Legislature(2003 - 2004)
02/02/2004 03:30 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.