Legislature(2023 - 2024)ADAMS 519
04/10/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB49 | |
| Presentation: Forest Carbon 101 by Anew | |
| Adjourn |
* 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
April 10, 2023
1:33 p.m.
1:33:52 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Neal Foster, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Rena Miller, Special Assistant, Department of Natural
Resources.
PRESENT VIA TELECONFERENCE
Joshua Strauss, Senior Vice President, ANEW.
SUMMARY
HB 49 CARBON OFFSET PROGRAM ON STATE LAND
HB 49 was HEARD and HELD in committee for further
consideration.
PRESENTATION: FOREST CARBON 101 BY ANEW
Co-Chair Foster reviewed the meeting agenda.
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."
1:35:34 PM
^PRESENTATION: FOREST CARBON 101 BY ANEW
1:35:38 PM
RENA MILLER, SPECIAL ASSISTANT, DEPARTMENT OF NATURAL
RESOURCES, introduced herself and shared that she would
advance the slides for the presenter speaking via
teleconference.
JOSHUA STRAUSS, SENIOR VICE PRESIDENT, ANEW (via
teleconference), provided a PowerPoint presentation titled
"Forest Carbon 101," dated April 6, 2023 (copy on file). He
reviewed his agenda on slide 2 titled Agenda:
• About Anew
• Compliance vs Voluntary Markets
• Components of Offset Quality
• Alaska Pilot Projects Outlook
• Project Development Process
• Questions
Mr. Strauss notified the committee that during his
presentation he would refer to a report [Carbon Offset
Opportunity Evaluation August 2022 ANEW (copy on file)].
He moved to background information about ANEW on slide 3
titled About Anew:
• Oldest and largest carbon offset developer in North
America (20+ years).
• Voted Environmental Finance's Best Project Developer
(North America) and Best Offset Developer (California)
for seven years running.
• Dedicated forestry team: in house finance, marketing,
and legal experts, plus >30 professional foresters
with unparalleled forest carbon experience.
Mr. Strauss shared his experience in carbon management. He
worked with ANEW for over a decade and specialized in
forest offset carbon solutions for his entire career. He
delineated that ANEW had over 100 forest carbon projects
under management and over 5 million acres enrolled in
carbon projects in the United States (US) and Canada.
1:39:26 PM
Mr. Strauss explained forest carbon basics beginning on
slide 5 titled What are Forest Carbon Offsets?
• Forests across the US sequester substantial amounts of
CO2.
• By maintaining or increasing forest stocking, forest
landowners can generate units of CO 2 emissions
reductions ("Carbon Offsets").
• Companies wishing to combat climate change are willing
to pay forest owners for these Carbon Offsets, thereby
claiming credit for reducing CO 2 emissions and
mitigating some of the effects of climate change.
Mr. Strauss explained that 50 percent of the wood material
of a tree is raw carbon. As the tree photosynthesized it
pulled carbon out of the atmosphere and bound it to the
wood material. Forest owners could address climate change
via sequestration by avoiding harvesting trees that would
be cut down and allowing trees to grow larger.
1:41:08 PM
Mr. Strauss moved to slide 6 titled Forest Carbon
Markets:
Voluntary Market
Companies voluntarily choose to purchase offsets
to reduce their emissions.
