Legislature(2003 - 2004)

02/02/2004 03:30 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HB 196-CARBON SEQUESTRATION                                                                               
                                                                                                                              
CHAIR SCOTT OGAN announced HB 196 to be up for consideration.                                                                   
                                                                                                                                
REPRESENTATIVE  ETHAN  BERKOWITZ,  sponsor  of HB  196,  said  he                                                               
considers  this to  be a  knowledge  bill and  explained that  it                                                               
doesn't commit Alaska  to do anything, but puts the  state in the                                                               
position of  asking questions, i.e.,  should we participate  in a                                                               
carbon sequestration  market and what resources  could be brought                                                               
to bear. Carbon sequestration is  an emerging market and one that                                                               
President  Bush supports  [incidentally]. This  technology offers                                                               
great promise of significantly  reducing greenhouse gas emissions                                                               
- the  spruce beetle  kill on  the Kenai  Peninsula could  be cut                                                               
down  and  replanted with  productive  forests,  for example.  BP                                                               
Alaska is already investigating  the benefits of injecting carbon                                                               
dioxide  deep into  the earth  to  make production  of heavy  oil                                                               
easier [by creating a type of effervescence].                                                                                   
                                                                                                                              
TAPE 04-5, SIDE B                                                                                                             
                                                                                                                                
REPRESENTATIVE BERKOWITZ  said that  the Chicago  Carbon Exchange                                                               
recently opened and  is trading carbon at $1 per  ton, but it can                                                               
range up  to $40 per ton.  At that price, Alaska  could develop a                                                               
market of about $500 million.                                                                                                   
                                                                                                                                
CHAIR OGAN asked who comes up with the money.                                                                                   
                                                                                                                                
REPRESENTATIVE BERKOWITZ  replied that the carbon  is a commodity                                                               
and just like people purchase the  oil and gas we produce, people                                                               
will pay to sequester their carbon here.                                                                                        
                                                                                                                                
     In essence, if  they want to pollute  somewhere else in                                                                    
     the world,  they will pay  for us to catch  that carbon                                                                    
     here. The idea is that there  be a net zero in terms of                                                                    
     carbon emissions.                                                                                                          
                                                                                                                                
CHAIR OGAN said that Alaska's trees  already do that and asked if                                                               
Alaska is going  to get money all  of a sudden by  having them as                                                               
assets.                                                                                                                         
                                                                                                                                
REPRESENTATIVE BERKOWITZ replied yes,  if Alaska actively engages                                                               
in  reforestation. Some  trees are  better  at collecting  carbon                                                               
than others  and soil inventories are  critical. Capturing carbon                                                               
and injecting  it deep into the  ground is another way  of taking                                                               
advantage of  the process.  This is an  emerging industry  with a                                                               
lot of new technologies.                                                                                                        
                                                                                                                                
SENATOR  THOMAS WAGONER  said that  one of  his constituents  was                                                               
actively reforesting spruce  bark beetle kill areas  on the Kenai                                                               
Peninsula, but told  him that President Bush had  cut the funding                                                               
for the  program. He hoped  that maybe carbon credits  could help                                                               
replace the funding for reforestation there.                                                                                    
                                                                                                                                
CHAIR  OGAN  said  he  still  was  confused  and  asked  if  U.S.                                                               
taxpayers were going to pay the bill.                                                                                           
                                                                                                                                
REPRESENTATIVE BERKOWITZ replied that  Tim King, Director, Carbon                                                               
Technology  Transfer  Center  in  Washington  State,  was  better                                                               
qualified to answer that.                                                                                                       
                                                                                                                                
MR.  TIM  KING,  Director,  Carbon  Technology  Transfer  Center,                                                               
Washington  State,  said  he  had been  with  the  United  States                                                               
Department  of Agriculture  for the  past 26  years and  his last                                                               
position was running  a carbon technology transfer  center in the                                                               
western United States. He maintains  that office and has assisted                                                               
Hawaii,  Alaska,  Canada, to  name  a  few, in  putting  together                                                               
carbon  sequestration programs.  He  has  helped power  companies                                                               
that are building  new electrical generation plants  and [as part                                                               
of  their   permitting  process]  to  find   ways  of  offsetting                                                               
increased   emissions  of   carbon  dioxide   without  physically                                                               
installing equipment.  Ten years  ago, power companies  would pay                                                               
about  $2  per ton  for  reforestation  projects and  get  carbon                                                               
credits for  the trees  that would otherwise  not be  planted. He                                                               
said further:                                                                                                                   
                                                                                                                                
