The 2019 legislative session was about passing laws that could indirectly throttle oil and gas production in Colorado.
In 2020, however, that authority cedes to the Colorado Oil and Gas Conservation Commission, at least in the near term, a variety of sources say.
“What we heard in the last session was ‘mandate, mandate, mandate,’” said Barbara Kirkmeyer, a Weld County commissioner, fierce defender of one of her county’s chief industries and a candidate for the state Senate next year.
“Now we’re going to talk about rules, rules, rules.”
Industry opponents also aren’t looking to the Legislature as much next year as they did last session, when Democrats took office with ambitious promises and majorities in the state Senate and House for the first time since 2014.
Major laws from the past session that are still getting sorted out:
• Senate Bill 181, which will grant new authority to local government and revamp the state commission to put health and public safety on par with the needs of the industry when it comes to permitting.
• House Bill 1261, dubbed the Colorado Climate Action Plan, to reduce carbon emissions by at least 26% by 2025, at least 50% by 2030, and 90% by 2050, based on 2005 levels.
• Senate Bill 96 to authorize the state to collect long-term data on climate change.
• Senate Bill 236, which instructed the Colorado Public Utilities Commission to factor in the social costs of carbon and its cumulative effects, as the PUC sets rates, which is seen as a leg up for renewables.
• Five laws aimed at boosting the availability and use of electric vehicles in Colorado.
What do the Democrats have in store for a second act in 2020?
“It’s going to be an awful lot of defense work,” said Joe Salazar, the executive director of Colorado Rising, one of the chief environmental advocacy organization fighting the oil and gas industry over clean-air and public safety issues the past two years.
“I imagine the oil and gas industry is going to try to gut Senate Bill 181, and organizations are just going to have to be there at the Capitol to defend it.”
Salazar was a bulldog on environmental issues as a state representative from Thornton, until he opted last year to run for attorney general, losing narrowly in the Democratic primary.
The oil and gas industry, meanwhile, is more concerned with new rules that spin out of last session’s laws, rather than new legislation in 2020.
Dan Haley, president and CEO of the Colorado Oil and Gas Association, knows one thing about the still-evolving repercussions of last session’s biggest piece of legislation, Senate Bill 181.
“It was not intended to stimulate the oil and gas industry in Colorado,” he said at a summit in Loveland last month, as leaders hashed out northern Colorado issues. “It will take multiple years to implement this wide, sweeping rule-building.”
Plans sure won’t be as ambitious next session as they were 2019, Haley commented.
A legislative committee of six Democrats and four Republicans recommended just three bills out of its meetings during the off-session.
The most significant requires petroleum diesel sold in Colorado between June 1 and Dec. 15 each year to be blended with biodiesel, a renewable source manufactured from vegetable oil, animal fat or recycled restaurant grease.
The measure proposes a 5% blend by June 1, 2021, and up to 10% by June 1, 2023.
The Polis plan
Gov. Jared Polis has said he’s willing to work with all sides of the energy issue to move toward the goals he’s promised, including renewable resources, cleaner air and a sustainable marketplace for jobs in the new energy economy, rather than continuing Colorado’s busts and booms on fossil fuels.
“I look forward to working with the industry, but at the same time, Colorado won’t be bullied by anybody,” he said while campaigning to move the state to all-renewable power in 2017.
Polis said in an interview this summer he couldn’t foresee more laws and regulations this year, but the inertia of change is inevitable.
Senate Bill 181 reflected amendments the industry asked for. It remains to be seen how local governments will use their new power over where wells locate and how they operate.
By midyear the Colorado Oil and Gas Conservation Commission, the lead agency on implementation of Senate Bill 181, is expected to put into place rules on a host of oil and gas reforms, including significant changes to its mission and new rules on flowlines and alternative location analyses.
By July 1, the commission also will be made up of five full-time commissioners, rather than volunteer political appointees who did the duty part time. That requires something of a new mindset, Julie Murphy, the COGCC’s chief of staff and policy director, told an interim energy committee in November.
A November white paper on the issue produced by the commission also delved into the issue of just who will approve oil and gas applications going forward. The white paper said that “consideration should be given to whether the Professional Commission makes the final determination” on those applications. That would be a major change from the current practice; oil and gas applications are approved by the COGCC executive director, not the commission.
Paying the price
Lofty goals, however, are rooted in a reality that oil and gas accounts for $1 billion in state and local taxes, combine with what the industry’s 89,000 Colorado employees contribute, according to a University of Colorado study released in March.
