Legislature(2023 - 2024)ADAMS 519
03/31/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Adjourn | |
| Start | |
| Presentation: Forest Management |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 49 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 31, 2023
1:34 p.m.
1:34:53 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:34 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
Representative Bryce Edgmon, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Alyse Galvin
ALSO PRESENT
Rena Miller, Special Assistant, Department of Natural
Resources, Representative Jesse Sumner.
PRESENT VIA TELECONFERENCE
Jeanne Pigors, Natural Resource Manager, Division of Mining
Land, and Water, Department of Natural Resources,
Fairbanks; Shawn Olson, Procurement Specialist, Department
of Natural Resources, Anchorage; Chris Orman, Attorney,
Department of Law, Juneau; Helge Eng, Director and State
Forester, Division of Forestry, Department of Natural
Resources.
SUMMARY
HB 49 CARBON OFFSET PROGRAM ON STATE LAND
HB 49 was HEARD and HELD in committee for further
consideration.
PRESENTATION: FOREST MANAGEMENT
Co-Chair Foster reviewed the agenda for the meeting.
HOUSE BILL NO. 49
"An Act authorizing the Department of Natural
Resources to lease land for carbon management
purposes; establishing a carbon offset program for
state land; authorizing the sale of carbon offset
credits; and providing for an effective date."
^PRESENTATION: FOREST MANAGEMENT
1:36:10 PM
Rena Miller, Special Assistant, Department of Natural
Resources, introduced herself.
Helge Eng, Director and State Forester, Division of
Forestry, Department of Natural Resources, offered a
PowerPoint presentation titled "Forest Management in
Alaska," dated March 31, 2023 (copy on file). He relayed
that half of the ownership of the forests in the state were
considered private lands. Fighting fire was expensive, but
forestry and fire protection were inextricably linked and
the workers performed the same work on the same land.
Mr. Eng continued on slide 2 which depicted a pie chart
detailing the breakdown of forest land in Alaska by
ownership. He reiterated that federal land made up about
half of the pie chart and the other half of the chart was
split between private corporate land, borough and municipal
land, and private non-corporate land. He highlighted that
the largest national forest was the Tongass National Forest
at about 18 million acres.
1:39:28 PM
Mr. Eng continued on slide 3. He explained that the
Division of Forestry and Fire Protection (DFFP) managed
state forests. In addition to state forests, forested state
lands required management as well. The forests were
classified as general use forestry. The largest state
forest was the Tanana Valley State Forest at 1.81 million
acres, followed by the Haines State Forest at 286,000
acres, followed by the Southeast State Forest at 46,592
acres.
Co-Chair Foster noted Representative Jesse Sumner was in
the audience.
Mr. Eng turned to slide 4, which was a map showing the
location of state forests and forest-classified state land.
There was a large portion of forests in the Fairbanks area.
The Haines State Forest consisted of land surrounding the
Haines area. The Southeast State Forest was a series of
non-connected pieces of land around Ketchikan and
neighboring areas.
Mr. Eng continued on slide 5. State forests were generally
more evenly managed and less event-driven than private
lands or other state lands. He emphasized that there was no
value judgement implied, but that it was a simple
statement. He read the objectives of state forest
management from the slide as follows:
• Multiple use mandates, including recreation
• Sustained yield mandate
• Provide the timber industry with a perpetual,
stable, non-declining supply of raw material year
after year
• Consider and incorporate public input
Mr. Eng noted that it was important to be aware that in
order to provide stability to the timber industry, the
division had to occasionally forgo some riskier
opportunities.
1:44:08 PM
Representative Hannan asked for more information on the
mandate to provide the timber industry with a perpetual,
stable, and non-declining material. She thought it sounded
aspirational because she was not certain if the mandate had
ever been met. She asked if there was perhaps a period of
time during which the state had met the mandate. She had
heard continually that the state did not have annual and
stable access to forests. She asked whether it was
aspiration or if Mr. Eng believed the state was meeting the
mandate.
Mr. Eng responded that he believed that the state provided
a consistent and healthy supply of raw material to the
timber industry. He thought determining how much material
should be provided to the timber industry was a healthy
discussion. He emphasized that the division worked in
partnership with the timber industry and welcomed the
support and contribution from the legislature and the
governor in helping define the appropriate harvest level.
One of Alaska's challenges was access due to the lack of
roads in many areas of the state. He relayed that there was
a regular supply of material to the timber industry and
that it was a provable fact.
Representative Hannan noted that HB 49, which was the
legislation on the current day's agenda, involved using
carbon offset and securing timber. She asked if the mandate
to supply materials to the timber industry would change
under HB 49 if it were incorporated. She thought keeping
the trees for carbon offset seemed to be in conflict with
the mandate to provide materials.