Greater variation in pricing $4 to $35
Premium value attributed to "charismatic"
projects
Less certain demand
Compliance Market
Companies purchase offsets to help meet their
legally mandated emissions targets (CA & Québec)
More consistent pricing $15 to $20
Built in demand through 2030
Additional Compliance Programs
Washington
CORSIA (international aviation)
Canada (Federal and Provincial)
Oregon
Mr. Strauss indicated that there were two different types
of forest carbon markets: the voluntary market and the
compliance market. The opportunity evaluation report
recommended for the state pursue the voluntary market. He
explained that compliance markets included buyers in the
State of California and Québec, Canada, which had a
compliance program since 2012 and were linked through the
Western Climate Initiative. Under compliance programs,
entities were mandated to reduce emissions and forest
credits typically sold between $17 and $24 per ton. He
delineated that an offset credit equated to one metric ton
of emission production; the unit commonly referred to in
carbon markets. The California market was in place through
2030. He addressed the voluntary market where companies
voluntarily choose to purchase offsets to reduce their
emissions. The motivations for engaging in the voluntary
markets were numerous. Some entities were mandated by
constituencies or shareholders and for others it was a
marketing tool. He elaborated that one of the differences
between the two markets was that in the voluntary markets
there was less certain demand. There was nothing legally
binding an entity in the voluntary market. He detailed that
voluntary units depended on the charisma of a carbon
offset. Voluntary market pricing varied substantially
between $4 to $35 depending on the quality of the carbon
program. The most charismatic projects beside from a strong
rule of law and protocols had co-benefits from an
ecological perspective. He explained that a voluntary
offset that offered a suite of ancillary benefits within
a forest project like habitat, air, and water quality, etc.
carried a premium value on the credit.
1:47:07 PM
Mr. Strauss turned to slide 7 titled Credit Buyers. The
slide listed some of the large participants in the
voluntary market. The business sectors involved were
technology, food, banking, entertainment, energy producing,
etc. He felt that from his standpoint in the industry, it
was heartening to see the commitments in place that
represented concrete promises to stakeholders and the
public even if it was not a mandate to a certain target. He
believed that these voluntary commitments represented a
substantial target built into long-term planning by the
companies.
1:48:55 PM
Mr. Strauss discussed slide 8 titled Landowner
Obligation:
• Harvesting should not exceed growth.
• Must maintain certification (SFI, ATFS) or have state
approved Forest Management Plan.
Mr. Strauss spoke to the obligation of landowners. The
chart on the slide showed the difference between the key
commitment points of the California Air Resources Board
(ARB)(compliance market) and a volunteer project through
the American Carbon Registry (ACR). He reminded the
committee that the ANEW report focused on the ACR voluntary
market as the recommended path forward for Alaska. He added
that there was currently no "path generation into the
compliance space. The only way forward for a publicly
managed organization was the voluntary market. He was
merely comparing markets to add context to the discussion.
He outlined that harvesting in a carbon project should not
exceed what was growing. Landowners were rewarded for
increasing and maintaining their carbon stock. He discussed
the monitoring obligations. The number of years an entity
was obligated was for 40 years versus 100 years following
the last issuance of credit in the ARB compliance market.
The offset project was required to perform annual reporting
and every five years the project was mandated to perform a
third-party verification of the total credits claimed,
which included a site based component that measured the
inventory to confirm the claimed carbon credits. The audit
had to be conducted at the start of a project and every
decade subsequently. The compliance market required an
inventory audit every 12 years. He detailed that the audit
employed a grid network of plots across the forest to
determine the amount of carbon. The audit used an academic
level of rigor to identify the number of trees, dead trees,
tree diameter and height, species, defects, regeneration,
etc. within each fifteenth of an acre grid plot. The audit
established a rich data set to determine how much carbon
existed across the landscape. The audit was critical to the
quality and legitimacy of the program. Therefore, a
nonbiased arbiter with extensive experience in protocols
and forest science was imperative to assure the integrity
of the credits.
1:54:1 9 PM
Representative Hannan looked at slide 8 and referenced a
statement by Mr. Strauss that Alaska was not able to
participate in the compliance market. She asked for a
repeat of the statement. She asked for clarification why
the state could only look at the voluntary market, which
had a much shorter commitment period. Mr. Strauss confirmed
that the Department of Natural Resources (DNR) would only
be able to participate in the voluntary market in the
forestry sector. He reiterated that there was not a project
on public land that could enroll in the ARB compliance
program. He detailed that it was technically allowable
under its regulations but proved to be impossible to do in
practice. He affirmed that the ACR program was a 40-year
commitment. He explained that other committees had
determined that it was important to understand the
difference in the mechanics between the compliance and
voluntary programs therefore, he included the comparison in
the presentation.