     We've  continued  on with  that  and  looked at  forest                                                                    
     management,  thinning, keeping  healthy forests,  doing                                                                    
     fuel load reduction  projects, energy projects, turning                                                                    
     excess residue or biomass from  the forest into energy.                                                                    
     All  those create  various types  of  carbon credits  -                                                                    
     some  - where  you sequester  the carbon  start in  the                                                                    
     trees or  in the  soils, some -  where you  prevent the                                                                    
     release of carbon by protecting  the forest against the                                                                    
     forest fire or using  that material to create renewable                                                                    
     energy sources that offset  emissions from using fossil                                                                    
     fuels. So, that there's a  whole group of carbon credit                                                                    
     interest out there. Currently the  rest of the world is                                                                    
     dealing  with  carbon  credits.  Therefore,  BP  Amoco,                                                                    
     Shell, Texaco,  Exxon [indisc.]  the oil  companies who                                                                    
     are   international  in   nature  have   carbon  credit                                                                    
     divisions  within each  one of  their companies  - they                                                                    
     are out looking and  dealing in carbon credits already.                                                                    
     Here in  the U.S.  where we  haven't taken  an official                                                                    
     policy, it's kind  of a hit and miss market  - since we                                                                    
     don't have  actual legislation  that puts  any mandates                                                                    
     to it.                                                                                                                     
                                                                                                                                
CHAIR OGAN  asked if  anyone was  paying anyone  any money  to do                                                               
this.                                                                                                                           
                                                                                                                                
MR.  KING replied  that Washington  State  received $500,000  for                                                               
landowners to  replant trees  for $100 to  $200 an  acre. Seattle                                                               
City  Light  wants to  purchase  carbon  offsets and  the  Oregon                                                               
Climate  Trust was  established  by the  legislature to  purchase                                                               
carbon  offsets for  new fossil  fuel electric  production plants                                                               
and relicensing  of old  ones. Michael  Walsh and  Richard Sandor                                                               
with  the Chicago  Board  of Trade  created  the Chicago  Climate                                                               
Exchange  which  exchanges and  markets  carbon  credits. It  has                                                               
partners  such  as  BP  Amoco,  a lot  of  the  major  electrical                                                               
companies  and  Ford.  Sydney,   London  and  Tokyo  have  carbon                                                               
markets. Carbon  credits in  Europe exchange for  around $3  - $4                                                               
per credit.  Credits traded through  the Chicago Board,  which no                                                               
one is  verifying, registering or  following up on are  going for                                                               
about 95 cents per ton.                                                                                                         
                                                                                                                                
SENATOR WAGONER asked  if wetlands could be filled  in under this                                                               
program  by  reclaiming and  reestablishing  an  equal number  of                                                               
acres of wetland somewhere else.                                                                                                
                                                                                                                                
MR. KING replied that is right; it's a mitigation program.                                                                      
Montana has a program like that for its highway construction                                                                    
that went through wetlands.                                                                                                     
                                                                                                                                
SENATOR WAGONER asked how the number of credits is established.                                                                 
                                                                                                                                
MR. KING replied:                                                                                                               
                                                                                                                                
     A credit is one ton  of CO. So,  whether you emit a ton                                                                    
                               2                                                                                                
     of CO  or sequester a ton of COthe   Kenai Peninsula is                                                                    
          22,                                                                                                                   
     basically white spruce and in  that area, probably with                                                                    
     the  rainfall and  the types  of  forest, you  probably                                                                    
     sequester  one ton  of carbon  per acre  per year,  but                                                                    
     that goes on for the life  of the tree. As long as it's                                                                    
     being managed,  it continues to sequester  that one ton                                                                    
     over and over again.                                                                                                       
                                                                                                                                
CHAIR OGAN quipped, "Maybe this program would get us to cut down                                                                
dead trees and get us to plant live ones."                                                                                      
                                                                                                                                
MR. KING responded:                                                                                                             
                                                                                                                                
