HomeCarbon CreditsCarbon Offsets Ignite Dispute Over Xcel's Colorado Emissions Reduction Plan

Carbon Offsets Ignite Dispute Over Xcel’s Colorado Emissions Reduction Plan

Natural gas becomes a kitchen-table issue in the U.S., literally. In Colorado, the city of Boulder, together with environmental groups oppose the state’s largest utility, Xcel Energy’s plan to cut greenhouse gas emissions associated with its natural gas distribution. 

The Colorado dispute centers around whether utilities can use certified gas and carbon offsets to meet state-mandated climate targets.  

Certified gas, also called responsibly sourced or differentiated gas, has been tested and verified at the wellhead to meet specific emission intensity requirements and other standards. Carbon offsets refer to emissions reductions achieved by investments in projects that remove or sequester GHG emissions such as reforestation. 

The “Clean Heat Plan” Fight

Natural gas is the largest source of electric power generation in the U.S. Its substitution for coal has helped lower the sector emissions to mid-1980 levels. But since 2005, emissions from natural gas combustion have increased about 43% in all sectors. 

natural gas resources schematic geology
Source: Energy Information Agency

Just two months after an Xcel Energy subsidiary, Public Service Co. of Colorado, submitted a clean heat plan, a dispute has arisen over the use of certified gas and carbon offsets to achieve emissions reduction. 

Colorado’s largest utility submitted a proposal in August to slash the carbon footprint of its natural gas system. They’re currently delivering methane-based fuel to 1.5 million customers across the state. 

  • The plan sets out strategies to meet the first-in-the-nation law mandating gas utilities to reduce planet-warming emissions 22% below 2015 levels by 2030.  

A coalition of climate and renewable energy organizations filed a motion in September to block the plan. They question the inclusion of those two elements in clean heat portfolios, leading to a regulatory showdown.

Xcel Energy’s preferred clean heat plan covers the period from 2024 to 2028. The utility said that certified gas and carbon offsets will enable them to reach their emissions reduction goals more cost-effectively. But this claim has faced strong opposition. 

Critics argue that Xcel’s plan shouldn’t be considered because those resources don’t align with the law’s definition of emissions reduction. These strategies focus on emissions reduction upstream and in unrelated sectors, which they say goes against the law’s intent.

The law in question is Senate Bill 21-264, which does allow some indirect emissions reduction measures. But they are primarily limited to recovered methane strategies such as renewable natural gas, excluding certified gas and carbon offsets. 

Opponents, thus, seek a legal ruling to exclude them from consideration and to require Xcel Energy to change its plan. The Colorado Public Utilities Commission (PUC) would decide on the final ruling. 

Aggravating the coalition’s concerns, the two tools would be responsible for around 43% of Xcel Energy’s projected emissions reductions target.

What It Means for Other Gas Utilities

The dispute’s outcome could significantly impact other gas utilities, including Atmos Energy Corp., Black Hills Corp., and Summit Utilities Inc.. They’re preparing their own clean heat plans to submit. 

SB 21-264 mandates utilities to use strategies such as demand-side management, building electrification, and low-carbon fuel blending.

Xcel Energy contends that the opposition misinterprets the law, which they believe allows for the use of “available tools” beyond those explicitly named in the legislation. The utility argues that excluding certified gas and carbon offsets limits the options available to PUC in achieving the state’s climate goals.

  • The other tools specified in their 5-year clean heat plan include electrification, leak prevention, energy efficiency programs, recovered methane and hydrogen blending.

The Colorado Energy Office and the Colorado Department of Health and Environment’s Air Pollution Control Division agree that Xcel’s preferred portfolio complies with SB 21-264. But they suggest that certified gas and carbon offsets don’t meet the definition of clean heat resources.

Despite criticism, Xcel has garnered support from energy companies like Chevron, Occidental Petroleum, and Williams Cos. Emissions measurement company Project Canary PBC and other stakeholders also agree with Xcel. They argue against rushing to judgment and emphasize the importance of thorough investigation.

From Colorado to New Jersey

Xcel Energy estimates its preferred plan to clean up its natural gas system would cost about $163 million each year. On the other hand, an all-electrification option would cost much more, standing at $472 million annual price tag.

Prior to this Colorado clean heat plan conflict, utilities in New Jersey also have faced a similar situation. The state’s natural gas distributors noted that policymakers are too focused on building electrification amid the discussion on aligning gas utility regulation with state climate goals. 

The companies, along with multi-utility Public Service Enterprise Group Inc., suggested that a clean heat standard like Colorado’s should be an option for a range of decarbonization solutions for the New Jersey Board of Public Utilities to consider. PSEG noted that utilities should have various options to invest in different solutions and show their emissions reduction potential. 

In conclusion, Xcel Energy’s clean heat plan to reduce emissions through certified natural gas and carbon offsets remains a contentious issue. What also remains to be seen is how such strategies can significantly contribute to emissions reduction efforts in the industry.

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