Colorado mandates ambitious emissions cuts for its gas utilities

Colorado just set a major new climate goal for the companies that supply homes and businesses with fossil gas.

By 2035, investor-owned gas utilities must cut carbon pollution by 41% from 2015 levels, the Colorado Public Utilities Commission decided in a 2–1 vote in mid-November. The target — which builds on goals already set for 2025 and 2030 — is far more consistent with the state’s aim to decarbonize by 2050 than the other proposals considered. Commissioners rejected the tepid 22% to 30% cut that utilities asked for and the 31% target that state agencies recommended.

Climate advocates hailed the decision as a victory for managing a transition away from burning fossil gas in Colorado buildings.

“It’s a really huge deal,” said Jim Dennison, staff attorney at the Sierra Club, one of more than 20 environmental groups that advocated for an ambitious target. “It's one of the strongest commitments to tangible progress that's been made anywhere in the country.”

In 2021, Colorado passed a first-in-the-nation law requiring gas utilities to find ways to deliver heat sans the emissions. That could entail swapping gas for alternative fuels, like methane from manure or hydrogen made with renewable power. But last year the utilities commission found that the most cost-effective approaches are weatherizing buildings and outfitting them with all-electric, ultraefficient appliances such as heat pumps. These double-duty devices keep homes toasty in winter and cool in summer.

The clean-heat law pushes utilities to cut emissions by 4% from 2015 levels by 2025 and then 22% by 2030.

But Colorado leaves exact targets for future years up to the Public Utilities Commission. Last month’s decision on the 2035 standard marks the first time that regulators have taken up that task.

The commission’s move sets a precedent for other states working to ditch fossil fuels from buildings even as the federal government eliminates home-electrification incentives after Dec. 31. Following Colorado’s lead, Massachusetts and Maryland are developing their own clean-heat standards.

Gas is still a fixture in the Centennial State. About seven out of 10 Colorado households burn the fossil fuel as their primary source for heating, which accounts for about 31% of the state’s gas use.

If gas utilities hit the new 2035 mandate, they’ll avoid an estimated 45.5 million metric tons of greenhouse gases over the next decade, according to an analysis by the Colorado Energy Office and the Colorado Department of Public Health and Environment. They’d also prevent the release of hundreds more tons of nitrogen oxides and ultrafine particulates that cause respiratory and cardiovascular problems, from asthma to heart attacks. State officials predicted this would mean 58 averted premature deaths between now and 2035, nearly $1 billion in economic benefits, and $5.1 billion in avoided costs of climate change.

“I think in the next five to 10 years, people will be thinking about burning fossil fuels in their home the way they now think about lead paint,” said former state Rep. Tracey Bernett, a Democrat who was the prime sponsor of the clean-heat law.

Competing clean-heat targets

Back in August, during proceedings to decide the 2035 target, gas utilities encouraged regulators to aim low. Citing concerns about market uptake of heat pumps and potential costs to customers, they asked for a goal as modest as 22% by 2035 — a target that wouldn’t require any progress at all in the five years after 2030.

Climate advocates argued that such a weak goal would cause the state to fall short on its climate commitments. Nonprofits the Sierra Club, the Southwest Energy Efficiency Project, and the Western Resource Advocates submitted a technical analysis that determined the emissions reductions the gas utilities would need to hit to align with the state’s 2050 net-zero goal: 55% by 2035, 74% by 2040, 93% by 2045, and, finally, 100% by 2050.

History suggests these reductions are feasible, advocates asserted.

“We're recommending targets that put us on a technology-adoption curve — a trajectory that's been seen over and over again,” said Ramón DC Alatorre, senior program manager at the Southwest Energy Efficiency Project. “There's a tremendous amount [of] mature technology available today in order to be able to meet these targets.”

Heat pumps, for example, have a track record of holding their own even in Denver’s deepest freezes. Some companies are devising ways to bring installation costs way down. And the state is making the tech more affordable via a federally funded rebate program for low-income households and tax credits worth hundreds of dollars for both customers and contractors.

Expecting the market to move more slowly than advocates predicted, the Colorado Energy Office and the Colorado Department of Public Health and Environment recommended a 41% cut. But then in September, after reviewing stakeholders’ comments, the agencies dropped it to 31% — a “more realistic, yet still ambitious goal,” they wrote.

The agencies’ 41% proposal was “far better supported” by their own analysis, Commissioner Megan Gilman said at the Nov. 12 commission meeting: Agencies found that this target comports with the clean-heat law. The 31% figure, by contrast, seemed untethered to the legislation’s mandates, she noted.

The commission’s decision doesn’t factor in concerns about the cost of decarbonization — nor is it meant to, Gilman said. The regulators will address cost-effectiveness when they evaluate utilities’ specific plans for complying with the statute, which are required every four years. Xcel Energy, the state’s largest utility, will file its next plan in 2027.

Utilities still need nudging to go beyond gas

Even as Colorado doubles down to leave gas in the past, Xcel isn't planning to relinquish the fossil fuel anytime soon.

Xcel provides gas to 1.5 million customers across the state. From 2025 to 2029, the utility is seeking to invest more than $500 million per year on the gas system — costs passed on to customers via their energy bills. That’s a bigger investment than Xcel’s $440 million plan for 2024 to 2028 to reduce reliance on gas by implementing clean-heat measures.

Overbuilding gas infrastructure now could have decades-long ramifications for energy bills. “If utilities are not scaling these [electrification] programs, the customers left on the gas systems are ultimately going to face higher costs,” said Courtney Fieldman, utility program director of the Southwest Energy Efficiency Project.

Colorado is nudging gas utilities to instead become clean-heat utilities; for example, lawmakers have directed the companies to pilot zero-emissions geothermal heating projects and thermal energy networks.

Meanwhile, the commission’s November decision sends a clear signal that utilities need to adjust their gas-demand forecast, the Sierra Club’s Dennison said. While advocates hoped that regulators would create more policy certainty by setting targets beyond 2035, commissioners demurred. They have until 2032 to get those standards finalized.

“The targets that conservation advocates have proposed are achievable,” said Ed Carley, an expert on building decarbonization policy at Western Resource Advocates. Adopting them “is really our opportunity to be a leader in achieving our greenhouse gas emissions goals — and demonstrating that market transformation is possible.”

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