Mr. Eng responded that he would be addressing the issue on
an upcoming slide. He understood that HB 49 was intended to
supplement timber harvesting. If forest management had
nothing to harvest, there would be no Carbon Offset
Program. He thought it remained to be seen whether carbon
offsets would be in conflict with timber mandates. The two
were not in conflict in his experience. His read of HB 49
was that market supply and demand and interest would
dictate forest management.
1:48:24 PM
Mr. Eng continued on slide 5. He noted that state forests
harvested less than the sustained yield in most years. The
forests might be sought after for forest carbon offset
projects.
Mr. Eng moved to slide 6, which offered some statutory
information that governed the management of state forests.
He explained that AS 41.17.200 described the primary
purpose in the establishment of State Forests, which was
timber management that provided for the production,
utilization, and replenishment of timber resources while
allowing other beneficial uses of public land and
resources. He continued that AS 41.17.230 expanded upon the
subject. Forest management plans compatible with the
primary purpose of State Forests under AS 41.17.200 were
required to consider and permit uses of forest land for
nontimber purposes. The uses included recreation, tourism,
mining, mineral exploration, mineral leasing, material
extraction, consumptive and non-consumptive uses of
wildlife and fish, grazing and other agricultural
activities, and other traditional uses which legislated
state forests. He relayed that there were many uses in
addition to timber production despite timber being the
primary mandated land use.
Mr. Eng advanced to slide 7. He explained that the Alaska
Constitution, Article VIII, sections 1 and 4 required that
timber resources were to be made available for maximum use
consistent with the public interest and to be utilized,
developed, and maintained on the sustained yield principle.
He thought the constitution was clear in that timber
resources were to be utilized sustainably for maximum use.
Mr. Eng continued to slide 8. He explained that sustained
yield was defined as harvesting the amount of timber growth
at most that accumulated in any given year. The growth of
an individual tree may not seem significant, but the growth
of all trees in an acre would quickly become significant.
Annual timber harvesting could be easily sustained if the
amount of timber harvested each year was less than the
amount of new growth. The strategy would ensure that the
resource would not be depleted and the trees would not be
killed. The concept was often referred to as the annual
allowable cut (AAC). He referred to AS 41.17.950(26) which
indicated that sustained yield was the achievement and
maintenance in perpetuity of a high level annual or regular
periodic output of the various renewable resources of
forest land and water without significant impairment of the
productivity of the land and water. It would not require
that timber be harvested in a non-declining yield basis
over a rotation period. He added that AS 41.17.950(26)
defined sustained yield as the achievement and maintenance
in perpetuity of a high level annual or regular periodic
output of the various renewable resources of the state land
consistent with multiple use.
1:54:45 PM
Mr. Eng moved to slide 9 and explained multiple use as
defined under AS 38.04.910(5). The management of state land
and its various resource values would be used in the
combination that would best meet the present and future
needs of the people of Alaska. Lands used for multiple use
purposes meant that some of the land could be used for less
than all of the resources and multiple use goals did not
have to be met equally on every acre. Additionally,
multiple use included a combination of balanced and diverse
resource uses that took into account the short-term and
long-term needs of present and future generations for
various renewable and nonrenewable resources. He
highlighted the importance of roads to forests to increase
access to forests.
Mr. Eng advanced to slide 10. He explained that another
important element was the Alaska Forest Resources and
Practices Act (FRPA) [found in AS 41.17] which governed
timber harvesting, reforestation and access on state,
private, and municipal land. He relayed that FRPA protected
fish habitat and water quality and ensured prompt
reforestation while providing for a healthy timber
industry.
Mr. Eng continued on slide 11 and detailed the steps
involved in timber sales. The steps were as follows:
1. Regional Planning: Area Plans & State Forest Plans
2. Five-Year Schedule of Timber Sales
3. Best Interest Finding
Timber may be sold after BIF adopted
4. Forest Land Use Plans
Not all FLUPs must be issued before timber is
offered for sale
For large sales, prepare FLUPs in phases, as
access is developed
Mr. Eng explained that the five-year schedule actually
refreshed every two years and the division thought that the
system worked well to encourage public collaboration and
head-off potential problems. In step three of the process,
the commissioner would make the decision that it was in the
best interest of the state to go forward with timber sales.
The timber could only be sold after the best interest
finding process. The final step was the development of the
more specific Forest Land Use Plan (FLUP). He explained
that not all FLUPs must be issued before timber was offered
for sale. The plans involved more specific elements such as
where roads would be placed, potential impacts on wildlife
habitats, and water quality in the area. He explained that
FLUPs and the best interest findings were both subject to
appeal and both include a 30-day public comment period.
Once the division had addressed the comments and published
a final FLUP, there was an opportunity for appeal for
another ten days.
2:02:05 PM
Mr. Eng moved to slide 12 and posed the question of whether
forest management would change under HB 49. He indicated
that he did not know the answer to the question. The
division had a couple of comments regarding the language of
the bill, which were as follows:
• The state forest management plans would have to be
updated to incorporate forest carbon offset projects.
