Can a Single Colorado Agency Oversee Both Fossil Fuel and Clean Energy Production?

Colorado is racing to set up new rules to regulate climate-friendly energy industries, including carbon capture and geothermal projects, and hopes to be among the first states in the nation to achieve this.

But it is doing so using the same agency that also regulates fossil fuel production. Oil and gas interests and climate activists both worry that the agency now charged with dual oversight won’t be able to do both effectively.

Colorado lawmakers and Democratic Gov. Jared Polis want the newly renamed Colorado Energy & Carbon Management Commission to move quickly to embrace clean energy industries. Yet scientists, municipalities and residents urge caution. 

The tension over how to regulate energy-producing industries of all kinds has sparked a rare agreement between climate activists and the oil and gas industry: They don’t want the state to take its eye off fossil fuel production and oversight.

“We were supportive of the proposed change during the legislative session and remain so with a caveat, and it’s a significant caveat, that the commission not get distracted from its priority of processing oil and natural gas permits,” said Dan Haley, president and chief executive officer of the Colorado Oil & Gas Association, in a statement. 

Municipalities have their own concerns.

“The enthusiasm to scale all this stuff up as quickly as possible is getting ahead of how we do it carefully and smart and protect people,” said Jacob Smith, executive director of Colorado Communities for Climate Action, a nonprofit that represents 42 local governments who serve more than 1.5 million Coloradans, in an interview.

Understanding Risks

“By and large we don’t know how these industries work at scale. We don’t yet understand all the risks,” Smith added. “We’ve got to have the right sideboards so we don’t replace one large-scale industry with impacts with another.”

Still, the chair of the newly expanded energy agency said the time to move is now.

“Colorado is blazing new ground — in terms of one agency regulating these different areas,” said Jeff Robbins, chair of the Energy & Carbon Management Commission, in an interview. “We don’t have another state to look to in terms of how we do this.”

The state Legislature passed a number of new laws in the spring that mandate how the commission should move forward and underscore how the department will be forced to juggle the requirements of multiple industries. One measure requires the agency to speed its regulation of the cumulative effects of oil and gas operations. 

New laws, SB23-285 and SB23-016, require the commission to draft rules to regulate underground natural gas storage, carbon capture and geothermal operations, which generate electricity from the Earth’s internal heat. Geothermal energy is gaining momentum in the West in part because of Polis, who championed and promoted the industry when he was chair of the Western Governors’ Association in 2022.

The Polis administration and legislators also cited hydrogen and carbon capture as alternatives that will help reduce greenhouse gases caused by burning oil, gas and coal. Laws enacted by the General Assembly in the spring require Colorado’s energy regulator to develop a “carbon management roadmap” to speed decarbonization of the state’s transportation and electricity systems. 

Climate Essentials

Scientists argue that rapidly scaling up geothermal, hydrogen, wind, solar and other clean tech industries to replace fossil fuels is essential to keep the planet from warming more than 1.5 degrees Celsius — a target set by international agreements to prevent the catastrophic effects of climate change — above preindustrial levels. 

Undiscovered hydrothermal resources — mostly in the West — contain the potential to power more than 40 million homes by 2050, according to the U.S. Department of Energy. Geological formations deep underground also make Colorado a good candidate for carbon capture, in which companies drill wells and inject carbon dioxide into them for permanent storage, according to a January study by the state Department of Natural Resources’ Oil & Gas Conservation Commission, the forerunner of the new Energy & Carbon Management Commission. 

Regulators hope to speed the development of geothermal resources to help Colorado meet ambitious first-in-the-nation emission reduction targets set every five years. They include, at a minimum, a 26% reduction in statewide greenhouse gas emissions by 2025 and a 50% decrease by 2030. 

To help reach these goals, Polis signed a bipartisan bill in May that changed the name of the Oil & Gas Conservation Commission, which regulated the state’s oil and gas industry for decades, to the Energy & Carbon Management Commission on July 1. 

The new moniker describes the department’s significantly expanded role. Now, in addition to regulating the state’s robust fossil fuel industry, the agency is also charged with drafting and enforcing rules for new climate-friendly industries. It plans to begin writing regulations for geothermal this year and for carbon capture and storage in 2024.

Building a Path

In introducing the law, legislators said giving regulators more authority was necessary to ensure Colorado remains competitive with other states courting clean tech companies.

