples of sufficiently rigorous accounting and audit protocols include, but are not necessarily limited to, the GHG Protocol’s Corporate Accounting and Reporting Standard (more information available at https://ghgprotocol.org/corporate-standard) and the International Organization for Standardization’s (ISO) 14064 and 50001 series (more information available at https://www.iso.org/home.htm). As set forth in Section II.C.2., the energy and emissions control audit will analyze GHG BAECT for the EITE stationary source’s emissions units that emit the top 80% of the stationary source’s GHG emissions, and any individual emissions source that represents more than 2% of the emissions from the EITE stationary source. This audit scope is determined by the Division to be broad enough to capture all GHG emission sources at the EITE stationary source except for those considered “de minimis” and provide for a thorough audit of the emissions at the facility.
The Energy BMP audit will assess all emission units that account for 80% of the source’s energy consumption. This scope ensures that the audit captures the largest emitting and energy consuming emissions units and that the majority of the EITE stationary source’s emissions are examined. It is expected that there may be overlap between these two scopes, which is addressed in Section II.C.3.a.(ii)(A)(1).
Section II.C.3. establishes the audit reporting requirements and detailed steps for the GHG BAECT and Energy BMP analyses. These analyses are conducted on a case-by-case basis for the EITE stationary source under review and incorporate certain objective criteria for the auditor and Division to consider. The GHG BAECT analysis and prioritization process will consider technical feasibility of the control for the stationary source, the estimated emission reductions realized with each measure, cost-effectiveness and environmental, economic, and energy impacts. Additionally, consideration should be given to other factors such as existing facility permit limits, limits and emissions data available for similar operations, and air pollution co-benefits to local communities.
Under Section II.C.3.a.(i)., the control technologies and strategies considered during the GHG BAECT analysis should consider fuel switching, waste to heat options, strategic energy management (SEM) options and carbon capture and underground storage or utilization (CCUS). In evaluating fuel-switching as a control technology, the source should consider switching from coal and petroleum coke to a lower- carbon fuel. In evaluating waste to heat options, the source should consider changing raw material inputs in production processes. In evaluating waste to heat options, the source should consider preheating and heat re-use. The Commission understands that certain of these technologies may not yet be ready for employment as GHG BAECT or Energy BMPs at the stationary sources and expects them to be evaluated for technical feasibility if they are “available.” The cost-effectiveness evaluation will include the full lifetime of the measure under consideration and all “net levelized” costs to account for costs and costs avoided—or benefits—that may result from adopting a particular control or efficiency measure. These factors are described in further detail at Section II.C.3.a.(i)(D) for GHG BAECT and II.C.3.a.(ii)(A)(4) for Energy BMPs and should include changes in the annual costs resulting from the control technology/method including energy costs, operations and maintenance costs, productivity (e.g. increased production rate or reduced down-time), product quality (e.g. improved quality or reduced rate of rejects/bad batches). As detailed in Part B, Section II.C.3.a.(i)(E) for GHG BAECT and Section II.C.3.a.(ii)(A)(5) for Energy BMPs, measures identified in the audit as technically feasible cannot then be eliminated as cost-prohibitive if the cost-effectiveness of the measure is equal to or less than the avoided social cost of GHGs. Further, any direct or indirect energy, economic and environmental impacts for each potential GHG control measure is to be considered. Economic considerations may include a comparison to direct competitors and international markets for the EITE source’s final product (i.e. steel or cement). Environmental considerations should include any benefits or detriments that may result from a particular measure. Energy considerations should include direct and indirect energy efficiency benefits or detriments, including changes in demand for offsite electric generation.