• State Forests remain actively managed working forests
where timber harvesting is a regular occurrence
Mr. Eng moved to slide 13 and concluded his presentation.
Co-Chair Foster thanked Mr. Eng for his presentation.
2:04:24 PM
AT-EASE
2:05:11 PM
RECONVENED
Co-Chair Foster noted that the sectional analysis of the
bill would be presented next by Ms. Miller.
Ms. Miller offered a PowerPoint presentation titled "HB 49
Sectional Review" dated March 31, 2023 (copy on file). She
noted that there were other testifiers online that would
provide additional information and comparisons after her
presentation. She began on slide 2 and explained that there
were two pathways to a carbon offset project under HB 49.
The first pathways was for the state to lease land to a
third party for a carbon purposes. The third party would be
considered the project proponent and would receive credits
or revenue. The state would receive compensation under the
lease terms which could include annual rent, a portion of
receipts, or other elements. The bill would not authorize
leases of state lands on state forests to third parties
with the exception of the Haines State Forest resource
management area, which already allowed leases to third
parties in statute. The intended use of the first pathway
was general carbon management purposes.
Ms. Miller explained that the second pathway was if the
state were to undertake a carbon offset project on state
land. The state would be considered the project proponent
and receive the credits generated by the project. The
pathway would propose that the Carbon Offset Program (COP)
be housed under the existing Office of Project Management
and Permitting (OPMP) within the Department of Natural
Resources (DNR). The projects could be on state land and
could also be in state forests. There would be no third-
party leases required under the second pathway. The state
projects would be for land-based or resource-based carbon
offset projects.
Ms. Miller continued on slide 3 and offered the sectional
analysis for HB 49. The slide broke down the entire bill
for the purpose of easy reference. She explained that
Section 1 was an exemption from the procurement code for
COP contracts for state projects. She explained that the
procurement code was useful in providing competition that
could result in lower prices for goods and services;
however it would not lend itself well to the framework of
the carbon program. The state would partner with a project
developer on a broad framework but DNR did not yet have the
required amount of detail that would allow the department
to put forward a workable scope.
Ms. Miller elaborated that the department would be asking
for contribution from individuals engaged in relevant
fields to determine the best strategies for carbon offset
projects on state lands. She emphasized that the department
wanted to field ideas within the framework of the bill. The
carbon program contracts were an instance in which a
competitive process was not necessary. Project development
companies and other contractors had wildly varying
structures. Some were "turn-key" operators and would front
the state or the landowner the cost of developing a project
upfront and would be repaid in the credits generated from
the project; others worked on an hourly basis; others
offered an "à la carte" contracting option in which case a
landowner might take on more or less of a role in the
process.
2:10:42 PM
Ms. Miller continued on slide 3. In addition to exemptions
for project developers, the department foresaw contracts
with a registry under the COP. The registry would have a
terms of use agreement in addition to a contract once the
budget had been finalized. The project would have already
been designed for a particular protocol at a particular
registry and to offer the contract through a competitive
bid process would not make sense. A protocol would stand on
its own and would have one or two registries that would
offer the protocol. The other instance where contracts
would be anticipated was related to expertise that the
department might need in order to design the program, the
program framework, the regulations, and teach the
department how to evaluate the proposals from developers
that were expected to be incoming. The department might
also need contractual expertise for legal and commercial
review of the contracts.
Co-Chair Foster asked Ms. Miller whether there was still a
competitive process within the procurement code. He thought
that the procurement code was well-defined. He wondered if
there would be more finalized definitions prior to the
competitive bid process.
Ms. Miller responded that there was nothing in the bill
that specified what the process would look like without
using the procurement code; however, DNR and other
departments within the state had exiting exemptions and, in
her experience, the departments try to follow a set process
as much as possible. She relayed that DNR agreed that there
should be competition and would like to hear a variety of
ideas from a variety of developers. She emphasized that the
ideas would be proprietary when brought to the department.
The department could take an idea from one developer and
ask other developers to offer the department the best rate
or the best terms for implementing the idea, which could
potentially reduce the responsiveness of the developer of
the original idea.
Co-Chair Foster asked who would be acting as the
procurement officer responsible for accepting the
contracts.
Ms. Miller responded that under Section 6, there was a
basic outline on the need for the establishment of a new
framework to evaluate proposed projects and concepts for
COP. She reiterated that COP would be housed under OPMP,
which had experience in a wide range of similar activities.
Co-Chair Foster noted that he wanted to ensure that there
was a process put into writing. He thought it was important
for transparent ground rules to be available.
2:15:29 PM
Representative Stapp asked about page 4, line 7, subsection
(h) of the bill and read from it as follows:
(h) Before entering into a lease of land under this
section, the director must find under AS 38.05.035(e)
that leasing the land for the proposed carbon
management purpose is in the best interests of the
state.
