Policy win: Colorado’s innovative Clean Heat Standard will force gas utilities to clean up their act

The new law provides a model for other states seeking to slash natural gas emissions.

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Mike Henchen is a principal on RMI’s Carbon-Free Buildings team, and Erin Overturf is director of the Clean Energy Program at Western Resource Advocates. This contributed content represents the views of the authors, not those of Canary Media.

States with ambitious climate targets are now grappling with how to reduce greenhouse gas emissions from all sectors of the economy — including the natural gas sector. Natural gas utilities will need to take meaningful action to cut the carbon emissions that result from burning the fuel supplied by their sprawling distribution networks, as well as to plug the methane leaks from those networks. But key questions remain: What level of reductions? By when? And how?

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Policymakers are often unsure where to start. The natural gas system is large and diffuse, with millions of pipes serving millions of homes and businesses with multiple gas appliances.

The path forward is getting clearer, however. A suite of bills recently passed by the Colorado state legislature provides a viable model for other states to follow.

One of those measures, Senate Bill 21-264, includes a new Clean Heat Standard, an innovative policy establishing greenhouse gas reduction targets for gas distribution utilities. Under the new law, those utilities are required to develop cost-effective plans that will achieve meaningful reductions in the emissions that result from delivering fuel to homes and businesses. These plans will then be evaluated by the Colorado Public Utilities Commission.

The bill requires gas distribution utilities to cut emissions by 4% by 2025 and by 22% by 2030, with more ambitious cuts to come in later years. The bill identifies several of what it terms clean heat resources” that can be used to achieve the targets, such as electrification, efficiency and green hydrogen. Recovered methane is another option; it includes alternative nonfossil sources of methane, such as biogas from agricultural facilities and coal mine methane. This category also comprises conventional fossil gas that otherwise would have escaped into the atmosphere through pipeline leaks.

Colorado’s new legislation is noteworthy because it requires utilities and regulators to start planning for a future with dramatically lower emissions, and they will do so in a public forum with a focus on pursuing the most cost-effective solutions. The bill explicitly makes room for additional regulatory action.

One option could be requiring non-pipes alternatives” to traditional gas infrastructure investments, such as improving building efficiency or switching gas equipment to electric-powered alternatives, to avoid building new gas delivery pipelines.What’s more, gas utilities will have to demonstrate that they are in fact making progress toward reducing those emissions over time.

The challenge of figuring out how to reduce emissions from the natural gas sector is not at all unique to Colorado. Across the country, climate action has largely been focused on the power sector, while tougher-to-decarbonize sectors like buildings were ignored. Gas utilities have continued to operate with a business as usual” mindset, with no real requirement to engage in long-term planning and little if any oversight over claimed emission reductions. And along the way, the gas distribution system continues to grow with more miles of pipe and new gas hookups added every minute.

Tackling this wide-ranging problem requires a multipronged policy and regulatory approach. One critical tool is establishing emissions standards for gas utilities that match the scale and pace of what’s necessary to reduce overall economywide emissions by at least 50% by 2030 and limit warming to 1.5 degrees Celsius. In Colorado, other complementary policy efforts will spur additional decarbonization in the buildings sector, including a companion building electrification bill that also passed during this recent legislative session.

Colorado’s Clean Heat Standard policy also creates a new market for recovered methane, potentially reducing upstream methane emissions that otherwise would have been released into the atmosphere. Even so, recovered methane still releases carbon dioxide emissions and other pollution when it is burned in a home or business. That’s why a key provision in the new bill puts a limit on the extent to which a utility can rely on recovered methane to meet its targets. Recovered methane can account for only 1% of the 2025 reductions and 5% of the 2030 reductions. This limitation ensures that recovered methane won’t crowd out other strategies that actually directly reduce combustion-related emissions.

Formidable policy and regulatory challenges remain before Colorado will be on track to meet its overall greenhouse gas emissions reduction goals. But the state’s legislators took an important step forward this session. The new Clean Heat Standard and other laws focused on decarbonization show policymakers across the country what’s possible — offering a blueprint for others to adopt and refine.

Creative, science-based policy solutions are more critical than ever. With Americans feeling the impacts of climate change every day, we face an immense urgency to act. Now is the time to start addressing the most challenging sectors.

(Lead photo: Sigmund/Unsplash)

Mike Henchen is a principal on RMI’s Carbon-Free Buildings team.

Erin Overturf is director of the Clean Energy Program at Western Resource Advocates.