     That's exactly  what it  would do...The  opportunity is                                                                    
     that the dead  trees are going to catch  fire and burn.                                                                    
     There's probably 100 to 200  tons per acre of dead wood                                                                    
     material there. If  it burns up, all that COgoes   into                                                                    
                                                 2                                                                              
     the air.  If you could  utilize that  - use any  of the                                                                    
     wood -  turn it  into buildings, house  logs, whatever,                                                                    
     or turn  it into  energy -  and that's  one of  the big                                                                    
     projects we're working on -  is to gasify cellulous and                                                                    
     wood waste and  turn it into natural gas  or other bio-                                                                    
     fuels and bio-chemicals. That would  be a carbon credit                                                                    
     for utilizing  that material; there  would be  a carbon                                                                    
     credit  for it  not going  up and  being burned,  there                                                                    
     would be a carbon credit  for replanting the ground and                                                                    
     getting it back into trees.                                                                                                
                                                                                                                                
4:37 p.m.                                                                                                                       
                                                                                                                                
SENATOR  RALPH SEEKINS  asked  if Alaska  would  be rewarded  for                                                               
creating new  methods of  carbon sequestration or  we be  able to                                                               
sell carbon  sequestration based  on the current  carbon exchange                                                               
through photosynthesis the state has now.                                                                                       
                                                                                                                                
MR. KING replied:                                                                                                               
                                                                                                                                
     If  you've  got  hundreds  of   millions  of  acres  of                                                                    
     stagnated  overstocked trees;  if you  go in  there and                                                                    
     thin those out and do  [indisc.] reduction and get them                                                                    
     back to  healthy and productive,  that's where  you get                                                                    
     your credits.  It's change from a  current condition to                                                                    
     management. So, it  basically encourages the management                                                                    
     of a healthy sustainable forest.                                                                                           
                                                                                                                                
REPRESENTATIVE BERKOWITZ  added that the northern  villages might                                                               
be  weaned off  of  power cost  equalization  by converting  from                                                               
diesel based energy  generation to using some of  the local woods                                                               
for energy. That  would allow Alaska to sell  more carbon credits                                                               
and put some  people to work along with  active reforestation. He                                                               
explained  a  credit is  gained  for  shifting from  diesel-based                                                               
energy to  wood based  energy and if  the newly  replanted forest                                                               
absorbs more  carbon than the  old forest, even more  credits are                                                               
gained.                                                                                                                         
                                                                                                                                
SENATOR  SEEKINS asked  if a  debit is  incurred anywhere  in the                                                               
process due to harvest.                                                                                                         
                                                                                                                                
MR. KING  explained that  a debit could  happen depending  on the                                                               
type of forest  management that is undertaken.  If, for instance,                                                               
the forest  management is extractive,  there could be  a deficit.                                                               
He believed that the idea  of carbon credits would promote better                                                               
forest management, but  it wouldn't preclude a  person from clear                                                               
cutting and putting in a parking lot.                                                                                           
                                                                                                                                
     At this point in time,  nobody has been assessed a fine                                                                    
     for losing [agriculture] or  forest-based carbon, but I                                                                    
     see that could be in the future.                                                                                           
                                                                                                                                
SENATOR  SEEKINS followed  up by  asking  how many  new trees  he                                                               
would have to plant to come up with $450 million.                                                                               
                                                                                                                                
MR.  KING  estimated  that  200  tons of  new  carbons  could  be                                                               
sequestered  on one  acre of  replanted  trees at  $800 per  acre                                                               
using $4 per ton over a 20-year life span.                                                                                      
                                                                                                                                
REPRESENTATIVE BERKOWITZ added  that it all depends  on the price                                                               
of the  carbon credit. If  the credit goes  to $40 per  ton, less                                                               
acreage would be  needed. "It's a potential  resource that Alaska                                                               
has and  the more  we know about  it, the better  able we  are to                                                               
make good quality decisions."                                                                                                   
                                                                                                                                
SENATOR SEEKINS asked  if Alaska signs up for  the program, would                                                               
the commitment be continuing or binding.                                                                                        
                                                                                                                                
REPRESENTATIVE BERKOWITZ  replied, "With this bill,  there are no                                                               
commitments that the state will take any action."                                                                               
                                                                                                                                