1:57:10 PM
Representative Josephson referenced Mr. Strauss's statement
that the carbon value needed to be maintained or grow on
the land impacted by the agreement. He mentioned the term
leakage and provided a hypothetical situation regarding
the state engaging in a carbon offset project on certain
land and logging the adjacent land. He wondered how that
would impact the offset project. Mr. Strauss replied that
the scenario Representative Josephson described was
crucially important to the integrity of an offset program.
He elaborated that the term leakage was correct and took
the situation into account. One of the pillars of the
program was that any landowner who participated in the
program by signing the ACR terms of use agreement, needed
to attest that any reduction of harvesting on one acre
would not lead to an increased harvest on another holding
managed by the landowner. He furthered that in addition to
the agreement, other leakage was considered by other market
players who would increase their harvest to add supply
because of the harvest that was taken off the market by the
offset participant. He noted that under ACR the leakage
reduction was quite conservative at 30 percent to 40
percent. Representative Josephson stated that because the
voluntary market was not regulated by government, he
wondered whether voluntary compliance and all it entailed
was done primarily for bragging rights to show the
participants consumers and shareholders that they engaged
in the activity.
2:01:43 PM
Mr. Strauss replied that there were a couple of different
ways to view the regulatory issue. He reasoned that in the
ACR voluntary market there were contracts signed by the
landowners and if a landowner ran afoul of its commitment
ACR could use the legal system and courts for breaching the
contract. He added that the credit buyers were buying the
credits because they were interested in reducing emissions.
In the compliance market, entities either had to reduce
their emissions under internal procedures or choose to
offset their emissions. The other option for anyone who
opted to offset in the voluntary market was emitting more
carbon due to the lack of a mandate. In the voluntary
market the reason for the wide difference in credit pricing
was that some certifiers lacked strict protocols therefore,
some of the credits did not justify the emissions
reductions that a company may claim. However, with a
reputable offset program, the credit buyer could feel
confident that what was bought had real value and
legitimacy in the marketplace.
Representative Coulombe asked who the third-party was that
would perform the verification. Mr. Strauss answered it was
a private auditing company with no allegiance to the
landowner or credit buyer, whose sole purpose was to serve
an auditory function and participate in field work to
ensure credits were of the highest integrity.
2:06:18 PM
Mr. Strauss advanced to slide 9 titled Key Components of
Offset Quality The slide listed the key components as
follows: Additionality, Verification/Monitoring,
Registration/Serialization, Leakage Reversal (intention/
unintentional), Buffer. He referred to additionality and
defined it as an offset that was a legitimate action that
led to a reduction in total emissions or an increase in
total sequestration. He described permanence as longevity
or the amount of time an entity was bound to maintain its
carbon stocks. In general, the marketplace preferred at
least 10 years in order to provide a significant impact. He
reiterated that verification and monitoring under a third-
party had to be performed on an ongoing basis to verify and
continue to monetize the stream of credits that were
derived from the forest. He elucidated that monitoring
consisted of keeping track of the forest, how it was
growing, and impacts from natural causes.
Mr. Strauss continued with registration and serialization
that was the overarching framework ensuring the credits
were appropriately tracked. The work was performed by non-
profit groups that tracked and issued the units (carbon
offsets) and then serialized. Once an emission reduction
was claimed, the unit was retired after one-time use. He
offered that any credit that was sold off registry was
difficult to legitimize. He indicated that reversal was
what happened if there was a loss of carbon stocks. An
intentional reversal was a situation where a landowner over
harvested and reduced its carbon stocks. The credits had to
be replaced to the registry by purchasing credits in the
marketplace and retiring the credits to makeup for the
emissions the overharvesting caused.