Representative Stapp added that the bill listed the best
interests of the state in the context of the bill, but he
thought that the definition was vague. He thought that it
would be in the best interest of the state to develop high-
value resource land, but he thought that others would
disagree. He asked how one would deal with varying opinions
of what would be in the best interests of the state.
Ms. Miller responded that the section of the bill to which
Representative Stapp was referring was related to state
land leasing and the procurement code exemption would only
be for state program contracts. She understood that there
were a variety of opinions on how to use land and resources
in the state; however, DNR had a constitutional and
statutory responsibility to maximum the use of the
resources for Alaskans. The department was required by HB
49 to consider the reasonably foreseeable effects of the
project on the state or local economy. She was not certain
whether the requirement was in the best interest findings
language in statute, but it was particular to the
legislation to guide the department in its assessment of
the opportunities and economic impacts that a carbon
project would have in comparison to other potential
projects.
Representative Stapp responded that it was an arbitrary
evaluation and a value judgement. He thought a 50-year gold
deposit was important, but if there was permafrost on the
land, another individual might argue that it would be in
the best interest of the state to sell the land as an
offset and not mine the area. He asked how the hypothetical
situation would be navigated.
Ms. Miller responded that a portion of the best interest
finding process was highly public. She explained that
public feedback on proposed projects would help identify
where overlaps and issue might occur. She added that the
mineral estate was dominant in Alaska in the context of a
large mining project. A state land lease would not be
closing land for a COP for mineral entry.
Co-Chair Foster commented that Ms. Miller had testified on
difficult oil and gas issues and she had seen some tough
questions over the years. He noted that there were other
testifiers online that could contribute to the
conversation.
2:20:07 PM
Ms. Miller continued on slide 3. She shared that Section 2
of the bill related to non-general fund program receipts
and conformed to Section 6. She explained that Section 6
involved establishing a new fund outside of the general
fund to receive revenue from credit sales. Therefore,
Section 2 allowed for the revenue from the sales to be
treated as designated program receipts and deposited into
the fund.
Ms. Miller added that Section 3 through Section 5 related
to state land leases to third parties for carbon purposes
for third-party projects. She deferred to Ms. Jeanne Pigors
to elaborate on the section.
2:21:01 PM
JEANNE PIGORS, NATURAL RESOURCE MANAGER, DIVISION OF MINING
LAND, AND WATER, DEPARTMENT OF NATURAL RESOURCES, FAIRBANKS
(via teleconference), continued the presentation on slide 5
to offer a brief overview of current leasing administration
in the state, provide some examples on the way in which the
process currently operated, and how carbon leases compared
to the current structure. She explained that leasing was
fundamental to the business of the Division of Mining, Land
and Water (DMLW). Lease programs supported a wide variety
of commercial industry, public and charitable, and private
sector needs and covered many types of land uses such as
aquatic farm sites, power generation, and telecommunication
areas. All of the programs provided different needs and
uses for state lands through DMLW and the requirements
varied greatly. All programs were held and administered
under the Alaska Land Act [AS 38.05], which set out
provisions including: best interest findings and public
notice; application, award, lease conditions, and
compensation; and term length and preference rights
eligibility. The provisions and projects might vary
depending on the lease type but there were also many shared
similarities. Best interest findings were required for all
provisions and projects and the findings process was
robust. She elaborated that one of the elements involved in
best interest findings was agency motives, which entailed
reaching out to agencies to acquire any information of
which the department should be aware before moving forward
with a lease. She clarified that the process was typical
for all leasing projects.
2:25:00 PM
Ms. Pigors continued on slide 6, which compared the program
to existing commercial leases. Although COP was new, it
would be housed under Title 38 along with the other leases.
In many ways, proposed carbon purpose leases were similar
to standard commercial leases and would make the same
considerations and follow the same structure.
Considerations would be put into place for carbon purpose
leases prior to being issued, which was the standard
procedure for existing leases. Similarly, the term lengths
under the current leasing program included a 55-year
maximum lease term with renewable potential. Carbon
purposes leases would have the same maximum lease term. A
significant difference was that commercial leases required
that there be competitive interest or an auction prior to
awarding leases for a term longer than ten years, while
proposed carbon purposes leases were exempt from
competitive bidding and the lease would be awarded to the
most qualified applicant. Leases would still be evaluation
before being awarded, but the evaluation process would not
be required to consider a competitive option or interest.
She continued that compensation for both lease types would
be the same. Compensation would be designed to maximize the
return to the state in a form provided for under AS
38.05.073(m). The statute provided six different methods
through which compensation could be brought back to the
state.
Co-Chair Foster directed attention to the bolded words on
the slide "exempt from competitive bidding" and noted that
he would need more information on the details of the
exemption.
