Colorado officials are advancing rules to cut carbon emissions in yet another sector — this time in the midstream sector of the oil and gas industry, a battleground area in which both industry and environmental leaders worry already about the proposed regulations.
The midstream sector is comprised of the pipelines and facilities that transport natural gas from wells to the transmission companies that distribute it to power plants and homes. A key part of the sector — which is made up in Colorado of three major players and a couple dozen smaller companies — is the compression plants that keep the gas moving down long pipelines to its destinations.
As part of efforts to reduce greenhouse-gas emissions by 2030, state officials have put rules into place already for sectors ranging from manufacturing facilities to large commercial buildings to gas-powered lawn equipment. They have developed rules both for upstream oil-and-gas well production facilities that extract the resources from the ground and for some midstream oil-and-gas facilities, but these new rules are aimed specifically at what is called the industrial sector of the industry.
The rules for the industrial midstream sector have been in development for nearly three years because it is considered one of the more difficult areas to decarbonize. Compressor stations and gas-processing plants are often in remote locations that require new power lines be run five to 10 miles to them to handle the load for electronification efforts — which could only come if companies replace or retrofit large and expensive engines and boilers.
How the emissions cuts would work
Under the proposed rules, which will get a formal hearing before the Colorado Air Quality Control Commission from Dec. 18-20, midstream operators must reduce emissions 22% from 2015 levels by 2030 — a goal higher than the 20% yardstick originally considered. While the goal is sectorwide, specific emission caps would be determined on a company-by-company basis explained Stefanie Shoup, manager of the Colorado Department of Health and Environment’s office of innovations in planning and air-quality assessment.
Division leaders want to create a carbon-credit-trading program similar to that which they are developing for the manufacturing sector. But they also want to mandate companies with facilities in disproportionately impacted communities to cut emissions within those poorer or more polluted communities by at least 20% before using the new credits.
The goal, Shoup told AQCC members before they voted Thursday to set the December hearing date, is to achieve emissions reductions in the communities where they are most needed and to do it in a way that is cost-effective and technically feasible. The rules, she added, should include provisions limiting penalties for scenarios that are outside of an operator’s control, such as a utility’s inability to build power lines needed for electrification out to a plant in a timely manner.
Stefanie Shoup, manager of the Colorado Department of Health and Environment’s office of innovations in planning and air-quality assessment, speaks at an online Colorado Air Quality Control Commission meeting in August.
“Our intent is to make performance improvements happen where it makes most sense for companies,” Shoup told commissioners. “It’s a much harder part (of the economy) to address from a regulatory perspective. Replacing fuel-burning equipment is a long-term effort and is going to take many more years.”
Issues across the ideological spectrum
Both industry leaders and environmental advocates have expressed immediate concerns about the proposal, however.
Much of the concern for the industry revolves around the speed at which the proposal requires operators to make high-cost changes and the inflexibility that certain provisions could create.
To electrify equipment at remote plants, midstream companies must get lines built to those plants that will handle their large electric loads, and officials have estimated some such lines will need to extend 10 miles at a cost of $1 million per mile. Then they must switch out the current diesel-powered engines that can cost around $750,000 apiece and must add to all those costs what are expected to be pricey new monthly electric bills.
In addition to the cost factor, there also is uncertainty around the electrical load — both in terms of the speed at which utilities could connect the plants to the grid anew and the availability of electric power. Utility charters prioritize residential service over industrial service, so compression stations and gas-processing plants must get into line behind new subdivisions while checking on the availability of electric equipment.
More thinking needed on cumulative impacts of emissions cuts?
Finally, industry leaders worry that all this cost and regulation, such as the inability to buy credits to meet caps in DICs, may not lead to substantial reductions in emissions — or could have other negative consequences. If Western Slope midstream operators must rush to electrify, for example, will they just get their electricity from coal-fired power plants in Wyoming? Or if companies must cut back operations in disproportionately impacted communities to comply with the new caps, will they cut jobs in those communities and create other problems for residents?
Colorado Oil & Gas Association President/CEO Dan Haley speaks at a February news conference about a slate of new environmental bills.
“A solution for one problem could open a host of other negative outcomes if the potential cumulative impacts of policy are not considered and weighed,” said Dan Haley, president/CEO of the Colorado Oil & Gas Association, in a statement. “For example, if industries are forced out of these communities due to unfeasible regulatory mandates, the stable jobs in the community also could be at risk — an outcome that would not benefit any community.”
Environmental organizations, meanwhile, already are questioning whether the proposed rules will do enough to achieve the goals of 22% emissions reduction from the midstream sector by 2030.
Credit trading and disproportionately impacted communities
Patricia Garcia-Nelson, Colorado fossil fuel just-transition advocate for GreenLatinos, sat on a midstream committee that advised CDPHE on potential sector rules, and she said she cautioned repeatedly against creation of a credit-trading program. In addition to the uncertainty of how such a program could work, she said she saw no evidence to back department or industry claims that trading would help the state reach its emissions-reduction goals any faster.
While CDPHE hasn’t offered specific details of the trading program yet, the idea of such programs is that regulated companies who reach their 2030 goals more quickly can earn credits for reducing emissions below their caps and then sell those credits to others. That could help firms that, for various reasons, have more difficulty in feasibly reducing emissions and would offer incentives for companies to go beyond just reaching bare-minimum goals because they could profit from extra cleanup efforts.
Garcia-Nelson said, though, that larger operators who have the financial resources to make greater improvements and bigger emission reductions would instead be allowed to use those resources to buy credits and leave surrounding communities dirtier because of it. And while the rule may require at least 20% emissions cuts in DICs, more than 40% of the midstream sector’s emissions already are made in DICs, meaning the rules are unlikely to bring those areas into equity with other parts of the state in terms of pollution, she said.
GreenLatinos and other groups handed out these signs before a February news conference at the Capitol demanding new emissions-cutting regulations.
More debate coming on emissions rules
The proposed DICs language — which requires that companies with one or more facilities in such communities must cut emissions from those facilities by 20% but can’t purchase credits to meet their DICs cap— is problematic for industry leaders. With the state defining a disproportionately impacted community as a census block that includes a high percentage of low-income residents, residents of color or housing-cost-burdened residents, roughly half of the state is a DIC, limiting flexibility in emissions-reduction plans.
But for environmental advocates, the language around credit-trading is one more way in which they fear the state is undercutting its stated goals by giving compliance pathways to companies that don’t result in actual emission cuts.
“There isn’t really any indicator of how this is going to help our communities. So, for me, this makes it seem like this is really just going to benefit operators,” Garcia-Nelson said. “It is very frustrating.”