Simon Lomax, the energy resources fellow at the Common Sense Policy Roundtable who formerly worked for oil and gas industry interests, spoke about a study he co-wrote on the economics of regulation at a breakfast with civic and business leaders in Greenwood Village this month.
He noted the property tax assessment rate for oil and gas is 12 times that of residential property, and three times more than other commercial property.
The study looked at five Front Range cities and determined Broomfield, Commerce City, Aurora, Erie and Johnstown could lose $1.39 billion to $1.85 billion over the next 10 years if permitting ceased.
For perspective, the town of Erie’s operating budget for the year is $48.4 million. Erie could see a property tax loss of up to $202 million over the next decade, according to the Common Sense Policy Roundtable’s outlook.
“This revenue supports a wide range of local services provided by cities and towns, counties and special districts,” Lomax said. “We’re talking about public education, road construction, police, and fire departments, water and sanitation, infrastructure, parks, and recreation, among others.”
Polis is quick to point out that it’s a commodity-driven industry that relies on the market more than local conditions. The long-term trend is toward renewable resources, and Colorado’s curve will bend that way on momentum from the market, a greater effect than tweaks in health and safety regulations.
Energy prices are a big driver of investment decisions, for sure, but an energy company that doesn’t have approved permits in hand cannot start drilling wells.
The two are inextricable.
Energy prices might drive the demand for drilling permits, but regulators determine the supply of drilling permits.
Haley, the trade group boss, said it’s too soon to render a verdict on the new regulations’ full impact to the industry or cleaner air.
“All businesses crave certainty,” he said. “We’re in a very uncertain period right now, because of this bill, so we’re seeing some short-term impacts. We’re seeing some job losses in our industry, because of low commodity prices and the uncertainty this has brought on.”
Ambiguity is unwelcome news in Weld County.
Kirkmeyer said that in 2018, Weld County had 5,100 oil and gas permits. This year, there have been about 1,500. About 4,500 Weld County permits are pending, she said.
Colorado Politics has reported that oil and gas companies stocked up on permits last year before Coloradans voted down Proposition 112, which would have imposed statewide setback rules.
Kirkmeyer said that of the $890 million in property taxes collected in Weld County last year, $480 million came from oil and gas.
“Citizens are going to have to pay more in taxes rather than the industry paying those taxes,” she predicted.
Clearing the air
The thing is, no matter what Colorado does, it can’t do enough to solve all its air pollution and climate control issues at the state Capitol.
“We get our air quality degradation not only from ourselves but from other locations,” said Mike Silverstein, executive director of the Regional Air Quality Council.
“We get air masses coming into Colorado from all directions, depending on the season, So this isn’t just a homegrown issue. It’s a regional issue and international issue, as well.”
Over the past two decades, the Front Range has reached air-quality attainment on everything but summertime ozone, he said. The federal government then made the ozone attainment tougher in 2015.
“Our ozone levels are better than they’ve ever been,” Silverstein said. “We’re coming down. We’re improving. The standards are getting tougher, though.”
Oil and gas operations contribute greenhouse gas emissions, but so do other industries, auto emissions and consumer products, he said.
“It’s an urbanization issue,” Silverstein said. “It’s an industrialization issue. When you don’t have urban areas with a lot of activity, you don’t violate the ozone standards.”
He said regulators will work with the new legislation to continue to make incremental improvements.
“We have to figure out how to meet the goals of the state over time,” he said. “We need to reduce emissions. We’re making good progress, but we’re pretty close to where we need to be with changes in the economy — natural gas, other fuels in our power sector and cleaner vehicles that go further on a gallon of gas and new electric vehicles coming into the market.
“But we have to do much more to get to the international goals and the Colorado goals we have in front of us.”
Haley said politicians and the public have to be realistic.
“It comes from California, it comes from China,” he said, “We have to acknowledge that, as we continue to get cleaner, because the rules require that, and it’s the right thing to do. We need to acknowledge the realities we face.”
Silverstein said the governor might be more willing to consider transport issues later on.
“The governor has not closed the door to considering the international component or the transport component into Colorado,” he said. “Every community in the country is faced with that, and the EPA is researching the best way to deal with international emissions and transport emissions.
“The state isn’t closed minded or ignoring fact or science. It’s just a process. And this process will continue over the next five years.”
Haley pointed to improving air quality numbers and three rounds of regulatory rulemaking on air quality in five years, including when Colorado became the first state in the country to monitor for methane emissions in 2014.
He said volatile organic compounds, a component of smog, fell by half while oil and gas production quadrupled.
“We value clean air as much as anybody else in Colorado,” he said.
“We live here. We’re raising our families here. We have every reason to get it right and to breathe the same air you breathe and drink the same water that you drink.”