2:11:50 PM
He furthered that there were also unintentional reversals,
which was more common than intentional and was defined as
acts of God and caused by natural disasters. In the ACR
program, a mandatory 18 percent buffer requirement was
included in an insurance pool to account for unintentional
reversal. He calculated that for every 100 credits
generated, 18 credits were required to go into an insurance
pool and protected the landowner from catastrophic loss.
Mr. Strauss examined slide 10 titled "Alaska DNR Pilot
Projects:"
• Three areas were selected as pilot projects due to
their carbon stocking, accessibility, and timber
marketability.
• Three projects could collectively generate ~10 million
offsets over 40-year life.
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• >$80 million in revenue over 1 decade alone.
Mr. Strauss discussed the findings from the ANEW pilot
project. He recounted that he had engaged in extensive
discussions with DNR staff to identify 3 major regions
under DNR management and decided on Haines/Southeast,
Tanana, and Mat-Su (Matanuska Susitna Valley) forests. He
directed attention to the report for additional information
on page 13 and an addendum that broke out the difference
between Haines and Southeast (SE) Alaska with the most
recent data. The Tanana data was on page 15 and Mat-Su was
on page 17. He commented that Haines and SE had a richer
potential than Tanana and Mat-Su. He added that the data
was done by a multi-level review that involved field data
provided by DNR. His organization, ANEW, did a remote
sensing examination of the forest holdings, considered
access to the timber market, infrastructure, and historical
and planned harvests to draw its conclusions.
2:16:02 PM
Co-Chair Foster recognized that Representative Ortiz had
joined the meeting. He looked at slide 10 stating that
three projects could collectively generate 10 million
offsets over their 40-year life. He referenced fiscal notes
attached to the bill that estimated revenue over 10 years.
He thought that the key word regarding revenue generation
of $80 million was "could. He asked whether the assumption
in the fiscal notes was based on 10 percent of the three
pilot areas generating carbon offsets. Mr. Strauss
clarified there were two different periods he was talking
about; the entire life of the project of 40 years would
generate about 10 million offsets. He indicated that the
value would total roughly $310 million over 40 years. He
clarified that the three projects over the first 10 years
would generate approximately $80 million.
Representative Tomaszewski referenced slide 10 and
calculated that the value per carbon offset was $32. He
cited the fiscal notes showing $2.1 million in expenses in
FY 24. He asked if the revenue generation numbers included
expenses and inflation and if not, he requested the data.
Mr. Strauss answered that the figures did include all the
expenses associated with producing the offsets but did not
include any fee for the development effort. The revenue
estimates included the costs for inventory and verification
work and for registration and issuance of the credits. The
assumption was based on DNR doing the work in-house. He
added that the cost for the project development depended on
who would do the work. He communicated that ANEW did not
charge for the implementation efforts, they partnered with
landowners and took a percentage of the total revenue
generated by the project. Additionally, ANEW paid for all
the expenses upfront. He referred to the report and pointed
to the expense columns on the project tables on pages 15
through 17. The expenses would be reimbursed on successful
sale of the credits. Public entities would not have any
initial upfront costs and if the project failed ANEW would
cover the costs.
2:21:42 PM
Representative Tomaszewski asked about the cost of
operation over the same period of time. He thought costs
were broken down over a decade and 40-year project life. He
requested a breakdown of the costs in the fiscal notes
including development costs.
Ms. Miller interjected that ANEW did not work on the fiscal
notes. She was happy to follow up and work with the Co-
Chair to identify a framework for the numbers that the
committee would prefer.
Representative Josephson asked if the voluntary compliance
aspect ended once there was a contract. He deduced that
once a contract was signed it was binding for 40 years. Mr.
Strauss replied affirmatively. He clarified that voluntary
referred to the market a landowner and credit buyer
operated in. In the compliance market credit, credit
purchasers were obligated to participate. Representative
Josephson he recalled Mr. Strauss stating that a breach of
contract could be remedied in an international court. He
asked where the court was located. Mr. Strauss replied that
he did not refer to an international court. He clarified
that a company called Winrock International, that was a
large non-profit Non-Governmental Organization (NGO) owned
the American Carbon Registry and he had referred to the
organization. He indicated that any litigation would be
carried out in the US in the jurisdiction of Virginia.