SENATOR ELTON asked if grant  funds are available for research on                                                               
carbon sequestration.                                                                                                           
                                                                                                                                
MR. KING  replied that the State  of Washington is doing  a study                                                               
on the  potential of this  industry and it received  $3.5 million                                                               
from  the  Department  of  Energy  and  several  oil  and  energy                                                               
companies  to  assess the  potential  in  the state.  Washington,                                                               
Oregon,  California, Arizona  and  Alaska  jointly received  $1.6                                                               
million to do a cursory  review of carbon sequestration, specific                                                               
to state owned lands.                                                                                                           
                                                                                                                                
REPRESENTATIVE   BERKOWITZ  said   he  has   an  amendment   that                                                               
conditions an action from the  Department of Natural Resources or                                                               
the Department of Environmental  Conservation upon the receipt of                                                               
a  grant  either from  the  federal  government or  from  private                                                               
sources.                                                                                                                        
                                                                                                                                
CHAIR  OGAN said  he  wanted to  hold the  bill  over before  any                                                               
amendments were discussed.                                                                                                      
                                                                                                                                
SENATOR SEEKINS said he wouldn't  object to saying that Alaska is                                                               
looking  into the  market in  the findings  section, but  he felt                                                               
uneasy adopting  findings that he  didn't know were based  on any                                                               
scientific basis.                                                                                                               
                                                                                                                                
SENATOR ELTON said he was surprised  that HB 196 went through the                                                               
other  body  without  a  fiscal  note  and  that  the  ones  this                                                               
committee received  came in late.  He wanted  to know why  one of                                                               
the fiscal notes indicated that  one department's personnel costs                                                               
would be  twice as much  as the other  and why only  general fund                                                               
dollars were identified.                                                                                                        
                                                                                                                                
MR.  CHRIS MAISCH,  Division of  Forestry, Department  of Natural                                                               
Resources (DNR),  said Senator  Elton was  referring to  a fiscal                                                               
note  from the  Department  of  Environmental Conservation  (DEC)                                                               
that  he hadn't  seen. The  fiscal note  from DNR  indicated that                                                               
implementation of  the bill  before them  would cost  $91,600 for                                                               
the first year and $82,600 for  the second year to fully complete                                                               
the  study as  charged.  There are  potential  federal funds  and                                                               
private sources of funds available.                                                                                             
                                                                                                                                
CHAIR OGAN  asked Mr. Maisch  to investigate what pools  of money                                                               
would be available and report back to the committee.                                                                            
                                                                                                                                
SENATOR WAGONER asked  Mr. Maisch if he had  heard that President                                                               
Bush had not funded reforestation on the Kenai Peninsula.                                                                       
                                                                                                                                
MR. MAISCH  replied that he  would have  to defer that  answer to                                                               
the  state   forester  but,  as   far  as  he  knew,   the  Kenai                                                               
reforestation program was still being funded at past levels.                                                                    
                                                                                                                                
CHAIR OGAN asked if he agreed  with the premise that Alaska could                                                               
get  private sector  money  for credits  to do  a  better job  of                                                               
managing its  forests. He also  asked if mature  slow-growing old                                                               
growth trees  do not sequester  as much carbon as  vigorous young                                                               
growth.                                                                                                                         
                                                                                                                                
MR. MAISCH answered that is correct.                                                                                            
                                                                                                                                
CHAIR  OGAN  asked if  logging  off  some  old growth  timber  in                                                               
Southeast Alaska  would be good for  the environment - as  far as                                                               
carbon sequestration goes.                                                                                                      
                                                                                                                                
MR.  MAISCH replied  that  the  total balance  would  have to  be                                                               
evaluated. Large trees  sequester a lot of carbon  in solid wood.                                                               
So, part of  the equation would be how that  wood is utilized and                                                               
actively  growing young  stands of  trees sequester  carbon at  a                                                               
much faster rate than old growth trees.                                                                                         
                                                                                                                                
SENATOR FRED  DYSON asked how  he envisioned using the  oceans to                                                               
sequester carbon in the future.                                                                                                 
                                                                                                                                
MR.   MAISCH   replied   that   he   hadn't   investigated   what                                                               
opportunities lay  in that  arena. His  focus was  on terrestrial                                                               
applications of carbon sequestration.                                                                                           
                                                                                                                                