2:30:44 PM
Representative Ortiz referred to the 55-year maximum lease
term. He understood that the maximum was in state law and
that 55 years was the maximum for any lease in the state.
He asked if his understanding was correct.
Ms. Pigors responded that 55 years was the maximum initial
lease term for any lease issued by the state.
Representative Ortiz understood that the standard carbon
lease and most profitable carbon lease was in the area of a
99-year lease. He asked if the state was not achieving the
maximum potential return if the maximum remained 55 years.
He wondered if changing the law for the purposes of carbon
leasing would be prudent. He thought that there would be a
significant sacrifice in profit for the state if the
current maximum was maintained.
Ms. Pigors clarified that although the initial lease term
was 55 years, there was potential for a longer term
overall. She confirmed that the lease renewal option was
already in statute.
Representative Ortiz relayed that the information provided
by Ms. Pigors was made clear to him in a prior hearing. He
thought that a project could be negatively impacted if it
were to compete with other programs that had an initial
lease term of 99 years. There would be a higher financial
return to those who were offering longer lease terms and it
seemed to be more attractive to investors. Although the
maximum term could be extended, it could appear as merely a
possibility while an upfront 99-year term could be seen as
more of a safe bet.
Ms. Miller responded that the topic had come up in a
previous hearing and she had followed up with Anew
Consulting for more information. She added that she
believed the committee would be hearing from Anew in the
near future. She relayed that Anew understood that for
North American forestry projects, a longer lease term would
not necessarily generate a higher credit value. She would
follow up with Anew and ask for more detailed information
on the topic. She suggested to Representative Ortiz that
they should connect outside of the meeting to discuss the
longer-term, higher-value leases he had come across. The
department's understanding was that the lease terms were up
to the protocol that mandated the requirement of time on a
project. Some protocols were 40 years, such as the Improved
Forest Management Protocol (IFMP) at the American Carbon
Registry (ACR), and others could be 99 years. Part of the
process was finding the right protocol that suited the
needs and priorities of a project.
2:36:15 PM
Representative Josephson asked Ms. Miller to explain ACR.
Ms. Miller responded that Anew put together a report (copy
on file) that took an initial assessment of whether there
was carbon potential on state lands in Alaska. She relayed
that Anew reviewed a number of protocols put together by
registries and the question was whether there were projects
that were compatible with Alaska and could be put up
quickly. The IFMP was identified by Anew as a protocol used
widely in North America, used in Alaska for projects
generating credits, and compatible with the other
requirements under statute. The primary use of a forest was
also kept in mind and harvest could continue even with a
COP on the land. She explained that ACR referred to the
American Carbon Registry, which was the registry that
hosted IFMP. There were many other protocols in existence
and there were four major registries in the North American
region.
Representative Josephson recalled that Ms. Pigors had noted
in the presentation that a lease would be awarded to the
most qualified applicant. He thought the idea of a most
qualified applicant sounded good but he wondered how a most
qualified applicant was determined and how the selection
process was reviewable by the public.
Ms. Pigors responded that due to the uncertainty about the
types of projects that would be proposed to the state, the
specifics were not yet determined. She could share that
the most qualified applicant was typically the applicant
that demonstrated the most knowledge on carbon management
experience. Additionally, one applicant might have a more
appropriate term-length than another, which would
contribute to the applicant's qualifications. The leases
would be subject to best interest findings which would be
subject to public notice. She emphasized that public notice
would be provided prior to the issuance of any lease and
would describe the details of the lease and the applicants
being considered.
Ms. Miller added that page 3 of HB 49 articulated the
specific elements the department would consider if there
were multiple applicants. She ensured that any additional
requirements would be established in additional regulations
which would clearly identify the ways in which the
potential competing applications would be evaluated.
2:41:07 PM
Representative Josephson noted that slide 6 of the
prestation mentioned leases would have compensation
designed to maximize return to the state. He understood
that there would be an auction involved, and shared that
when he attended an auction, he could be sure that the
highest bid that was made was selected. He asked Ms.
Pigors how he could be certain that the bidding process for
leases was competitive if there was an exemption from
competitive bidding. He wondered how he could be assured
that the process was in compliance with AS 38.05.073(m).
Ms. Pigors responded that when the best interest finding
was written, the particular style of compensation method
that was chosen for carbon leases would be described and
proposed and put out for public notice during the best
interests finding process. The process often involved a
preliminary decision, which was released to the public,
followed by a final finding. Any comments or questions
about the nature of the choice of method or any other
aspects of the proposed action were available to the
public. The public would see an explanation of the
compensation chosen and the reasoning as to why it would
lead to returned revenue to the state. The final findings
were required to respond to public comment prior to the
findings being finalized.
Representative Stapp commented that it was difficult for
him to understand why the process would be exempted from
competitive bid. He could not understand the choice to
forgo a competitive bid process unless the intention was to
award contracts outside of a bid process.
