The Colorado Oil and Gas Commission Will Become the 'Energy and Carbon Management Commission,' Among Other Changes
Interest in sequestering carbon dioxide (CO2) underground is expanding in Colorado. During the first half of 2023, the state has taken steps to establish a regulatory structure to permit injection of CO2 deep underground for long-term impoundment. This alert summarizes three key bills passed by the Colorado General Assembly and signed by Gov. Jared Polis and discusses the Colorado State Board of Land Commissioners’ (State Land Board) efforts to lease state lands for sequestration.
New Legislation to Manage Carbon
The Colorado General Assembly’s 2023 legislative session ended on May 8, 2023. Legislators passed three bills focused on topics related to carbon management, including carbon capture and storage:
HB23-1210: Carbon Management (signed into law on May 9, 2023)
- Defines “carbon management” as CO2 removal from the atmosphere, carbon capture, carbon sequestration or storage for at least 100 years and carbon utilization without release into the atmosphere. Limits “carbon capture” to catching CO2 emissions before release into the atmosphere, excluding direct air capture.
- Requires the Colorado Energy Office, Office of Economic Development and Department of Public Health and Environment (CDPHE) to develop a “carbon management roadmap” identifying carbon management, climate and economic opportunities available in Colorado; infrastructure needed to support carbon management including pipelines; and policies and incentives to encourage companies to deploy carbon management programs in the state and to develop new technologies.
- Directs the Colorado Energy Office to consider the state’s carbon management priorities when awarding funds under the Clean Air Grant Program, but prohibits grants to agricultural, forestry and enhanced oil recovery projects.
SB23-016: Greenhouse Gas Emission Reduction Measures (signed into law on May 11, 2023)
- Increased Colorado’s 2050 greenhouse gas (GHG) emission reduction goal from a 90% reduction in GHG emissions from 2005 levels to a 100% reduction and added several interim goals, including a 65% reduction by 2035.
- Institutes a variety of measures to cut GHG emissions by amending the Oil and Gas Conservation Act and the Local Government Land Use Control Enabling Act, as well as other statutes.
- Directs the Colorado Oil and Gas Conservation Commission (Commission) to apply for primacy to regulate Class VI CO2 injection wells under the federal Safe Drinking Water Act if the governor and Commission affirmatively determine the state has sufficient resources to regulate Class VI wells.
- Vests the Commission with the authority to permit and regulate Class VI wells if the Environmental Protection Agency (EPA) grants Colorado the authority to manage its own Class VI program.
- Requires the Commission to consider the impacts of Class VI wells on disproportionately impacted communities, require each operator to maintain adequate financial assurance until site closure and ensure compliance with local government siting and CDPHE permitting requirements.
- Instructs the Commission and CDPHE to evaluate the safety of Class VI wells and methods for limiting CO2 releases by February 2024.
- Imposes a 2,000-foot setback for Class VI wells from residences, schools and commercial buildings (equivalent to the default oil and gas well setback) but permits the Commission to adjust the setback through rulemaking after it evaluates the impacts of more than four Class VI wells operating for more than four years.
- Empowers local governments to regulate the surface impacts and siting of Class VI injection wells, just like oil and gas wells, within their local jurisdictions and to impose fees on Class VI wells to enhance emergency preparedness in the event of a CO2
SB23-285: Energy and Carbon Management Regulation in Colorado (signed into law on May 22, 2023)
The legislature did not make significant changes between our prior alert and the final version. Highlights for carbon management:
- Changes the name of the Commission to the “Energy and Carbon Management Commission” effective July 1, 2023.
- Expands the purview of the Oil and Gas Conservation and Environmental Response Fund, financed by a fee on oil and gas produced in the state, to the “Energy and Carbon Management Response Fund.”
State Lands Available to Lease for Sequestration
In April, the State Land Board adopted a Geologic Carbon Sequestration Leasing Policy. The policy authorizes the State Land Board to accept applications to lease state trust lands for carbon sequestration and exploration projects, and to permit Class VI injection wells to be located on state trust lands. Carbon sequestration exploration leases may be issued for a maximum term of four years and a minimum charge of $12/acre; the policy does not dictate a maximum lease term or minimum price for long-term sequestration beneath state trust lands. It further directs the State Land Board to reserve pore space ownership when disposing of state surface estate. In addition to geologic sequestration, the State Land Board intends to lease state trust lands in the future for biological sequestration (in forests or grasslands), direct air capture and research.
Prior to adopting the policy, the State Land Board granted the first exploration lease on state lands in January. In late April, drilling began on the lease, which is located in Washington County. Carbon America is behind the project and plans to sequester CO2 generated by nearby ethanol plants as early as 2025.
Takeaways
A regulatory structure is slowly starting to take shape for carbon sequestration, but Colorado will need to work quickly and efficiently to meet growing interest and to catch up to other states already working in this area. EPA has already delegated primacy to Wyoming and North Dakota to manage their own Class VI programs and published a proposed rule on May 4, 2023, to do the same for Louisiana. Louisiana applied for primacy on September 17, 2021, and the earliest EPA could approve the application is later this summer (the public comment period closes on July 3, 2023).
SB23-016 requires both the Commission and the governor to review and confirm Colorado has sufficient resources to implement a Class VI program and for the Commission to hold a public hearing before it can file an application for primacy with EPA. Then, the Commission will need to assemble its primacy application, which must include rules to permit and regulate Class VI wells that are at least as protective as the EPA’s regulations. Once filed, Colorado should expect that EPA will need several months to review and consider its application. Based on the prerequisites, Colorado likely is at least a few years out from managing its own Class VI program.
In addition to the progress made by the General Assembly during the session, additional legislation likely is needed clarify ownership of pore space (presumably with the surface owner unless severed, as the Board has presumed), craft a framework for long-term stewardship and liability, and potentially address tax-related questions.
Brownstein has a team of attorneys focused on carbon management in the Rocky Mountain West. If you or your company is interested in learning more about successfully developing and monetizing a carbon capture and sequestration project, please contact Courtney Shephard or Eric Waeckerlin.
This document is intended to provide you with general information regarding efforts in Colorado to regulate carbon sequestration. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.