The social cost of GHG’s cost-effectiveness comparison mechanism ensures that sufficient weight is afforded to the full spectrum of climate impacts from GHG emissions that could be controlled through technically feasible means. As set forth in Part B, Section II.B.41, the social cost of greenhouse gases to be used aligns with that established in § 25-7-110.5(4)(f), C.R.S., through the adoption of House Bill 21- 1266. The social cost of GHGs to be used in each GHG BAECT and Energy BMP audit must be consistent with this definition and the Division will review the social cost of GHGs used in the audit recommendations to ensure the values are correctly calculated. Using the social cost of GHGs is an appropriate, objective measure for evaluating potential costs avoided when analyzing the “cost- prohibitiveness” of effective, technically feasible control measures and balancing that against other environmental, energy, or economic impacts, such as competitiveness. This balancing serves to recognize the externalities resulting from GHG emissions that could be avoided through the use of potentially costly control measures and the limited ability of EITE sources to implement those measures if it would render them uncompetitive in the marketplace and therefore risk unintended consequences, including GHG leakage. Further, Section II.C.3.a(i)(B)(1) sets forth the Commission’s intent that EITE stationary sources will consider and fully evaluate the possibility of employing CCUS or utilization as a control measure for any emissions unit with direct emissions of 100,000 tons CO2e and provide that analysis to the Division at least every five-year audit cycle. The analysis must go beyond a superficial examination of whether other similar facilities have successfully employed these technologies and must look at the state of the technology and whether it can be successfully employed at the source under review. If it is technically possible to employ these technologies, they must then be evaluated for other factors such as cost-effectiveness and other direct or indirect impacts, like competitiveness in the marketplace.
The intent of this assessment is to objectively and rationally uncover the strengths and weaknesses of CCUS technology at the facility. The assessment should include economic and technical issues associated with carbon capture technology at the specific facility. A feasibility analysis is expressly not required by this rule, but if a facility has conducted a full feasibility analysis within the last 5 years, that information will satisfy the requirement to provide the information in Section II.C.3.a.(i)(B)(1). In subsequent audit cycles, these reports can be updated instead of recreated. In the interest of regulatory efficiency, as an alternative to conducting an Energy BMP audit under Sections II.C.2. and 3, the EITE stationary source will be determined to have conducted a qualifying audit and be currently employing Energy BMPs if the stationary source is certified under the EPA Energy Star Program or is registered to the ISO 50001 - standard for energy management. This alternative pathway was adopted because the underlying programs examine and audit the facility’s performance as a whole, and are equally or more rigorous and thorough than the Energy BMP audit contemplated in § 25-7-105(1)(e)(IX)(A), C.R.S. The Federal Energy Star Program is a widely accepted “benchmarking” program managed by EPA and requires annual certification that the facility is sufficiently efficient (reaches a score of 75 or higher out of 100).
More information available at: https://www.energystar.gov/industrial_plants/earn-recognition/plant- certification ISO 50001 is the internationally recognized energy management system developed by the International Organization for Standards which requires certification every 3 years. More information available at: https://www.iso.org/iso/iso_50001_energy_management_systems.pdf Both certifications are appropriate alternative means of demonstrating Energy BMP employment as they require rigorous evaluation of an industrial facility’s energy performance and the employment of best available energy practices through either benchmarking in the case of Energy Star or certification to a specific set of requirements for holistic energy management of the facility, in the case of ISO 50001.If the EITE stationary source is not certified under EPA’s Energy Star Program or ISO 50001, the EITE stationary source must conduct an Energy BMP audit pursuant to Section II.C.2. and 3. The GHG BAECT and Energy BMP Recommendation As described in Section II.C.3.a.(iii), the auditor’s recommendation must include: (1) The auditor’s recommendation on the most effective technology or strategy or suite of control technologies as determined under Section II.C.3.a.; (2) a list of all control measures with levelized costs less than or equal to $0 as determined in Section II.C.3.a.(i)(D); and (3) recommendations on options that provide greater pollution reduction co-benefits to communities surrounding the EITE stationary source. The GHG BAECT and Energy BMP recommendation in the audit report serves as the foundation for the GHG BAECT and Energy BMP determination to be made by the Division and ultimately finalized by the Commission. This recommendation consists of the technologies identified through the audit process that would be considered “best” to control and reduce GHG emissions from the emissions units included in the audit scope. The recommendation is documented in the audit report. The GHG BAECT recommendation may be a single technology or reduction measure for the emission unit or a suite of technologies or measures if multiple measures are able to achieve greater reductions and are the same or similar cost- effectiveness. This approach creates potential for a greater reduction at the same or similar cost to the EITE stationary source, as well as opportunities for increased consideration and inclusion of technologies or measures that have significant co-benefits. The energy BMP recommendation will be issued as a list of the most effective energy efficiency measures for the EITE stationary source for the energy consumption sources included in the audit scope. Both the GHG BAECT and energy BMP recommendations will include a list of measures that have a levelized cost of equal to or less than $0 for the Division’s consideration.
