02/22/2023 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB10 | |
| HB50 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 50 | TELECONFERENCED | |
| += | HB 49 | TELECONFERENCED | |
| + | SB 10 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 22, 2023
1:33 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative George Rauscher, Vice Chair
Representative Kevin McCabe
Representative Dan Saddler
Representative Jennie Armstrong
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
Representative Josiah Patkotak
Representative Stanley Wright
COMMITTEE CALENDAR
SENATE BILL NO. 10
"An Act providing for trapping licenses for active members of
the Alaska National Guard and military reserves without charge;
making sport fishing, hunting, and trapping permanent
identification cards available to certain disabled veterans
without charge; and providing for an effective date."
- HEARD & HELD
HOUSE BILL NO. 50
"An Act relating to the geologic storage of carbon dioxide; and
providing for an effective date."
- HEARD & HELD
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."
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: SB 10
SHORT TITLE: HUNTING/TRAPPING/FISHING: DISABLED VETS
SPONSOR(s): SENATOR(s) KIEHL
01/18/23 (S) PREFILE RELEASED 1/9/23
01/18/23 (S) READ THE FIRST TIME - REFERRALS
01/18/23 (S) RES
01/27/23 (S) RES AT 3:30 PM BUTROVICH 205
01/27/23 (S) Heard & Held
01/27/23 (S) MINUTE(RES)
02/10/23 (S) RES AT 3:30 PM BUTROVICH 205
02/10/23 (S) Moved SB 10 Out of Committee
02/10/23 (S) MINUTE(RES)
02/13/23 (S) RES RPT 6DP
02/13/23 (S) DP:BISHOP, GIESSEL, DUNBAR, KAUFMAN,
WIELECHOWSKI, CLAMAN
02/15/23 (S) TRANSMITTED TO (H)
02/15/23 (S) VERSION: SB 10
02/17/23 (H) READ THE FIRST TIME - REFERRALS
02/17/23 (H) RES
02/22/23 (H) RES AT 1:00 PM BARNES 124
BILL: HB 50
SHORT TITLE: CARBON STORAGE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/27/23 (H) READ THE FIRST TIME - REFERRALS
01/27/23 (H) RES, FIN
02/10/23 (H) RES AT 1:00 PM BARNES 124
02/10/23 (H) Heard & Held
02/10/23 (H) MINUTE(RES)
02/15/23 (H) RES AT 1:00 PM BARNES 124
02/15/23 (H) Heard & Held
02/15/23 (H) MINUTE(RES)
02/17/23 (H) RES AT 1:00 PM BARNES 124
02/17/23 (H) Heard & Held
02/17/23 (H) MINUTE(RES)
02/20/23 (H) RES AT 1:00 PM BARNES 124
02/20/23 (H) Heard & Held
02/20/23 (H) MINUTE(RES)
02/22/23 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
SENATOR JESSE KIEHL
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As the prime sponsor, introduced SB 10.
CATHY SCHLINGHEYDE, Staff
Senator Jesse Kiehl
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Senator Kiehl, prime sponsor,
answered questions during the hearing on SB 10.
ADAM CRUM, Commissioner Designee
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: On behalf of the prime sponsor, House Rules
by request of the governor, answered questions on HB 50.
BRANDON SPANOS, Deputy Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: On behalf of the prime sponsor, House Rules
by request of the governor, answered questions on HB 50.
JASON OLDS, Director
Division of Air Quality
Department of Environmental Conservation
Juneau, Alaska
POSITION STATEMENT: On behalf of the prime sponsor, House Rules
by request of the governor, answered questions on HB 50.
BRETT HUBER, Commissioner
Alaska Oil and Gas Conservation Commission
Department of Administration
Juneau, Alaska
POSITION STATEMENT: On behalf of the prime sponsor, House Rules
by request of the governor, answered questions on HB 50.
MARY GRAMLING, Assistant Attorney General
Oil and Gas Section
Department of Law
Anchorage, Alaska
POSITION STATEMENT: On behalf of the prime sponsor, House Rules
by request of the governor, answered questions on HB 50.
AARON O'QUINN, Leasing Section Manager
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: On behalf of the prime sponsor, House Rules
by request of the governor, answered questions on HB 50.
ACTION NARRATIVE
1:33:05 PM
CHAIR TOM MCKAY called the House Resources Standing Committee
meeting to order at 1:33 p.m. Representatives McCabe, Saddler,
Mears, Dibert, and McKay were present at the call to order.
Representatives Armstrong and Rauscher arrived as the meeting
was in progress.
SB 10-HUNTING/TRAPPING/FISHING: DISABLED VETS
1:34:37 PM
CHAIR MCKAY announced that the first order of business would be
SENATE BILL NO. 10, "An Act providing for trapping licenses for
active members of the Alaska National Guard and military
reserves without charge; making sport fishing, hunting, and
trapping permanent identification cards available to certain
disabled veterans without charge; and providing for an effective
date."