Ms. Miller responded that the wording on slide 6 might have
been misleading. The part that the process would be exempt
from would be the requirement to award the lease in a
public auction to the highest qualified bidder. There may
be other values at play in evaluating the best applicant
other than the highest bid. The department thought that a
more reasoned approach would be to examine the leases and
determine how the leases would work with resource
development and all other land interests and evaluate
competing applications through multiple lenses.
2:45:36 PM
Representative Hannan relayed that she had tallied up the
totals of the fiscal notes (copies on file) and reported
that it would cost around $1.5 million in FY 24 to operate
the program. She referred to the carbon volume and revenue
report by Anew (copy on file) which included a chart that
showed the Haines and Southeast forests and the amount of
expected revenue on an annual basis. In the first year, the
expected revenue was $1.48 million. She understood that the
revenue represented the maximum about of credits as
possible. She wondered whether the costs to run the program
would vary depending on the load of carbon assets being
sold. She did not think it seemed like a large amount of
compensation for the amount of effort and work. She
understood that it would be profitable if it went according
to plan and if every carbon offset in the forest was
purchased.
Ms. Miller responded there were two pathways to projects,
the first of which being the issuance of land leases to
third parties. She explained that the fiscal note offered
by DNR and allocated to DMLW [control code BJvUV](copy on
file) related almost entirely to the first pathway and the
addition of new staff to administer and process new leases.
The hope was that the compensation for the land leases over
time would supplant the general fund for the positions. It
was unclear when or how much that would be which was why
the fiscal note showed general funds. Some of the funds
that were proposed to be allocated to DMLW would be for an
as-needed support to the state undertaken project area.
Ms. Miller continued that the fiscal note offered by DNR
with funds allocated to OPMP [control code mhzEs](copy on
file) included the addition of one employee to manage the
second pathway to projects, which would be the state
projects. The state projects were the kind of projects
included in Anew's report of anticipated revenue. The
expectation was that there would be multiple projects
happening concurrently in the state that would feed revenue
into the fund and account for the costs of running the
projects. She understood that 18 to 24 months of
development time would be necessary before credits could be
issued.
Representative Hannan wanted clarification on the Anew
report. She read that Anew had assessed the total value of
the Haines forest, but Ms. Miller had mentioned the
potential of multiple projects. She asked if the same
credit could be purchased by different entities. She
wondered what the effects would be if only half of a forest
was involved in carbon offset projects. She asked if Anew
was only referencing a single project in the summary chart.
Ms. Miller responded that the department thought there
could be multiples happening at once in the Haines forest,
the Southeast forest, and others throughout the state. All
of the projects would contribute to funding the
administrative costs required to keep the program running.
Co-Chair Foster asked Ms. Miller if there was a provision
in the procurement code for best value as opposed to best
price. He wondered why a best value process could not be
used if it was already in place.
Ms. Miller deferred the question.
2:52:11 PM
SHAWN OLSON, PROCUREMENT SPECIALIST, DEPARTMENT OF NATURAL
RESOURCES, ANCHORAGE (via teleconference), responded that
there were typically processes in place. There were a
couple of different solicitation processes: bid-based and
proposal-based. The proposal-based process involved the
evaluation of cost and technical response.
Co-Chair Foster asked if there was another process.
Mr. Olsen responded that the aforementioned two were the
main processes used in collaboration with DNR. There was
another method that not that focused more on what was put
in the technical response box on a proposal form; however,
the format was not used by DNR.
Co-Chair Foster asked if Mr. Olson could provide a chart
that showed the different options. He asked if there was a
best value process as opposed to best price.
2:54:29 PM
Representative Josephson relayed that Michigan had an
offset program for its forest. He explained that Michigan
utilized a model where a fiscal note was not carried but
that the costs were covered in some way. He asked Ms.
Miller if his understanding was accurate. He was also told
that the Michigan law did not generate much revenue for the
state treasury and was curious if it was true.
Ms. Miller responded that the question would be better
suited for Anew when it came before the committee. She
shared that Anew partnered with Michigan on the project to
which Representative Josephson was referring and would
continue partnering with the state on future projects. She
understood that Michigan chose the turn-key option with the
project developer to avoid upfront project costs and would
compensate the developer for the costs as credits were
generated. Regarding his second question on the amount of
revenue that Michigan was generating, she shared that she
did not have the dollar amount but would follow up. She was
certain that the project was generating credits.
2:56:29 PM
Representative Coulombe asked for an explanation of where
the generated revenue would go. She understood that a
carbon offset fund would be created and wondered if it
would be a restricted fund.
Ms. Miller responded that there were two paths to projects
and the money in each path was treated differently under
the bill. The revenue program receipts for third-party
projects would eventually supplant general fund dollars and
would fund the DMLW positions required to run the leasing
program. In terms of the COP that would be established
under DNR for state proponent projects, the revenue from
the sales would go to the new carbon offset revenue fund.