The GHG BAECT and Energy BMP recommendation will document the total cumulative GHG emissions intensity rate for all emission units included in the audit scope. This will be calculated by identifying each emissions unit’s annual GHG emissions per final product from the EITE source then summing all audited emission unit intensity rates for a total GHG BAECT and Energy BMP GHG emissions intensity rate for the EITE stationary source. If any energy efficiency measure achieves additional GHG reductions for the facility it shall be included in the GHG BAECT emission intensity rate per final product of the EITE stationary source.
The audit report must also show the calculations and recommendation for the total mass emissions from emission units that were not included in the audit scope. This number is integral to the annual emissions limit calculation for each EITE stationary source because the emissions limitation must include all emissions from the facility.
The GHG BAECT and Energy BMP Intensity Rate Determination The Division will analyze and review the audit report’s GHG BAECT and Energy BMP intensity rate recommendations and associated analyses for all emission units included in the audit scope and make a final recommendation to the Commission to establish the GHG BAECT and Energy BMP GHG emissions intensity rate for the EITE stationary source. The Commission may ask questions, require additional information, or grant approval to the Division-determined rate for the facility. The Division will strive to incorporate these briefings into existing briefings or proceedings before the Commission. After receiving the audit report, the Division’s determination will be based on the audit recommendation and the Division may select either the top control identified or a suite of controls that meet certain, enumerated criteria. The Division’s GHG BAECT and Energy BMPs determination for each emissions unit or energy-consuming source within the audit scope will include: (1) The specific control or suite of controls selected as GHG BAECT (Section II.d.1.b.) and Energy BMPs (Section II.D.1.c.); (2) the final GHG BAECT and energy BMP intensity rate for the EITE stationary source (Section II.D.1.b.(iv)); and (3), in addition to any controls selected as GHG BAECT and/or Energy BMPs, all controls found to have a net levelized neutral cost over five (5) years from operational date, unless doing so would impose an unreasonable burden to the EITE stationary source as determined by the Division and based upon findings in the audit report (Sections II.D.1.b.(ii) and II.d.1.c.(ii)). The GHG BAECT and Energy BMP intensity rate is determined from the GHG BAECT analysis for each piece of GHG emitting equipment to calculate a cumulative GHG BAECT and energy BMP Intensity Rate for the facility. This GHG BAECT and energy BMP intensity rate represents a single, cumulative rate for all GHG emitting equipment included in the audit scope, for both GHG BAECT and energy BMPs. This intensity rate does not include any GHG emitting equipment not included in the audit scope. The calculation is as follows:
Non-GHG BAECT Emissions Calculation During the audit, the mass total of GHG emissions from the GHG emitting equipment that was not included in the audit scope, or “Non-GHG BAECT emissions,” shall be determined. Non-GHG BAECT emissions are calculated by subtracting the reported emissions from units evaluated for GHG BAECT from the facility annual emissions at the time of the first audit. Once reviewed and approved by the Division and Commission, this mass total will remain fixed. This number will be used in calculating the annual emissions limitation for each EITE stationary source. The calculation is as follows:
The calculation is as follows:
Use of the emissions limitation approach set forth in GEMM for EITE sources accomplishes this suite of legislative directives. It requires EITE sources to reduce GHG emissions “attributable to manufacturing a good in the state by 5%.” It does not impose non-administrative costs on the other 95% of GHG emissions from the source. This provides the EITE sources flexibility to mitigate the costs of the required reductions and provides an incentive to improve efficiency and reduce emissions. Importantly, it accomplishes all this while allowing EITE sources to adjust production levels based on market forces and meet demand with an annual mass emissions limitation at a GHG intensity of 5% below that accomplished through the employment of GHG BAECT and Energy BMPs without requiring the source to reduce production to accomplish these reductions. This balances the need for substantial and lasting GHG emissions reductions from EITE sources while recognizing the treatment afforded these particular sources by the General Assembly.
