In 2023, the Colorado General Assembly enacted legislation granting the Colorado Energy and Carbon Management Commission (ECMC) authority over wells injecting and permanently sequestering carbon dioxide (CO2). Building on this, the Colorado General Assembly is considering HB24-1346, introduced in late February 2024. The bill proposes further expansion of ECMC’s authority over carbon management activities, with its first hearing scheduled before the Energy and Environment Committee on March 27, 2023. This alert provides a comprehensive overview of the bill’s five key elements and their implications for Colorado’s carbon management efforts.

Key Elements of HB24-1346

1. Authority Over Direct Air Capture (DAC) Facilities

HB24-1346 seeks to extend the ECMC’s regulatory authority to include direct air capture (DAC) facilities designed to capture CO2 directly from the atmosphere. The bill mandates that the ECMC evaluate and address proposed DAC facilities’ cumulative impacts. Suppose a DAC facility is proposed in an area that would affect a disproportionately impacted community (DIC) and is projected to have net negative cumulative impacts. In that case, the ECMC must deny the application. The bill does not establish a default setback distance for DAC facilities from residences, schools, or commercial buildings. Instead, it directs the ECMC to determine appropriate setbacks through a rulemaking process.

2. Expanded Authority Over Class VI Wells

Last year’s SB 23-106 granted the ECMC authority to permit and oversee Class VI well operations, contingent upon the Environmental Protection Agency (EPA) granting Colorado primacy. HB24-1346 proposes to expand this authority to include “geologic storage operations” and “geologic storage locations.” These terms encompass activities related to carbon sequestration, such as drilling test bores, monitoring wells, installing and operating CO2 flow lines, and conducting associated construction, site preparation, or reclamation activities.

3. Definition and Ownership of Pore Space

The Colorado bill introduces definitions for “pore space” and “sequestration estate.” “Pore space” is a cavity or void in a subsurface stratum, whether natural or artificially created. The “sequestration estate” refers to a portion of a geologic storage resource. The bill proposes that pore space, or the sequestration estate, is part of the overlying surface estate by default, making it owned by the surface owner. However, it clarifies that the sequestration estate can be expressly severed and separately conveyed from the surface estate.

4. Unitization Framework for Geologic Storage

HB24-1346 proposes establishing a unitization framework for geologic storage, similar to the existing oil and gas unitization requirements in CRS § 34-60-118. Unitization allows the consolidation of multiple ownership interests within a geologic storage unit area to facilitate coordinated development and operation. Unitization will be permitted if the owners of at least 75% of the geologic storage resources within the unit area agree to the unitization plan.

5. Technical Assistance to Local Governments

The Colorado bill proposes providing local governments with technical assistance to develop regional land use and siting regulations for DAC facilities and geologic storage operations. The ECMC director would appoint a technical review board to address local governments’ technical questions. This provision empowers local governments to regulate and manage carbon sequestration activities within their jurisdictions.

Future Rulemaking and Implementation

The ECMC plans to conduct its first carbon management-related rulemaking in late 2024. This rulemaking will establish rules for permitting and operating Class VI wells, a prerequisite for Colorado to apply for Class VI primacy from the EPA. The ECMC may adjust this setback through future rulemaking but cannot revise its rules until at least four Class VI wells are drilled in Colorado. The ECMC must also evaluate the impact of proposed carbon capture and storage (CCS) operations on any DIC and deny applications if they have negative net cumulative impacts.

Key Takeaways

  1. Expansion of Authority: HB24-1346 aims to significantly expand the ECMC’s authority over carbon management activities, including direct air capture facilities and a broader range of geologic storage operations.
  2. Clarification of Property Rights: By defining “pore space” and “sequestration estate,” the bill clarifies property rights essential for developing carbon sequestration projects.
  3. Support for Local Governments: Providing technical assistance to local governments will help ensure that local regulations are robust and that carbon sequestration projects are developed responsibly.