1:34:52 PM
SENATOR JESSE KIEHL, Alaska State Legislature, as the prime
sponsor, introduced SB 10. He stated that SB 10 would bring
parity to disabled veterans in regard to hunting, trapping, and
fishing [licenses]. He noted that Alaska residents are eligible
to receive a lifetime [license] card upon reaching their
sixtieth birthday, as well as service members with at least 50
percent disability. He noted that trapping is not on the list
of eligible activities for veterans, and this reason is unknown.
He stated that he has received letters of support for the
proposed legislation from outdoor groups and veterans'
organizations.
1:38:38 PM
REPRESENTATIVE SADDLER asked whether the proposed legislation
would apply to uniformed service members who served the National
Oceanic and Atmospheric Administration (NOAA).
1:39:01 PM
CATHY SCHLINGHEYDE, Staff, Senator Jesse Kiehl, Alaska State
Legislature, on behalf of Senator Kiehl, prime sponsor,
expressed the understanding that these individuals would not
qualify. She added that the qualifications would be tied to the
eligibility for veterans' mortgages.
1:40:42 PM
CHAIR MCKAY announced that SB 10 was held over.
1:41:15 PM
The committee took an at-ease from 1:41 p.m. to 1:44 p.m.
HB 50-CARBON STORAGE
1:44:28 PM
CHAIR MCKAY announced that the final order of business would be
HOUSE BILL NO. 50, "An Act relating to the geologic storage of
carbon dioxide; and providing for an effective date."
1:45:36 PM
ADAM CRUM, Commissioner Designee, Department of Revenue (DOR),
on behalf of the prime sponsor, House Rules by request of the
governor, addressed HB 50. He introduced Brandon Spanos, who
would be discussing how the federal 45Q tax credits would affect
state corporate tax.
1:45:59 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue, on behalf of the prime sponsor, House Rules by request
of the governor, addressed corporate income tax in relation to
HB 50. He began by explaining corporate income tax in the
state. He stated that corporate income tax is applied in Alaska
to C corporations, which are corporations independent of their
owners in terms of applying the federal Internal Revenue Code
(IRC). He stated that these corporations are considered
"water's edge companies" and not oil and gas companies, which
are taxed on income starting at the federal income level. He
explained that with multi-state corporations, one state would
not receive 100 percent of the income tax, but only a portion.
To determine the percentage, he said that Alaska uses the
Uniform Division of Income Tax Act (UDITA), which allows the use
of an apportionment factor. This factor is created by using the
enumerator of the state and the denominator of the total of all
the states the company does business in. These factors are
property, payroll, and sales. He noted that oil and gas
companies' tax is calculated differently, and an international
apportionment factor is used, which is determined by the
extraction of resources all over the world by the company. He
moved to describe how the 45Q tax credits [which create an
incentive for carbon capture, utilization, and storage (CCUS)]
could be used. He stated that federal credits are a part of the
federal IRC used in Alaska, but this credit is capped at 18
percent. He stated that this tax credit apportionment would be
created the same way as the income apportionment.
1:50:51 PM
MR. SPANOS, in response to a request from Chair McKay to
simplify the topic, pointed out that for an oil and gas company
that earns income internationally, it would only be taxed in
Alaska on the income apportioned to Alaska based on the
company's property, extraction, and sales. In response to a
follow-up question, he answered that the method described would
not qualify as "separate accounting." In response to a follow-
up question, he stated that the acronym "UDITA" stands for the
Uniform Division of Income Tax Act.
1:53:43 PM
REPRESENTATIVE MCCABE asked whether carbon credit sales would
qualify as variable income from sales under UDITA.
MR. SPANOS answered that Alaska's income would be based on the
starting point for federal IRC.
1:55:14 PM
REPRESENTATIVE MEARS asked whether tax credits work the same way
as other federal taxes.
MR. SPANOS clarified that the federal tax is not apportioned;
however, the federal income is apportioned for water's edge
companies. He stated that an oil and gas company's worldwide
income would be apportioned. He explained that the 45Q tax
credit, along with any other federal credit that has been
adopted by the state, would be apportioned to Alaska, and then
18 percent of this could be used as a credit on the company's
tax return. He provided an example for further explanation.
1:58:20 PM
REPRESENTATIVE SADDLER asked whether the apportionment factor
would be what a company makes in the entire world divided by
what it makes in Alaska.
MR. SPANOS answered that the Alaska apportionment factor for an
oil and gas company would be a combination of three factors: its
property in Alaska divided by its property everywhere,
extraction in Alaska divided by its extraction everywhere, and
sales in Alaska divided by its sales everywhere. In response to
a follow-up question, he stated that the state of Alaska has a
tax credit limit of 18 percent.