Annual Emission Limit Compliance Pursuant to Sections II.E.1.b. and II.F.2., EITE stationary sources are required no later than the third year after each audit to achieve and maintain an additional mass-based five percent GHG emission reduction below emissions that would be achieved through the employment of GHG BAECT and Energy BMPs, unless an interim emission rate is established under Section II.E.1.c. To demonstrate compliance, EITE stationary sources must submit an annual compliance report with the information set forth in Section II.G.1., including the previous year’s GHG emissions; units of product produced; and the GHG BAECT and energy BMP intensity rate determination. The EITE stationary sources must also maintain records for 10 years.
Compliance Pathways To give effect to the legislative directive § 25-7-105(1)(e)(XIII)(B), C.R.S., and in accordance with the guidance concerning implementing rules in §§ 25-7-105(1)(e)(II), (V), and (VI), C.R.S., in Section II.F.1.c. the Commission provides three pathways to achieve the required emission intensity rate. This includes any one or combination of: direct on-site reductions (Section II.F.1.a.(i)); surrendering reduction credits created by GHG reductions at other regulated sources (Section II.F.1.a.(ii)); and utilization of retail distributed generation or net metering renewable projects that reduce GHG emissions from the facilities' energy use for which RECs have been retired (Section II.F.1.a.(iii)). For the utilization of renewable energy, the RECs retired must be from Colorado and retired in the year generated. Regardless of the compliance pathway utilized, the EITE stationary source must assure that any significant co-benefits are achieved at the EITE stationary source pursuant to Section II.F.1.b. Utilization of Renewable Energy Credits for compliance cannot exceed the annual generation of the distributed generation system and cannot be used for compliance with the Annual Emissions Limitation for more than the required 5% reduction, nor can they be counted toward the 20% emissions reduction required to exempt the source from further 5% reduction requirements, as those are to be based on direct emissions reductions from the facility.
The megawatt hour (MWh) of distributed generation in avoided GHG emission value shall be based on the relevant electricity provider’s reported annual system emissions, calculated in a manner consistent with the Division’s AQCC-approved Clean Energy Plan guidance, and be adjusted annually to account for the changing emissions profile of the generation fleet of the source’s electricity supplier. This is because a system MWh avoided today may be more emissions intensive than a system MWh avoided in the future. The Commission recognizes that large capital-intensive emissions reduction projects such as large-scale carbon capture, utilization, and storage may take an extended time to complete. The Commission directs staff to develop a proposal to allow an alternative compliance pathway with an extended timeline, with sufficient guardrails to ensure that cumulative GHG emissions reductions will be greater than those achievable with short-term measures, and that communities near the facility will realize appropriate co- benefits.
Points of Compliance There are a number of discrete requirements with which the covered sources must demonstrate compliance over the course of each audit cycle. These include: • Submission of the Audit Plan at least 120 days prior to commencing the audit (Section II.C.2.); • Submission of the Audit Report no later than December 31, 2022 and every five years thereafter (Section II.C.1.a.);
1. In Section II.C.3.a.(i)(G) for BAECT and Section II.C.3.a.(ii)(A)(7) for BMPs, the auditor must evaluate and document expected air quality co-benefits of any BAECT or BMP measure assessed;
2. In Section II.C.3.a.(iii)(A)(4) for BAECT and Section II.C.3.a.(iii)(B)(3) for BMPs, the auditor’s recommendation must include as a BAECT and/or BMP the option that provide greater co- benefits to the surrounding communities where the top options are otherwise comparable in terms of cost-effectiveness; and 3. In Section II.F.1.b., where an EITE source complies with the annual emission limit, it must also achieve the co-benefits to the local community where “the measure(s) determined to be GHG BAECT and/or energy BMPs for an emission unit also are anticipated to result in significant co- benefits[.]”
As to this final point, the express intent is to ensure that any localized co-benefits that would be realized through implementation of the specific BAECT or BMPs identified in the audit are still realized for the local community, regardless of which compliance pathway the source utilizes. This is explicitly intended to benefit local communities and particularly those disproportionately impacted by climate change and other air quality issues and is in response to input from communities and local governments. The quantification of any co-benefits under Sections II.C.3.a.(i)(G) and II.C.3.a.(ii)(A)(7) must include establishment of a baseline for the relevant pollutant(s) and quantification of net co-benefits from the control technologies and strategies below or above the baseline. The baseline shall be determined based on the best available information, including monitored emissions, if available, or reported emissions of the relevant pollutant(s) at the time of the audit.