Representative Galvin cited slide 10 and recounted Mr.
Strausss statement that $310 million in revenue could be
realized over 40 years. She calculated the average of about
$7.75 million per year on the front end. Mr. Strauss agreed
with her calculations and that it was front ended. He
explained that due to the nuance of the project it was
front ended in Haines and Southeast rather than in the
other locations of Mat-Su and Tanana.
2:26:30 PM
Representative Galvin remarked that with the credits having
no intrinsic value such as oil or timber, she had heard the
carbon credits analogized with cryptocurrency and Non-
Fungible Tokens (NFTs). She asked Mr. Strauss to discuss
the biggest downside risk with the bill and the program.
Mr. Strauss answered that the credits operated in a market
context. He hypothesized a situation where the market for
timber significantly increased during the timeline of an
offset project, which reduced the value of the project
below the value of the timber. He offered that the
landowner would be giving up the timber value, which was
what gave the carbon offset project legitimacy. The
commitment was made to maintain the carbon offset. It would
not be an option to reduce the timber stocks if the
landowner could suddenly capitalize on a higher timber
value. He always encouraged landowners to make the
commitment to the full 40 years. He qualified that off-
ramps were possible. He offered a hypothetical example in
the future where a new technology could remove as much
carbon out of the atmosphere as necessary for pennies on
the dollar. The carbon offsets would have a low value
because the market fell out. The contract had a provision
where the landowner could purchase sufficient credits from
the market to reimburse the registry for every credit the
project generated and exit the program without penalties.
The project could be ended at the lower cost of the market
rate for the credits. However, he was not suggesting the
scenario could be used as an arbitrage play.
He continued by addressing any downsides to the
legislation. He communicated that the legislation did not
commit DNR to participate in any projects, it offered the
option if it was worthwhile, it had no binding elements.
Representative Galvin asked what percentage ANEW or
companies like it charged for its services. Mr. Strauss did
not know what other companies would charge. He disclosed
that ANEW was the predominant company for public projects.
Any project done by ANEW would vary depending on
complexity, size, total amount of credits issued, etc. He
estimated that the percentage would be lower if it did all
3 of the projects simultaneously, and the charge would be
below 20 percent.
Co-Chair Foster noted that Co-Chair Johnson had joined the
meeting.
2:32:15 PM
Representative Ortiz looked at the projection of $80
million over the next first decade. He asked if the lost
opportunity costs for the harvestable timer was woven into
the projection. Mr. Strauss responded that he had worked
closely with DNR on the revenue projections and attempted
to be fairly conservative. He elucidated that the plan
allowed for timber harvesting to a certain level. The
assumption was that DNR would not harvest to the extent the
timber harvest plan had allowed for. It was a factor in how
ANEW could design a project versus a baseline. He explained
that the baseline allowed for as much timber harvesting as
allowed under a harvest plan. The carbon project scenario
defined what amount of harvest was acceptable and
allowable; it took the ability to harvest meaningfully more
off the table. He summarized that there might be an
opportunity costs, but the idea was to provide truly
sustainable management and remove the opportunity to
increase harvest as could have otherwise. Representative
Ortiz deduced that the $80 million over a decade for carbon
offsets did not produce the same amount of economic
activity if the timber was harvested. He wondered if timber
harvesting promoted much more economic activity than an
offset program.
Mr. Strauss answered that it was important to understand
the carbon offset project was not a dramatic departure from
current harvest management plans. However, the offset
project made a concrete commitment to maintain or reduce
harvest to certain levels and removed the opportunity to
ramp up to the level of the original harvest plan.
2:37:34 PM
Representative Hannan announced that she and Representative
Ortiz represented areas of Southeast Alaska. She referenced
a specific harvest sale in SE, the Brown Bear sale that
was currently under litigation. She asked whether the Brown
Bear stand was included in the ANEW study. She was
interested in comparing the two values of the stand: under
a timber harvest or as part of a carbon offset.