SENATOR  ELTON asked  if he  felt this  was a  project the  state                                                               
should do assuming funding was in place.                                                                                        
                                                                                                                                
MR. MAISCH replied  that he only wanted to  express the technical                                                               
aspects of the project, but not support it one way or the other.                                                                
                                                                                                                                
SENATOR WAGONER asked  if Alaskans who are  generating carbon now                                                               
could somehow participate in sequestration.                                                                                     
                                                                                                                                
MR. KING  responded that in  Washington the people who  wanted to                                                               
see the project  move forward put up $.5 million  to assess 5,000                                                               
acres. Someone wanting to purchase  carbon credits would probably                                                               
be interested in funding work in Alaska.                                                                                        
                                                                                                                                
SENATOR  WAGONER  asked who  exactly  was  participating in  that                                                               
program.                                                                                                                        
                                                                                                                                
MR. KING  replied, just to  show that carbon  sequestration could                                                               
be  done   anywhere,  he  had  landowners   from  every  category                                                               
participating.  Funding  came  from the  Pacific  Corporation,  a                                                               
conglomerate  of power  producers and  distributors headquartered                                                               
in Portland, Oregon, and Tenaska in Omaha, Nebraska.                                                                            
                                                                                                                                
MR.  MAISCH   added  that  about   four  years  ago   the  Alaska                                                               
Reforestation Council  published a report  entitled Reforestation                                                             
Needs and  Opportunities for Carbon  Sequestration in  Alaska and                                                             
at  that  time,  the  American   Electric  Power  Company  (AEPC)                                                               
proposed to plant  1,000 acres of spruce beetle kill  land on the                                                               
Kenai Peninsula. Planting  the 1,000 acres was  estimated to cost                                                               
$1.70  per  ton  ($450  per  acre  including  $100  per  acre  in                                                               
certification costs for the credit).                                                                                            
                                                                                                                                
SENATOR  WAGONER   asked  if  credits   came  from   their  power                                                               
generation plant.                                                                                                               
                                                                                                                                
MR.  MAISCH  replied  that  AEPC wanted  to  offset  the  carbons                                                               
produced by its power generation plant by planting the trees.                                                                   
                                                                                                                                
MR. KING  reminded the committee  that carbon sequestration  is a                                                               
global concept. A power generation  plant in Japan or China could                                                               
get offset credits in Alaska.  "If Alaska has more opportunities,                                                               
then  people will  come to  you  from anywhere  to utilize  those                                                               
opportunities."                                                                                                                 
                                                                                                                                
SENATOR  DYSON suggested  that Representative  Berkowitz consider                                                               
deleting "greenhouse"  and insert "atmospheric gases"  on page 1,                                                               
line 6.  He also  suggested adding a  section that  would address                                                               
the use  of oceans  for carbon sequestration  to the  findings in                                                               
section 2.                                                                                                                      
                                                                                                                                
REPRESENTATIVE BERKOWITZ  responded that  he would  actually make                                                               
both  those  changes. He  also  urged  swift action  because  the                                                               
carbon sequestration  market could become saturated  soon. "If we                                                               
wait until too late, our opportunities will diminish."                                                                          
                                                                                                                                
SENATOR SEEKINS noticed  a press release dated July  1, 2001 from                                                               
President Bush  saying that NASA  would invest over  $120 million                                                               
in the next  three years in research on the  natural carbon cycle                                                               
and  asked  if  a  report   on  that  investment  had  ever  been                                                               
published.  He   was  concerned   about  being  drawn   into  the                                                               
"predicting dire consequences" argument rather than sticking to                                                                 
the market side of the equation.                                                                                                
                                                                                                                                
REPRESENTATIVE  BERKOWITZ replied  that a  recent article  in the                                                               
[indisc.] by the Secretary of  Energy talked about how the United                                                               
States  is leading  the way  in  developing carbon  sequestration                                                               
technologies. It's an on-going effort.                                                                                          
                                                                                                                                
CHAIR OGAN thanked everyone for their testimony and held HB 196.                                                                
There being no further business to come before the committee, he                                                                
adjourned the meeting at 5:04 p.m.                                                                                              

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