GHG Credit Accounting and Trading Program for EITE Stationary Sources § 25-7-105(1)(f)(I)(C), C.R.S., defines “trading program” as “a commission-adopted regulatory program that allows for regulated sources to meet their greenhouse gas compliance obligations under subsection (1)(e) of this section through the creation, purchase, acquisition, or exchange of, or other commercial-type transaction involving, a GHG credit with other regulated sources.” § 25-7-105(1)(f)(I)(A), C.R.S., defines “regulated source” as “a source of [GHG] that is subject to a rule adopted by the [C]ommission under [§ 25-7-105(1)(e)] that imposes specific and quantifiable [GHG] reduction obligations upon that source or group of sources.”
An accounting and “trading program” for GHG credits will be developed by the Division, which can be utilized by EITE sources covered by GEMM. The trading program will serve as one pathway to complying with GHG emissions limitations and will allow trading of GHG reductions while also ensuring co-benefits of reducing localized harmful air pollutants at the EITE sources. This is achieved by separately determining what reductions in harmful air pollutants will be achieved at the source through the use of GHG BAECT and requiring that these emission reductions are achieved regardless of how the EITE complies to reduce its GHG emissions.
GHG credits issued by the Division will serve as the mechanism for the trading program. These GHG credits must be utilized for the trading program and represent a GHG emission reduction of one metric ton of CO2e in Colorado, and be real, additional, quantifiable, permanent, verifiable and enforceable. The Act authorizes the Commission to adopt this program through its general rulemaking authority, its authority to adopt implementing rules for GHG pollution reduction, and specific authority to adopt an accounting and trading program as established under House Bill 21-1266.See §§ 25-7-106(1) (granting the Commission “maximum flexibility in developing an effective air quality control program and [the authority to] promulgate such combination of regulations as may be necessary or desirable to carry out that program”); -105(1)(e)(II) (granting the Commission broad authority to adopt implementing rules to affect GHG emissions reductions); -105(1)(e)(V) (implementing rules for GHG reductions should enhance cost-effectiveness and compliance flexibility and transparency around compliance costs); - 105(1)(e)(IX)(A) (EITE sources should be provided “a pathway to obtain equivalent lower-cost emission reductions at other regulated sources to satisfy their compliance objectives”); and -105(1)(f) (granting the Commission authority to establish GHG credit trading program between “regulated sources,” and specifically to implement § 25-7-105(1)(e)(IX)).
The program accords with the Commission’s authority by allowing EITE sources pathways to accomplish reduction requirements at other regulated sources using an accounting and trading program through which the Division can track emission reductions and trades, prevent double-counting of GHG emission reductions, and identify EITE sources that adversely affect disproportionately impacted communities through emissions of locally harmful air pollutants. Importantly, the accounting and trading program applies only to EITE stationary sources subject to the audit and GHG emission reductions in GEMM. However, given the authority granted to the Commission in § 25-7-105(1)(f), it is possible that this program may serve as a model for a future, more broadly applicable GHG credit trading program for the industrial manufacturing sector. Should that arise, the Commission may consider how EITE sources should be incorporated into the broader program at that time. The current approach recognizes the directive in statute that EITE sources be provided “a pathway to obtain equivalent lower-cost emission reductions at other regulated sources to satisfy their compliance obligations” while also recognizing EITE sources would initially be the only “regulated sources” as that term is defined, and therefore the only sources eligible to participate in the trading program until additional GHG sources in Colorado meet this definition.
Based on these tenets, Section II.I. sets out provisions establishing an accounting system to track GHG reduction credits. These provisions task the Division with establishing the accounting system. An EITE source seeking eligibility to trade credits must first apply and have the Division create a compliance account for the EITE source. This application for an account must be submitted to the Division within 30 days after approval of the EITE source’s BAECT and Energy BMP determination. Any EITE source the Division determines adversely affects disproportionately impacted communities through emission of locally harmful air pollutants must be identified by the Division in the accounting system. Only GHG credits meeting the definition set forth in Section II.B.22 may be traded in the accounting system. Pursuant to this definition a “GHG credit” represents a GHG emission reduction of one metric ton of CO2e that is real, additional, quantifiable, permanent, verifiable and enforceable. To track such credits, the Division is directed to assign each credit a unique identifier (such as a serial number) and, as further directed in Section II.F.1.a.(ii), only issued in the tracking system after the underlying emission reduction has been demonstrated.
