Comments on Greenhouse Gas Emissions and Energy Management for Manufacturing Phase 2 Rulemaking Dallas Burtraw Public Comment July 2023 July 21, 2023 Colorado Department of Public Health and Environment 4300 South Cherry Creek Drive South Denver, CO 80246 To whom it may concern: On behalf of Resources for the Future (RFF), I am pleased to share the accompanying comments on Colorado’s proposed Regulation Number 27 – Greenhouse Gas and Energy Management for Manufacturing addressing the requirements of House Bill 21-1266, which directs the Air Quality Control Commission (Commission) to adopt rules that reduce greenhouse gas emissions from the industrial and manufacturing sector at least 20 percent below 2015 levels by 2030. RFF is an independent, nonprofit research institution in Washington, DC. Its mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. RFF is committed to being the most widely trusted source of research insights and policy solutions leading to a healthy environment and a thriving economy. While RFF researchers are encouraged to offer their expertise to inform policy decisions, the views expressed here are those of the individual authors and may differ from those of other RFF experts, its officers, or its directors. RFF does not take positions on specific policy proposals. My comments draw on experience in other jurisdictions and scholarly research in order to inform the decisions that state regulators face in designing the emissions regulations for the Colorado industrial sector. The proposed regulation would introduce a hybrid system with intensity-based regulation of energy-intensive, trade-exposed manufacturing entities and a mass-based regulation of other large manufacturing sources, enabling greenhouse gas (GHG) credit trading within and between these two systems. The proposed design has many promising elements, but it also has drawbacks compared to an emissions cap-and-trade program, which would more effectively and simply achieve the sector specific emission target and align the sector with the state’s economy-wide emissions reduction targets established in HB 19-1261 and SB 23-016. My comments address the following six topics. 1. The advantages of an annual declining emissions cap with banking that covers all emissions from manufacturing sources. 2. The disadvantages of baseline-and-credit systems compared to cap-and-allowance systems. 3. The advantages of a consignment auction for the issuance of GHG credits (allowances) used for compliance with regulations. 4. The disadvantages of trading between intensity-based credits generated by EITE facilities and massbased credits generated by non-EITE facilities. 5. Challenges associated with providing off-site emissions “offsets” (GHG credits) at unregulated sources without careful protocols in place. 1616 P ST. NW, SUITE 600, WASHINGTON, DC 20036 • 202.328.5000 • WWW.RFF.ORG 6. The advantages of facility-specific emissions limits on facilities in disproportionately impacted communities. All comments are my own and are submitted in my capacity as an independent author. If you have any questions or would like additional information, please contact Dallas Burtraw at burtraw@rff.org. Sincerely, Dallas Burtraw Resources for the Future 2 Comments on Greenhouse Gas Emissions and Energy Management for Manufacturing Phase 2 Rulemaking 1. The advantages of an annual declining emissions cap with banking that covers all emissions from manufacturing sources. An annual declining emissions cap provides the most direct way to achieve the goals of HB 21-1266, HB 191261, and SB 23-016. The regulation of industrial sources under consideration as part of Greenhouse Gas Emissions and Energy Management for Manufacturing (GEMM) can play an important role in achieving Colorado’s statewide greenhouse gas reduction targets. However, the anticipated challenges in achieving a cost-effective implementation of emissions reductions in the manufacturing sector under GEMM, and particularly the uncertain outcome from this regulation, will undermine the ability to achieve the overall emissions reduction targets. The emissions reductions can be secured with an annual declining emissions cap. Regulations can complement an emissions cap by driving innovation, investment, and technological change supporting an industrial transformation in Colorado. An emissions cap directly enforces the desired emis