The bill was written in a way to ensure there was an
appropriation out of the fund in order to ensure that the
legislature had a link to the fund in order to exercise its
responsibilities. The commissioner would then be able to
utilize the monies appropriated out of the fund to cover
the costs of running the program. She reiterated that once
the projects were generating revenue, the hope was to
supplant general fund dollars that were currently requested
in the fiscal notes. The House Resources Committee (HRC)
added a lapse provision in the bill to ensure that the
unobligated balance of the fund in excess of $10 million
would lapse annually to the general fund. She clarified
that HRC selected the lapse method in order to direct the
generated revenue. It was important to DNR that there was
adequate money in the fun on an ongoing basis in order to
meet the needs of administering the projects. There would
be ongoing monitoring, reporting, and validation of the Co2
storage benefit. There would be a field exercise involving
a third party verifying the results and would require
additional funds, and the department wanted to ensure that
adequate funds were in place to pay for such obligations.
2:59:47 PM
Representative Coulombe was concerned that the fund would
be created with much work and effort but would only pay for
the program. She asked Ms. Miller why HRC chose the $10
million figure.
Ms. Miller responded that committee determined that the
figure would feel sufficient for the department to have the
necessary funds to carry out the commitments related to
maintaining the programs. There could be multiple carbon
offset programs running concurrently without knowing when
the costs would need to be obligated. It was also suggested
that the state might want to use some of the generated
revenue to pursue additional projects.
Co-Chair Foster asked Ms. Miller if other states that also
participated in similar carbon programs had also asked for
an exemption from the competitive bidding process. If other
states had not sought out an exemption, he wondered what
process would be utilized instead. He asked whether the
states fell into a procurement process or something else.
He understood that the question would likely require
research and suggested that Ms. Miller follow up in a
future hearing.
Ms. Miller would follow up.
3:01:56 PM
Representative Hannan commented that Alaska had neighbors
that were already embarking upon carbon offset
opportunities. She asked if the state had consulted with
other entities already participating in projects and asked
how the projects were performing.
Ms. Miller responded that at various stages, individuals
with DNR had spoken with members from Native corporations
and village corporations that had undertaken similar
projects. Some of the corporations that had taken on
projects did so under the compliance market, which
generated offsets that were then available to buyers under
California's Cap-and-Trade Program. The protocols that met
the California standards were sometimes different than the
standards the department might consider. An important
takeaway was that the projects were being done in Alaska
and were generating revenue.
3:03:55 PM
Ms. Pigors continued on slide 7 and offered a few more
examples that showed the differences and similarities
between standard commercial leases and proposed carbon
purpose leases. The first example relayed that for standard
commercial leases, existing public access and potential
third-party uses of lease site were closely evaluated and
appropriate public access areas were reserved. It was a
requirement to commercial leases to examine the maximum use
of state land and maximize multiple uses when possible.
Under the current leasing rules, there was a robust process
and considerations given to third-party uses and potential
access given to the public or access given to an area that
might be going through the best interest findings process.
The department routinely looked for whether potential
public access routes needed to be reserved, what the third-
party uses might be, which routes needed to be reserved
within a lease site, and so forth. The specifics varied
significantly depending on the particular project and area
needs.
Ms. Pigors explained that proposed carbon purpose leases
would also be subject to a robust review with the added
fact that under the proposed carbon lease statute, there
would be an even more explicit emphasis on ensuring that
carbon purpose leases were open and available to the public
for general public use reservations such as hunting,
fishing, and other generally allowed uses. Proposed carbon
purposes leases specifically emphasize retaining openness
for generally allowed uses. For standard commercial leases,
there was always the possibility for a significant amount
of site control; however, many of the leases were already
open to the public and people were already permitted to
come and go throughout the lease area. There were other
leases that required a significant amount of site control,
for example, power generation sub-stations needed to be
closely monitored and kept safe and secure. It was possible
that carbon purpose leases would be on high-traffic land
and the areas would need to remain available and open to
the public.
Ms. Pigors continued under current statute for standard
commercial leases, long-term leaseholders in good standing
were eligible to apply for preference right sale at the end
of a lease term. The sale would allow the leaseholder to
convert the lease to actual ownership of land without
competition under AS 38.05.102. Commercial leases often
involved a long term investment in the land with facilities
or infrastructure that had been in place for oftentimes 30
years or more. Conversely, proposed carbon purpose leases
would not include preference right sale eligibility. The
leases required public access to land and could therefore
not be owned by an individual leaseholder. Coupled with the
fact that the lands were large and did not necessarily have
facilities, it did not make as much sense to allow for
preference right sales.