Sections II.G. and II.H. are designed to ensure that EITE stationary sources conduct regular reporting to demonstrate compliance with the audit requirements in Section II.C. and emissions reduction requirements in Section II.F. and maintain all pertinent records. The Commission determined that the audit procedures and compliance requirements set out in Part B, Section II, establish the criteria by which the Commission can determine, on a five-year basis, whether EITE stationary sources are employing GHG BAECT and energy BMP. The Commission has determined the audit process is cost-effective and reasonable to achieve these ends.
Additional Considerations The following are additional findings of the Commission made in accordance with the Act: § 25-7-110.5(5)(b), C.R.S.
As these revisions exceed and may differ from the federal rules under the federal act, in accordance with § 25-7-110.5(5)(b), C.R.S., the Commission determines:
(I) Any federal requirements that are applicable to this situation with a commentary on those requirements;
(II) Whether the applicable federal requirements are performance-based or technology-based and whether there is any flexibility in those requirements, and if not, why not; EITE Entities are required to report GHG emissions under existing federal and state regulations. Some EITE stationary sources may be required to conduct a GHG “best available control technology” or “BACT” analysis as part of a Prevention of Significant Deterioration permitting action unrelated to the requirements of these rules. Those BACT evaluations are technology- based. However, there are no current federal regulations requiring these entities to conduct GHG BAECT and energy audits or reduce GHG emissions as required under this rule.
(III) Whether the applicable federal requirements specifically address the issues that are of concern to Colorado and whether data or information that would reasonably reflect Colorado's concern and situation was considered in the federal process that established the federal requirements; Federal BACT analyses under PSD permitting are separate and distinct from the GHG BAECT analysis adopted in this Part B, Section II. in both its scope and purpose. Under federal PSD permitting, GHG emissions cannot alone trigger a BACT analysis, though the permitting authority may evaluate GHG controls for “anyway” sources that trigger PSD permitting requirements by exceeding other criteria pollutant thresholds. See Air Regul. Grp. v. E.P.A., 573 U.S. 302, 333–34 (2014). This Part B, Section II. in contrast is adopted pursuant to specific legislative directive to evaluate GHG BAECT and Energy BMPs; there are no applicable federal requirements in this regard.
(IV) Whether the proposed requirement will improve the ability of the regulated community to comply in a more cost-effective way by clarifying confusing or potentially conflicting requirements (within or cross-media), increasing certainty, or preventing or reducing the need for costly retrofit to meet more stringent requirements later;
(V) Whether there is a timing issue which might justify changing the time frame for implementation of federal requirements;
(VI) Whether the proposed requirement will assist in establishing and maintaining a reasonable margin for accommodation of uncertainty and future growth; Part B, Section II. affords regulated entities significant flexibility for meeting GHG emission reduction requirements. Furthermore, EITE entities are afforded the ability to affect required reductions through alternative compliance measures where needed. As such, regulated entities are afforded a reasonable margin for accommodation of uncertainty and future growth. The three pathways provided for EITE stationary sources to accomplish the 5% emissions reductions in Sections II.E. and II.F. and as required under § 25-7-105(1)(e)(XII)(B), C.R.S., provide affected sources flexibility to accommodate uncertainty and future growth.
