Colorado Adopts Final Revisions to Regulation Number 7 to Reduce Greenhouse Gas Emissions from Midstream Segment Fuel Combustion

In response to a directive to reduce greenhouse gas (GHG) emissions from the midstream segment oil and gas operations, Colorado’s Air Quality Control Commission (Commission) adopted final revisions to its Air Regulation Number 7. These revisions focus on regulating emissions from midstream fuel combustion equipment (MFCE) used in the oil and gas midstream sector, a critical component of the state’s industrial activities.

The oil and gas midstream segment in Colorado is defined in Regulation No. 7 as the oil and natural gas compression segment and the natural gas processing segment upstream of the natural gas transmission and storage segment. As of February 14, 2025, each midstream company is required to participate in this midstream segment emissions reduction program to reduce greenhouse gas emissions from MFCE in Colorado.

Key Revisions to Regulation Number 7

The revisions to Colorado’s Air Regulation Number 7, adopted on December 20, 2024, introduce a series of new measures aimed at reducing greenhouse gas emissions from MFCE. These changes follow several years of work by the Midstream Steering Committee, which was established to identify and propose standards that would contribute to achieving the required 20% reduction in carbon dioxide equivalent (CO₂-e) emissions over the 2015 baseline. Here are some of the key provisions in the revised regulation:

1) Establishment of both Midstream Segment and Company-Specific Caps: The commission adopted a segment cap of 3,930,220 metric tons of CO₂-e, which will be achieved through compliance with company-specific emissions caps by December 31, 2030. The company-specific emissions caps are allocated based on 2021 emissions and consider the following additional criteria:

• Proportion of emissions that occur in disproportionately impacted community locations.
• Recognition of electrification projects completed between January 1, 2016 and summer 2022.
• Size of midstream operator.

Because company-specific emissions caps were established, companies have the flexibility to implement reductions at the facilities they choose. However, they are expected to prioritize reductions at sites that are located in disproportionately impacted communities, where possible.

2) New Annual Reporting: Under the revised Air Regulation Number 7, oil and gas midstream operators will need to prepare and submit an annual report by June 30 of each year starting on June 30, 2025. Required information in the report is included, but not limited to the following:

• Company information, identification of each midstream segment facility, and whether the facility is located in a disproportionately impacted community or is part of the front range prioritization area (FRPA).
• Total annual GHG emissions in metric tons of CO₂-e from all MFCE owned or operated by the midstream company.
• Information on project plans to achieve the company-specific cap, including completed projects.
• Documentation of credits generated and retired in the GHG crediting and tracking trading system.

3) Emissions Reduction Credits for Early Action: Operators who exceed the prescribed emissions reduction targets or adopt advanced clean technologies before they are required to do so may earn emissions reduction credits. These credits can either be retired by the company or sold to other companies, providing a financial incentive for early and voluntary actions to reduce emissions. The ability to generate credits begins in 2028 for emissions reporting year 2027. In order for a midstream company to generate credits for a particular vintage year pursuant to Section VII., the midstream company must submit the annual report required in Section V.A.1. by March 31 of the reporting year in which they want to participate in the GHG credit market.

Who is Impacted and When?

The new revisions to Air Regulation Number 7 will have a substantial impact on the midstream oil and gas industry in Colorado. It applies to all midstream companies operating MFCE in the midstream segment. The requirement to participate in the midstream segment emissions reduction program began on February 14, 2025, and initial annual reports are due on June 30, 2025. The ability to generate emissions credits begins in 2028 and final compliance with the company-specific cap is required by December 31, 2030.

Colorado’s Climate Goals

The revisions to Air Regulation Number 7 are a result of Colorado’s broader climate strategy. The state has set goals to reduce its greenhouse gas emissions, with a target of cutting emissions by 50% by 2030 compared to 2005 levels. The three-year planning process aimed at reducing emissions of GHG from MFCE began as a directive that was added to Regulation No. 22 in December 2021 and subsequently moved to Regulation No. 7 in April 2023.

The new requirements are part of a larger effort that includes transitioning to renewable energy sources, improving energy efficiency, and promoting sustainable practices across industries. The revisions to Air Regulation Number 7 signal a continued trend toward more aggressive environmental policies in Colorado. As the state moves toward its 2030 climate targets, more regulations may be introduced to further reduce emissions across all sectors. Oil and gas companies in the midstream sector will need to adapt to a rapidly changing regulatory landscape.

ALL4 has extensive experience with GHG emissions inventories and helping companies plan for and execute GHG emissions reductions. If you or your facility is unsure of where to start with GHG reporting due in June, contact Noel Attwood at 281-201-1240 or nattwood@all4inc.com.