Colorado has held its second annual greenhouse gas allowance auction, cementing its place among a growing number of states using emissions trading to meet climate goals.
The state’s GHG Trading Program requires covered entities to hold and retire emissions allowances commensurate with their actual greenhouse gas output.
Companies that can reduce emissions at lower cost stand to profit by generating and selling credits to other businesses facing higher compliance costs.
This market-based framework is designed to lower the overall cost of emissions reductions while minimising disruption to Colorado’s broader economy.
Colorado’s program currently covers gas distribution entities and industrial and manufacturing companies emitting at least 25,000 tonnes of GHGs annually, including steel, cement, food processing, fuel refining, glass, and semiconductor producers.
The program was implemented in phases, beginning with gas distribution entities in 2023 before expanding to industrial and manufacturing sectors in 2024 under the Greenhouse Gas Emissions and Energy Management for Manufacturing rules, known as GEMM 1 and GEMM 2.
GEMM 1 currently covers four facilities and uses an intensity-based reduction standard, while GEMM 2 covers 17 facilities and applies a mass-based, absolute reduction standard.
In 2028, companies with midstream oil and gas fuel combustion equipment will be required to enter the program, making early preparation essential for affected businesses.
Colorado’s credit trading is restricted to obligated entities within the state, ensuring that all emissions reductions occur inside Colorado and directly benefit its residents.
Companies wishing to participate in the annual auction must submit an intent form between May 1 and May 31, with the first round of bidding running through June 15 following sufficient participation.
Colorado’s program sits within a broader national picture of expanding state-level carbon markets, with several major developments emerging across the United States in 2026.
Virginia rejoined the Regional Greenhouse Gas Initiative on July 1, 2026, following a state court ruling that its prior withdrawal under former Governor Glenn Youngkin was inconsistent with state law.
Virginia now participates alongside Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont in what remains the largest regional GHG trading programme in the country.
RGGI’s third programme review, completed in 2025, strengthened the regional emissions cap through 2037 and eliminated the use of offsets beginning in 2027.
California extended its Cap-and-Trade Program, rebranded as “Cap-and-Invest,” through 2045 in 2025, providing long-term regulatory certainty for businesses operating under the nation’s longest-running economy-wide carbon market.
Washington, California, and Quebec signed an agreement in June 2026 to link their carbon markets, with a shared trading system expected to begin operating in 2027 pending further regulatory steps.
That linkage would create the largest subnational carbon market in North America, offering regulated entities access to a broader and more liquid allowance market.
New York is developing an economy-wide cap-and-invest programme under the Climate Leadership and Community Protection Act of 2019, though rollout has slowed after Governor Kathy Hochul postponed key implementing regulations over consumer energy cost concerns.
For companies already covered by Colorado’s programme, the advice from legal analysts at Beveridge and Diamond PC is to strategically leverage credit trading either to generate revenue or to meet emissions reduction targets cost-effectively.
Companies entering the programme in 2028 should begin planning immediately, monitor guidance from the Colorado Department of Public Health and Environment, and develop a clear strategy for buying or selling credits ahead of their compliance obligations.