(VII) Whether the proposed requirement establishes or maintains reasonable equity in the requirements for various sources;
(VIII) Whether others would face increased costs if a more stringent rule is not enacted; The General Assembly has acknowledged that climate change impacts Colorado’s economy and directed that GHG emissions should be reduced across all sectors of our economy. Colorado has established specific GHG reduction goals. Reductions not achieved in one sector will require measures in other sectors of the economy to achieve the state’s GHG reduction goals. However, the General Assembly further provided requirements that energy-intensive and trade- exposed entities demonstrate use of BAECT and energy BMPs through an audit process and limited the Commission’s ability to impose additional reductions on at least ninety-five percent of the source’s GHG emissions where such measures are effectively employed. See § 25-7- 105(1)(e)(IX), C.R.S. With respect to the 5 percent emission reductions required of EITE entities employing GHG BAECT and energy BMPs under § 25-7-105(1)(e)(XIII)(B), C.R.S., any emission reductions not timely realized from these entities would, in turn, require greater emission reductions from other sources in the industrial and manufacturing sector in order to achieve the twenty percent sector-wide requirements by 2030 set forth in § 25-7-105(1)(e)(XIII)(A), C.R.S.
(IX) Whether the proposed requirement includes procedural, reporting, or monitoring requirements that are different from applicable federal requirements and, if so, why and what the “compelling reason” is for different procedural, reporting, or monitoring requirements; Part B, Section II. gives effect to the General Assembly’s adoption of 25-7-105(1)(e)(IX), C.R.S., which includes a requirement for energy-intensive trade-exposed entities to execute energy and emission control audits that are not required under federal regulations. This is a compelling reason, as these audits will inform the state’s strategies and future regulations to accomplish the statewide GHG pollution reduction goals and address the impacts of climate change set forth in § 25-7-102(2), C.R.S. and sector-specific emission reductions under § 25-7-105(1)(e)(XIII), C.R.S.
(X) Whether demonstrated technology is available to comply with the proposed requirement; Part B, Section II. does not require the use of any specific technology but instead serves as a mechanism to evaluate the control technologies and energy efficiency practices regulated entities are employing and to determine the effectiveness of those measures already in use. The GHG BAECT and Energy BMP audits are used to conduct this evaluation and must include analyses of, but not necessarily implementation of, transformative technologies. All GHG BAECT and energy BMP determinations will be based on demonstrated and available technologies.
(XI) Whether the proposed requirement will contribute to the prevention of pollution or address a potential problem and represent a more cost-effective environmental gain; This rule will enable the Commission to determine whether EITE stationary sources are employing GHG BAECT and Energy BMPs to effectively minimize GHG emissions from regulated facilities. EITE sources will be required to comply with the annual emission limits established pursuant to this audit process. The GHG emissions reductions from this rule are expected to help Colorado achieve the statewide GHG pollution reduction goals in § 25-7-102(2)(g), C.R.S., and the sector-specific GHG emission reductions set forth in § 25-7-105(1)(e)(XIII), C.R.S. Anticipated reductions in co-pollutants are expected to have positive health benefits for the people of Colorado.
(XII) Whether an alternative rule, including a no-action alternative, would address the required standard.
Findings of Fact To the extent that § 25-7-110.8, C.R.S., requirements apply to this rulemaking, and after considering all the information in the record, the Commission hereby makes the determination that:
(I) These rules are based on reasonably available, validated, reviewed, and sound scientific methodologies and all validated, reviewed, and sound scientific methodologies and information made available by interested parties has been considered.
(II) Evidence in the record supports the finding that the rule shall result in a demonstrable reduction in GHG pollution and co-pollutants and will enable the Commission to satisfy the requirements of §§ 25-7-102, -105(1)(e), -106, and/or -109, C.R.S., as applicable.
(III) Evidence in the record supports the finding that the rule shall bring about reductions in risks to human health and the environment that will justify the costs to government, the regulated community, and to the public to implement and comply with the rule.
(IV) The rules are the most cost-effective to achieve the necessary and desired results and reduction in air pollution.
(V) The rule will maximize the air quality benefits of regulation in the most cost-effective manner.
II. Adopted: July 21, 2022 (Removed from Regulation Number 22 and placed in Regulation Number 27 April 20, 2023) Revisions to Regulation Number 22, Part B, Sections II.B.19. and II.B.25. This Statement of Basis, Specific Statutory Authority, and Purpose complies with the requirements of the State Administrative Procedure Act, § 24-4-103, C.R.S., et seq., the Colorado Air Pollution Prevention and Control Act, §§ 25-7-110 and 25-7-110.5, C.R.S., and the Air Quality Control Commission’s (Commission) Procedural Rules.