“If we don’t build this path, Colorado will fall behind,” testified Democratic state Sen.  Kevin Priola, who represents Adams and Weld counties, a sponsor of the name change law, at an April 19 committee hearing. “We need to provide regulatory certainty to allow companies interested in pilot projects around these issues to choose Colorado instead of Wyoming, Texas, or North Dakota.”  Colorado is the nation’s fourth-largest crude oil-producing state and the fourth-biggest natural gas-producing state. Since hydraulic fracturing, or fracking, unlocked energy reserves miles below the surface in the last decade, drilling has moved closer to metropolitan areas along the eastern edge of the Rocky Mountains. Increased industrial activity near neighborhoods has heightened tensions between residents and producers. 

Today, the industry wants to ramp up crude oil production — which remains below a 2019 high of more than 17 million barrels per month. But residents and municipalities  say the commission hasn’t met its mandate under a groundbreaking 2019 law to prioritize public health and safety over drilling. 

Commission Director Julie Murphy said the agency plans to take a deliberate approach to regulating alternative energy industries, including studying their potential and conducting public hearings prior to drafting rules. 

“This is the first step in a lot of further conversations that are critical to getting this right,” Murphy testified before the Senate in April. Studies required under the name change law include a technical look at the state’s geothermal resources, researching the regulation and permitting of hydrogen and detailing the siting and regulation of intrastate pipelines.

Public Health Reforms Lagging?

Meanwhile, residents and municipalities are concerned that as the commission takes on its new responsibilities, it’s moving too slowly to implement a series of regulatory reforms to reduce fossil fuel pollution.

 Four-and-a-half years after what’s known as SB181 was enacted, the agency struggles to implement several of its key provisions, said Ramesh Bhatt, conservation chair at the Colorado Sierra Club. These include defining and regulating the cumulative effects of oil and gas activities and fine tuning rules that require producers to post bonds to clean up wells once they’re done producing,  he added, in an interview. 

Polis in June signed into law a measure that requires the commission to adopt rules to address the cumulative effects of fossil fuel operations. Conservationists argue the implementation of this law should take precedence over fostering renewable energy industries. The commission plans to start working on new rules this month. 

“The last few years they have not done as well as they could have to protect people and the environment,” Bhatt said. “The focus should be on protection, not permitting.” 

The ECMC denied two development plans, representing multiple permits, and approved thousands of other permits since its mission changed in 2019 from fostering oil and gas production to protecting public health.

“Does that sound like a culture change? Nothing has changed,” said Jan Rose, a legislative analyst for the Colorado Coalition for a Livable Climate, a group of 44 environmental, community and faith-based organizations, in an interview.

Regulatory Review Intensifies

Robbins, the commission chair, disputed the characterization. Before what’s known as the “mission change” required by SB181, an oil and gas permit application was just 30 pages, he said. Today, it runs up to 500 pages, he added. 

“The level of review is demonstrably more vigorous,” Robbins said. “Prior to 181, the number of permits applied for and the number approved was drastically more than following its implementation.” 

Even so, the commission approved massive development requests from operators, allowing for pads containing multiple wells. To mitigate the effects of such activities, municipalities implemented new rules regulating surface effects of fossil fuel drilling within their borders. Now, local governments want to ensure they’re able to regulate renewable energy industries in the same manner. 

Smith, of Colorado Communities for Climate Action, said he is also concerned that, as with the fossil fuel industry, the effects of industrial processes required to tap renewable energy sources will disproportionately affect low-income communities and neighborhoods of color. 

Robbins said local governments will be included in discussions of how to regulate clean tech companies and will “be granted dual permitting authority” as they were under SB181 with fossil fuel activities.

Protecting Groundwater

Robbins added the Legislature authorized 29 additional positions for the renamed agency to ensure that it adheres to its mission to regulate oil and gas in a manner that protects communities. It also received seven new employees to write rules for clean tech fields. 

Even though new regulations remain to be written for geothermal companies, the commission has already “received a lot of interest” in such activities, Robbins said, prompting it to enact an order that allows applications for test wells that meet certain criteria to be processed more quickly. 

To meet responsibilities under its new name, the agency also must put in place regulations for carbon capture and storage that ensure the protection of groundwater. After it does so, it can apply to the U.S. Environmental Protection Agency for the authority to regulate carbon capture and storage wells. To receive such authority, the state’s guidelines must be at least as stringent as federal law. 

Only Wyoming and North Dakota have qualified to directly regulate carbon capture, known as “primacy.” Texas has applied with the EPA, and West Virginia and Arizona are in the pre-application phase, according to data collected by the Sabin Center for Climate Change Law at Columbia Law School.

Copyright 2023 Capital & Main.

This story was corrected to accurately report the number of permits denied by the Energy & Carbon Management Commission since 2019.