Ms. Miller replied that she would need to consult with the
Forestry Division to answer the question. She understood
that depending on the dynamics of the project, it might not
be an either or situation.
Representative Hannan asked how the decisions would be made
to either offer a stand as an offset or to harvest the
timber. Ms. Miller offered to provide the answer. She added
that the bill explicitly contained provisions for DNR to
follow when considering a project and to evaluate the state
and local economic impacts.
2:40:37 PM
Mr. Strauss addressed slide 12 titled Development
Components:
1. Project Feasibility Analysis
2. Contracting and Listing
3. Inventory
4. Modeling And Documentation
5. Verification
6. Credit Registration and Issuance
7. Credit Sale
Mr. Strauss explained the development process of a forest
carbon project. He indicated that the first step was a
feasibility analysis. The carbon team would gather data and
use all the information to build the carbon project plan.
Once the projects feasibility and economics were
considered favorable, the contracting and listing process
began. He elaborated that a contract was the agreement
between the landowner and project developer and the listing
actually listed the project onto the ACR. The inventory
stage would commence, which included a detailed study of
the carbon stock. Once the data from the inventory was
collected the modeling and documentation phase began.
Modeling determined the carbon offset plan versus the
current baseline timber harvest plan. The third-party
verification process was the next component. The
specialized accredited auditor would review and confirm
documents and perform onsite measurements to verify that
all the calculations were correct. He added that the
verification process could be a long process lasting up to
6 months or more and involved a lot of back and forth
between the auditor and project developer. Following the
verification, a registry review was commenced by ACR and
once approved the credits were registered, serialized, and
issued. Finally, the credits could be sold. He noted that
bullet points 4 through 7 could happen on an annual basis
of the 40-year life of a project. He pointed to the
downward arrow on the slide that encompassed all seven
components labeled credit marketing and related that ANEW
offered turnkey service and provided service for every
aspect of the process. He emphasized that ANEW maximized
value to the landowner by marketing their credits directly
to buyers, avoiding middlemen.
2:45:40 PM
Mr. Strauss discussed slide 13 titled Development
Timeline, which charted how long the entire process took.
He offered that the entire process from its establishment
took 18 months to 24 months. He noted that the project
verification process typically began after 12 months,
because it took one year to accumulate credits for the
audit. The 40-year life of the project was broken into
reporting periods, with the first one happening within the
first year.
Co-Chair Foster noted that the department would address the
fiscal notes at the next bill hearing.
Representative Josephson recounted that DNR studied local
impacts when entertaining a project proposal. He wondered
how local governments could benefit from a project. Ms.
Miller responded that the bill in conjunction with the best
interest finding specifically stated the department would
need to consider the reasonably foreseeable effects of a
project on the state and local economy. There was no direct
avenue for a local government to receive revenue generated
by the credits. However, the portion of credit revenue
deposited into the General Fund (GF) funded a number of
activities that supported local governments.
2:50:12 PM
Representative Josephson commented that the proposal was
not about leasing land, but the bill talked about leasing
land. He asked for clarification. Mr. Strauss answered that
the ANEW report did not involve anyone leasing any land
it was simply the state enrolling its own land for a
project.
Representative Josephson asked Ms. Miller to address the
conundrum.
Ms. Miller responded that the bill took two pathways to
potential projects on state land. One way was described by
Mr. Strauss, where the state did a project on state land in
conjunction with a development company. The other avenue
under the bill allowed DNR to lease state land to third
parties for a carbon offset purpose.
Representative Galvin looked at slide 13 and asked for
verification that it took typically 24 months to execute a
credit sale. Mr. Strauss replied that ANEW aimed for 18
months but 24 months was not unusual, and clients should be
prepared for that. Representative Galvin inquired about
timing and the urgency for the bill and whether it
related to the voluntary market being dynamic. Mr. Strauss
confirmed that it was a dynamic market. He offered that
ANEW had been the beneficiaries of an increasing market and
pricing over the last decade. He commented that there were
different projects that came into favor at different times
and buyers had different interests in various carbon types.