Basis The Commission has incorporated by reference Regulation Number 22, Greenhouse Gas Emissions and Energy Management for Manufacturing in Colorado, Part B, Section II.B.19. and Part B, Section II.B.25. These sections shall be modified for the limited purpose of removing the incorporation by reference sentence in Part B, Section II.B.19. and Part B, Section II.B.25. This correction does not change or alter the requirements of the existing rule.
Specific Statutory Authority The Colorado Air Pollution Prevention and Control Act, §§ 25-7-105(1)(b) and 25-7-109, C.R.S. authorize the Commission to adopt emission control regulations, including emission control regulations relating to new stationary sources, for the development of an effective air quality control program. Purpose Updating citation references of 40 C.F.R. Part 60 allows the Division to implement and enforce the Emission Guidelines and Compliance Times for applicable source categories. Adoption of the rules will not impose additional requirements upon sources beyond the minimum required by federal law and may benefit the regulated community by providing sources with up-to-date information and regulatory certainty.
III. Adopted: April 20, 2023 This Statement of Basis, Specific Statutory Authority, and Purpose complies with the requirements of the State Administrative Procedure Act, § 24-4-101, C.R.S., et seq., the Colorado Air Pollution Prevention and Control Act, § 25-7-101, C.R.S., et seq., and the Air Quality Control Commission’s (Commission) Procedural Rules, 5 C.C.R. §1001-1.
Basis To improve the readability and usability of Regulation Number 7 and Regulation Number 22, the Commission adopted revisions restructuring and reorganizing the parts and sections. Specific Statutory Authority The Colorado Air Pollution Prevention and Control Act, § 25-7-101, C.R.S., et seq. (the State Air Act or the Act), specifically § 25-7-103.3, directs rule-making agencies, such as the Commission, to review their rules and consider whether the rule is necessary; whether the rule overlaps or duplicates other rules of the agency or with other federal, state, or local government rules; whether the rule is written in plain language and is easy to understand; whether the rule has achieved the desired intent and whether more or less regulation is necessary; whether the rule can be amended to give more flexibility, reduce regulatory burdens, or reduce unnecessary paperwork or steps while maintaining its benefits; whether the rule is implemented in an efficient and effective manner, including the requirements for the issuance of permits and licenses; whether a cost-benefit analysis was performed by the applicable rule-making agency; and whether the rule is adequate for the protection of the safety, health, and welfare of the state or its residents. Based on this review, the rule-making agency will determine whether the existing rules should be continued in their current form, amended, or repealed. Purpose The following section sets forth the Commission’s purpose in adopting the revisions to Regulation Number 27.
The Commission reorganized Regulation Number 7 into four regulations: Part B became Regulation Number 24; Part C became Regulation Number 25; Part D remained in Regulation Number 7; and Part E became Regulation Number 26. The upstream oil and gas intensity and midstream combustion program provisions currently in Regulation Number 22 moved to Regulation Number 7. The manufacturing sector greenhouse gas provisions in Regulation Number 22 became a new Regulation Number 27. The Commission also made typographical, grammatical, and formatting corrections throughout the regulations.
Incorporation by Reference The Commission will update regulatory references as needed as opportunities arrive. Additional Considerations These revisions are administrative in nature and, therefore, do not exceed or differ from the requirement of the federal act or rules. Therefore, § 25-7-110.5(5)(a) does not apply. Findings of Fact To the extent that § 25-7-110.8, C.R.S., requirements apply to this rulemaking, and after considering all the information in the record, the Commission hereby makes the determination that:
(I) These rules are based upon reasonably available, validated, reviewed, and sound scientific methodologies, and the Commission has considered all information submitted by interested parties.
(II) Evidence in the record supports the finding that the rules shall result in a demonstrable reduction of greenhouse gas and VOC emissions.
(III) Evidence in the record supports the finding that the rules shall bring about reductions in risks to human health and the environment that justify the costs to implement and comply with the rules.
(IV) The rules are the most cost-effective alternative to achieve the necessary reduction in air pollution and provide the regulated entity flexibility.
(V) The selected regulatory alternative will maximize the air quality benefits of regulation in the most cost- effective manner.
_________________________________________________________________________ Editor’s Notes History New rule eff. 06/14/2023.