Building on 2023 legislation granting the Colorado Energy and Carbon Management Commission (ECMC) authority over wells used to inject and permanently sequester carbon dioxide (CO₂), the Colorado General Assembly is considering further expansion of the agency’s authority over carbon management activities under HB24-1346. The bill was introduced at the end of February and has its first hearing before the Energy and Environment Committee on March 27, 2023. This alert summarizes the five key elements of the bill.

• Grants ECMC Authority Over DAC: HB24-1346 seeks to grant the ECMC authority to permit and regulate direct air capture (DAC) facilities used to capture carbon dioxide from the air. Like current Colorado law regarding Class VI wells, the bill requires the ECMC to evaluate and address the cumulative impacts from a proposed DAC facility. If a DAC facility is proposed to be sited in an area that “would affect a disproportionately impacted community” or “DIC,” and would have “net negative cumulative impacts” on the DIC, the ECMC must deny the application. DIC is a statutory designation that encompasses approximately 48% of the state’s surface. Unlike the Class VI statutory provisions, the bill does not propose a default setback for DAC facilities from residences, schools or commercial buildings. Instead, the bill directs the ECMC to consider whether a setback is necessary through rulemaking.
• Revises ECMC Authority Over Class VI Wells:Last year’s SB 23-106 granted the ECMC the authority to permit and oversee Class VI well operations if the Environmental Protection Agency grants Colorado primacy. HB24-1346 proposes to expand the scope of ECMC authority from Class VI wells to “geologic storage operations” and “geologic storage locations.” The bill defines “geologic storage operations” to include drilling test bores and monitoring wells; siting; installing and operating CO₂ flow lines; drilling, deepening, recompleting, reworking and abandoning Class VI wells; injecting CO₂ for geologic storage, and any construction, site preparation or reclamation activities associated with geologic storage. It further defines a “geologic storage location” as a “definable area where a geologic storage operator uses or intends to use the surface of the land in order to operate a geologic storage facility.” If signed into law, the change would give the ECMC authority over more carbon sequestration-related activities as well as the property upon which those activities occur
• Defines Pore Space and Clarifies Ownership: The bill proposes to define “pore space” as a “cavity or void, whether natural or artificially created, in a subsurface stratum.” It also defines “sequestration estate” to mean “a portion of a geologic storage resource.” Like most western states, the bill proposes that pore space or the sequestration estate is, by default, part of the overlying surface estate and therefore owned by the surface owner. The bill clarifies that the sequestration estate may be expressly severed and separately conveyed from the surface estate.
• Creates a Unitization Framework for Geologic Storage: HB24-1346 proposes a unitization framework for geologic storage similar to the oil and gas unitization requirements in C.R.S. § 34-60-118. If passed, the legislation would permit unitization if the owners of at least 75% of the geologic storage resources within the geologic storage unit area agree to the unitization plan.
• Provides Technical Assistance to Local Governments: The bill proposes to provide local governments with technical assistance to develop local land use and siting regulations for DAC facilities and geologic storage operations. The ECMC director would appoint a technical review board to answer local governments’ technical questions.

The ECMC plans to conduct its first carbon management-related rulemaking in late 2024. The rulemaking will adopt rules for permitting and operating Class VI wells—a prerequisite for Colorado to apply for Class VI primacy from the EPA. EPA will not approve any primacy application based on Class VI rules or regulations that are less rigorous than the federal regulations. Colorado’s proposed rules likely will be significantly more stringent in several respects. For example, current Colorado law generally prohibits the ECMC from approving any Class VI well located within 2,000 feet of a residence, school or commercial building. The ECMC may adjust this setback through a subsequent rulemaking, but the ECMC may not consider revising its rules until at least four years after four Class VI wells have been drilled in Colorado. The ECMC also must evaluate how the proposed CCS operations will affect any DIC. If a proposed Class VI injection well will have “negative net cumulative impacts” (a term not defined by statute) on any DIC, the ECMC must deny the application.