He did not think the market dynamics had the largest impact
on how long it took to get the credits issued. He noted
that there was no requirement to sell the credits once
issued. The state could hold the credits if the market
softened. His company considered market dynamics and
determined when to sell and when to hold.
2:55:13 PM
Co-Chair Edgmon added the four fiscal notes that totaled
$2.1 million in costs in FY 2024. He asked whether he was
correct. Ms. Miller responded that one fiscal note related
to the state leasing portion and would never be paid
through the revenue generated from a project. She pointed
to DNRs Mining, Land, and Water (FN New, dated 3/30/2023)
fiscal note. There was authority in HB 49 for DNR to use
receipts from leasing activities to supplant GF for funding
the positions that would assist with leases. She pointed to
the two other DNR fiscal notes allocated to the Office of
Project Management and Permitting (OPMP) (FN New, dated
3/30/2023) and the other allocated to Forest Management and
Development (FN New dated 03/31/2023) related specifically
to a carbon offset project on state land. Both pathways
would employ things like best interest findings, etc. Co-
Chair Edgmon presumed that there was already work done on
the three pilot projects and he assumed it was done in-
house without any additional budget. He deduced that with
every lease there were two purposes, one was to harvest
timber and the other was a carbon offset project. He asked
if the bill addressed the issue.
2:57:57 PM
Ms. Miller asked if his question was specific to the
leasing pathway. Co-Chair Edgmon answered in the
affirmative. Ms. Miller replied that a land lease to a
third-party did not convey any timber rights. Co-Chair
Edgmon presumed that a timber harvest would take place. Ms.
Miller answered that the bill did not restrict a carbon
offset project lease to a third-party to timber. She
mentioned that kelp farming was a potential way to use
nature and sequester carbon. A forest carbon offset project
would entail some likelihood of harvest. Only the state
could undertake an offset project in the Tanana and
Southeast state forests. She qualified that forested state
land was open to a third-party lease, which did not require
a commitment to harvest timber.
3:00:03 PM
Co-Chair Edgmon he pointed to page 7 of the bill that
referred to the mitigation of greenhouse gases. He asked if
the definition of mitigate greenhouse gases was defined in
statue. He cited page 6 of the bill and referred to
transferrable instruments and admission reduction of one
metric ton. He understood that the state lacked the
framework to voluntarily commit to a project and understood
that was the purpose of the bill. He concluded that he
needed more information in order to understand the concepts
of the bill.
Co-Chair Foster did not intend to rush discussions on the
carbon bills. He wanted the committee to gain a thorough
understanding and feel comfortable with the topic.
Representative Stapp stated he was having a hard time
understanding one of the pilot projects related to the
Tanana State Forest. He was not aware of any large scale
timber operations in that forest. He wondered why someone
would pay the state not to harvest timber it was not
harvesting. Ms. Miller replied that when the registry
looked at a potential project, they looked at whether a
harvest was legal. The registry then analyzed the
commercial possibility of harvesting timber, whether it was
currently being harvesed or ever had been harvested in the
past. The registry also considered factors like proximity
to mills and whether the type of timber was appropriate for
the mill to process, etc. She deferred to Mr. Strauss for a
further answer.
3:04:01 PM
Mr. Strauss replied that credits were generated in two
ways. He explained that there were credits from avoided
harvesting and credits for new growth that took place since
the project's inception. He indicated that Tanana had less
attractive timber than Haines. In the Tanana case, what was
considered was what would be financially attractive and
would involve harvesting anything less than what was
projected in the hypothetical. He referenced page 15 of the
report that detailed the Tanana Project, which talked about
conservation credits and removal credits (meaning removal
of carbon in the atmosphere). The Tanana Project only
received removal credits and did not receive conservation
credits because they were not modeling any potential credit
generation from avoided loss of the existing stock.
