Colorado, which recently held its second annual GHG allowance auction, joins a growing number of states that have adopted greenhouse gas (GHG) emissions trading programs as part of their broader climate policies. These state and regional initiatives continue to evolve as the programs mature, expand, and adapt to changing policy environments. While limited in scope, Colorado’s GHG emissions trading program (trading program) is slowly expanding across high-emitting sectors. Companies that can reduce emissions at lower cost stand to profit from selling the emissions credits they generate. In contrast, companies facing higher emissions-reduction costs can avoid large business disruptions by purchasing credits to help meet their emissions requirements. This market-based approach can reduce the overall costs of emissions reductions and minimize impacts on the state’s economy. 

Key Takeaways

• Colorado’s trading program requires covered entities to hold and retire emissions allowances commensurate with their GHG emissions.
• The trading program also creates a profit-generating opportunity by allowing Colorado companies that can reduce emissions at lower cost to generate and sell credits.
• Colorado’s trading program currently covers gas distribution entities, as well as companies in the industrial and manufacturing sectors that emit at least 25,000 tons of GHGs annually, such as steel, cement, food processing, fuel refining, glass, and semiconductors.
• In anticipation of the next phase, companies with midstream oil and gas fuel combustion equipment should familiarize themselves with the program, keep an eye out for additional guidance from the Colorado Department of Public Health and Environment (CDPHE), and determine their strategy for buying or selling credits before 2028.

Colorado’s GHG Credit Trading Program

In 2023, CDPHE began implementing the GHG Trading Program approved by Colorado’s Air Quality Control Commission (AQCC). This program is part of Colorado’s broader effort to reduce GHG emissions by 50% by 2030 and 100% by 2050, as compared to 2005 levels. The program allows companies to generate credits by reducing GHG emissions, then sell those credits to obligated entities that will use them to meet their own emissions reduction requirements. This framework incentivizes the companies that can reduce emissions most cost-effectively to do so, lowering overall compliance costs while advancing the state’s climate goals.

How It Works

The GHG Trading Program involves a phased approach, beginning with gas distribution entities in 2023. In 2024, it expanded to include companies in the industrial and manufacturing sectors regulated under the Greenhouse Gas Emissions and Energy Management for Manufacturing (GEMM) rules, referred to as GEMM 1 and GEMM 2, which currently cover four facilities and 17 facilities, respectively. In 2028, companies with midstream oil and gas fuel combustion equipment will be required to comply with the program.

In the program, companies in covered sectors earn credits by reducing their emissions below the limits specified for gas distribution utilities, GEMM 1 companies, and GEMM 2 companies. The 2023 phase of the program allows recovered methane projects to generate and sell credits to gas distribution utilities. By contrast, the 2024 phase allows GEMM 1 companies to earn credits through intensity-based reductions (a relative standard based on production levels), while GEMM 2 companies may earn credits through mass-based reductions (an absolute standard). GEMM 1 and 2 companies may trade credits among their respective groups, and GEMM 1 companies may buy credits from GEMM 2 companies. However, GEMM 1 may sell credits to GEMM 2 only if those credits represent a specified percentage of mass-based reduction, thereby ensuring that the trade does not compromise overall GHG reduction requirements for the industrial and manufacturing sectors. Overall, by allowing credit trading only between obligated entities in Colorado, the state ensures that emissions reductions occur within the state and benefits its citizens.

In addition to trading credits through the processes described above, companies may buy or sell credits at the state’s annual auction. Credits in this auction must qualify as “GEMM 2 eligible,” just as they must when GEMM 1 companies sell to GEMM 2 companies outside the auction. To participate, regulated companies must submit a form expressing their intent between May 1 and May 31 of the auction year. The Auction Administrator will then issue a notice stating whether there are enough participants to proceed with the auction. If so, the first round of bidding will begin five business days after May 31 and run through June 15. The Administrator will then notify participants if an additional round is required. Winning bidders and offerors will be notified of the results within two business days of a successful round.

Other State GHG Emissions Trading Programs

Virginia recently rejoined the Regional Greenhouse Gas Initiative (RGGI) on July 1, 2026, following a state court decision that concluded the state’s prior withdrawal from the program was inconsistent with state law. Virginia had participated in RGGI from 2021 through 2023 before former Governor Glenn Youngkin sought to remove the state from the program. Virginia's return restores one of the nation’s largest electricity markets to the RGGI framework, increasing the program’s coverage and reinforcing RGGI’s position as the largest regional GHG emissions trading program in the United States.

Virginia rejoins ten other states participating in RGGI: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. RGGI completed its third program review in 2025, through which participating states agreed to strengthen the regional emissions cap through 2037, eliminate the use of offsets beginning in 2027, and place greater emphasis on direct emissions reductions and allowance-based compliance. Participating states are now expected to incorporate these changes at the individual state level through regulatory action.

On the West Coast, California continues to operate the nation’s longest-running economy-wide GHG emissions trading program. In 2025, California extended its Cap-and-Trade Program (rebranded as “Cap-and-Invest”) through 2045, providing long-term regulatory certainty for regulated entities and affirming the state’s commitment to market-based emissions reductions. Like RGGI, California is considering amendments that would tighten the emissions cap.

Washington has likewise continued to expand its Cap-and-Invest Program, which began operating in 2023. In June 2026, Washington, California, and Québec signed an agreement to link their carbon markets, creating a pathway toward a shared emissions trading market expected to begin operating in 2027 following completion of additional regulatory actions. Once implemented, the linkage would create the largest subnational carbon market in North America and allow regulated entities to participate in a broader and more liquid allowance market.

New York is developing a new economy-wide cap-and-invest program to reduce emissions alongside the state’s participation in RGGI. The program would help implement the Climate Leadership and Community Protection Act, enacted in 2019, which requires the state to pursue economy-wide GHG reduction targets and directs state agencies to adopt regulations necessary to achieve those targets. The program’s rollout has recently slowed, however, after Governor Kathy Hochul postponed issuance of key implementing regulations while state officials evaluate concerns regarding consumer energy costs and other economic impacts.

Next Steps

For companies that currently qualify for the Colorado GHG Trading Program:

• Strategically leverage the program to either generate revenue through credit sales or meet emissions-reduction goals through credit purchases.
• Comment on regulatory updates that impact the program.

For companies that will qualify in 2028:

• Start planning now for entry into the program.
• Evaluate potential business opportunities presented by participation in the GHG credit trading market.
• Keep an eye out for additional guidance from CDPHE.

Beveridge & Diamond's Climate Change & Carbon Markets practice group advises clients across the full lifecycle of clean fuels and environmental markets, including compliance and voluntary programs, corporate GHG reporting, ESG and sustainability disclosures, and complex commercial transactions. The firm counsels fuel producers, project developers, airlines, manufacturers, and corporate purchasers on structuring book‑and‑claim systems, navigating regulatory and incentive stacking issues, and managing legal risk as markets and standards evolve. As GHG credit trading mechanisms continue to expand, thoughtful legal design will be essential for both platforms and for market participants. Please contact the authors with any questions or for assistance assessing how these developments may affect your operations or compliance strategy. Our thanks to 2026 summer associate Tarah Mason for her help in preparing this article.