3:10:12 PM
Ms. Miller continued on slide 8. She recalled that the
second pathway to a project was that the state would
undertake a project on state land. The COP would be
established under DNR and the commissioner would be
permitted to enter into contracts with third parties to
carry out the projects. There was a disclaimer at the top
of page 5 of the bill that emphasized that the rules and
terms for the COP would not apply to any private land owner
and what the land owner may choose to do on their private
property. The evaluation criteria for COPs were found on
page 5 of the bill, such as potential impacts on the state
and local economies. The bill also made available state
land for COPs. She added that legislatively withdrawn land
was not eligible for a COP unless the specific authority
and management for the land accommodates a project. The
state could only go ahead with a project if there was a
best interest finding that the project would serve the best
interest of the state. The project term for state projects
would be capped at 55 years.
Ms. Miller continued that page 5 and 6 of the bill
authorized the department to enter into agreements with
registries so that the COP could generate credits. The
department would be required to keep records related to the
process, particularly records related to the potential
return to the state. The carbon offset revenue fund was
established on page 6 of the bill and put in place 16
different terms related to COPs and defined the terms.
Ms. Miller returned to slide 3 and explained that Section 7
through Section 9 of the bill would enable state projects
on Haines state Forest Resource Management Area and Section
10 through 13 enabled the projects on general state
forests.
3:14:48 PM
Representative Coulombe asked Ms. Miller for more
information about the commissioner and director related to
the program. She wondered who was in charge of the carbon
fund.
Ms. Miller responded that the broad authority would go to
the commissioner of DNR and other responsibilities could be
delegated down throughout the department with the
commissioner's continued oversight.
Representative Coulombe asked if the commissioner was
managing the fund and whether the commissioner was
ultimately the individual who would be entering into the
contract with the carbon credit.
Ms. Miller responded that the state would manage the fund
on a technical level outside of DNR. The bill did not
specify that the commissioner would be the individual
responsible for managing the way in which DNR would spend
the fund that had been appropriated to it for purposes of
the program by the legislature. Although it was not
specified by the bill, the commissioner would ultimately be
responsible for management within the department. The new
employee hired within OPMP would be responsible for day-to-
day tasks in managing the spending of the fund. She
clarified that the state would be entering into the
contractual arrangement under the authority granted to the
commissioner by the bill.
3:16:53 PM
Representative Tomaszewski asked Ms. Miller who was the
current director of DMLW.
Ms. Miller responded that the director was Deputy
Commissioner Brent Goodrum.
Representative Tomaszewski asked how long he had been in
the position.
Ms. Miller responded that she did not have the information
but would follow up.
Representative Tomaszewski referred to Section 4 on page 3
of the bill. which stated that the director would award the
lease to the most qualified applicant and evaluate each
applicant's proposal. He understood that the director would
make the final determination. He asked if that seemed like
a significant amount of power for one individual to have.
Ms. Miller responded that the process was no different than
what was currently in place. The leasing section fell under
the Alaska Land Act. She asked Mr. Chris Orman to clarify
the information.
3:18:47 PM
CHRIS ORMAN, ATTORNEY, DEPARTMENT OF LAW, JUNEAU (via
teleconference), responded that the language that made
reference to a director in the bill was consistent with the
language in the other leasing provisions within the Alaska
Land Act that made reference to a director. He clarified
that the language was used throughout the act. The
definition of director was found in AS 38.05.965 as, "the
director of the division of lands of the Department of
Natural Resources". His understanding was that the Division
of Lands had been reconstituted within DNR to what was now
referred to as DMLW. He confirmed that Brent Goodrum was
the current director.
Representative Tomaszewski asked Ms. Miller if there would
be any restrictions on elected officials being able to
participate in programs.
Ms. Miller responded that nothing in the bill addressed
such restrictions. She added that she would conduct some
research as to what other rules and laws might influence
the ability of elected officials to participate.
3:21:39 PM
Co-Chair Foster reviewed the agenda for the following
meeting.
HB 49 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
3:22:17 PM
The meeting was adjourned at 3:22 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HFIN DOF Forest Management Presentation 0331231.pdf |
HFIN 3/31/2023 1:30:00 PM |
|
| 2023 03 31 HFIN DNR HB 49 Sectional Summary Presentation.pdf |
HFIN 3/31/2023 1:30:00 PM |
HB 49 |
| HB 49 NEW FN DNR ADM SUPPORT SRVCS 032323.pdf |
HFIN 3/31/2023 1:30:00 PM |
HB 49 |
| HB 49 NEW FN DNR Forest Mngmt 0323123.pdf |
HFIN 3/31/2023 1:30:00 PM |
HB 49 |
| HB 49 NEW FN Mining, Land, Water 033023.pdf |
HFIN 3/31/2023 1:30:00 PM |
HB 49 |
| HB 49 DNR responses to House Finance Committee 041023.pdf |
HFIN 3/31/2023 1:30:00 PM |
HB 49 |