Representative Tomaszewski cited the four fiscal notes that
reflected about 25 percent of the $8 million per year. He
asked if there was inflation proofing in the calculation of
the carbon credits and whether it would it be a flat fee or
if the fiscal notes would change over the years with
inflation. He estimated that 45 percent of the revenue was
already spoken for in the fiscal notes. He asked if the
Forest Management and Development fiscal note covered the
development timeline shown on slide 13 or whether a third-
party was involved.
3:08:25 PM
Ms. Miller replied that the fiscal notes did not account
for the costs of a project developer to do a turnkey
operation. The operating costs on the fiscal notes were
internal positions for DNR. She furthered that the capital
outlay in the OPMP allocated fiscal note included some
money for contractual expertise but did not include a
program developer. She deferred to Mr. Strauss to answer
the question regarding inflation proofing related to the
credits.
Mr. Strauss answered that the tables reflected a world with
static inflation. He deduced that if there was inflation in
the expenses there would likely be inflation in the price
of the credits. He was constantly examining what was
happening in the market. He emphasized that the data
reflected selling credits in the given years. He provided a
scenario where some years some credits were held back or
all were sold, etc., depending on the market. The
marketplace should be constantly scrutinized to maximize
revenue from the sale of credits.
3:10:33 PM
Representative Tomaszewski asked if there was a project or
contract, who would be responsible if the forest burned
down. Mr. Strauss recounted his discussion of a type of
insurance that deposited 18 percent of all the credits into
a buffer pool for catastrophic loss and reduced the states
liability (unintentional reversal.) If the state chose to
harvest trees, which was an intentional reversal, it would
be obligated to purchase and replace the lost credits.
Representative Tomaszewski asked if the buffer was an
insurance policy. He wondered if it was an account that the
state owned and built up. He clarified that 18 percent
would go to insurance in form of a buffer pool. He asked if
he was correct. Mr. Strauss responded in the affirmative
and added that the 18 percent was an insurance-like
purchase. The credits were held by the ACR and required
that for every credit .18 credits would need to be pushed
into the buffer pool as a protective measure in case of
unintentional reversal. He reiterated that out of every 100
credits generated the project received 82 and the remainder
of the credits were deposited into the buffer pool. He
added that all of the data in the report accounted for the
buffer pool credits.
3:12:52 PM
Representative Coulombe asked for confirmation that for
every credit generated 18 percent would go to the insurance
pool. Mr. Strauss responded in the affirmative.
Representative Coulombe asked when the money would start
getting transferred to the insurance pool. Mr. Strauss
responded that there were never any dollars exchanged. The
buffer pool was made up of credits, not dollars. When the
credits were issued to the project the buffer pool credits
transfer would happen simultaneously. Representative
Coulombe understood that the carbon credits were worth
money, and a percentage of credits would be deducted for
the pool. Mr. Strauss responded that the project was
generating the carbon credits and a purchaser would buy
them. He explained that there was an expense of $0.17 per
ton from the registry for the issuance. There would be no
fees involved for the percentage of credits transferred
into the buffer. He suggested that the way the transfer of
buffer credits should be viewed was of the 100 credits that
were generated, only 82 would be received because the
buffer poll retained the remaining credits.
3:15:46 PM
Co-Chair Foster requested a profit and loss report that
included all of the costs and associated expenses, fees,
etc. including the buffer pool.
HB 49 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day.
ADJOURNMENT
3:17:05 PM
The meeting was adjourned at 3:17 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB49 - AK House Finance Committee - Forest Carbon 101 by Anew - 4.06.2023.pdf |
HFIN 4/10/2023 1:30:00 PM |
HB 49 |
| HB 49 DNR responses to House Finance Committee 041023.pdf |
HFIN 4/10/2023 1:30:00 PM |
HB 49 |
| HB 49 NEW FN DOR Comm Office 041223.pdf |
HFIN 4/10/2023 1:30:00 PM |
HB 49 |