2:01:21 PM
REPRESENTATIVE ARMSTRONG, concerning the big picture, questioned
the market size and how potential revenue would be affected.
She expressed the concern that the proposed legislation should
be positive and not negative for the state.
CHAIR MCKAY advised that this would be covered later in the
meeting.
2:03:05 PM
REPRESENTATIVE MCCABE expressed the concern that carbon tax
credits and 45Q credits seem similar to oil tax credits. He
referenced the amount of money the state has paid in oil tax
credits and expressed the opinion that this would be different.
He sought reassurance that these tax credits would not cost the
state money.
COMMISSIONER DESIGNEE CRUM answered that per the current law,
with the 45Q tax credit, it would not create a negative credit
for the state, but it would reduce the amount of corporate
income tax coming into the state. In response to a question
concerning whether carbon tax credits could be sold like oil tax
credits, he expressed uncertainty.
2:05:50 PM
COMMISSIONER DESIGNEE CRUM continued to address whether carbon
dioxide (CO2) storage facilities would be subject to state
property tax. He stated that DOR would determine whether the
new facilities would be solely dedicated to the use of carbon
sequestration, and if so, they would not be taxable by the
federal government, although they may be subject to local
property taxes. To the extent that oil and gas property is used
for this sole purpose, the property would not be taxed. He said
that it would still need to be determined by DOR whether there
would be an exception for dual-use facilities that are being
used for both transport and carbon sequestration. He stated
that this would depend on any legislation passed.
2:07:24 PM
REPRESENTATIVE MEARS asked how the proposed bill would affect
oil and gas taxation.
COMMISSIONER DESIGNEE CRUM stated that facilities used only for
carbon sequestration would be taxed as personal property. In
response to a follow-up question, he said that the oil and gas
tax structure would not be affected.
2:08:24 PM
REPRESENTATIVE SADDLER clarified that oil and gas taxes would
not apply to the actual CO2 injected into a reservoir.
COMMISSIONER DESIGNEE CRUM responded in the affirmative. In
response to a series of follow-up questions, he answered that
the facilities used solely for carbon sequestration would not be
taxed. He suggested that dual-use facilities would likely be
subject to a percentage property taxation. In response, he
stated that the actual pumps and wells would be taxed if not
used for any sequestration.
2:10:00 PM
CHAIR MCKAY asked whether the state could lose revenue if a
company that is sequestrating carbon is not taxed enough by the
state.
COMMISSIONER DESIGNEE CRUM answered yes.
REPRESENTATIVE MEARS questioned the operating scale of the
carbon sequestration industry, and she quoted some estimates.
COMMISSIONER DESIGNEE CRUM, in reference to the scope, deferred
to the Department of Natural Resources (DNR) and the Department
of Environmental Conservation (DEC).
2:12:26 PM
REPRESENTATIVE ARMSTRONG, [concerning the amount of possible
carbon sequestration], asked whether the current tax rate for
oil and gas is enough to keep revenue generation positive if the
proposed legislation is passed.
COMMISSIONER DESIGNEE CRUM answered that the enhanced oil
recovery side is different from sequestering carbon. As far as
the amount of CO2 that can be sequestered, he deferred to DEC.
Concerning the overall funds available, he stated that DOR has
worked on carbon offsets; however, this concerns a different
piece of legislation.
CHAIR MCKAY added that it may take some time to find investors
for carbon sequestration. He stated that currently the carbon
produced on the North Slope is reinjected, and in this process,
the carbon is called "stranded" [not sequestered]. He further
explained the enhanced oil recovery side, which entails pumping
CO2 to clear a field.
2:16:28 PM
JASON OLDS, Director, Division of Air Quality, Department of
Environmental Conservation, per the indeterminate fiscal note,
stated that the amount of the tonnage of the emissions that
could be reinjected is unknown; therefore, the market is
unknown. He suggested that the emissions would not exactly
represent the amount of carbon. He continued that the proposed
bill would open the opportunity for a market that would reduce
CO2 emissions, and as the market develops, the impacts would
then be learned. He expressed the opinion that this would not
increase DEC's workload, and the department supports the
legislation.
2:18:15 PM
REPRESENTATIVE SADDLER, concerning the zero fiscal note for DEC,
asked whether the fiscal notes allow for the avoidance of
certain fees.
MR. OLDS answered that payments would be based on the reports
submitted.
2:19:10 PM
REPRESENTATIVE MCCABE questioned whether the framework provided
by HB 50 would attract companies to conduct exploration on
carbon storage.
COMMISSIONER DESIGNEE CRUM responded in the affirmative. He
stated that the framework would be necessary in order to have
the market realized. He advised that once there is statutory
authority, companies will become interested.
2:21:00 PM
REPRESENTATIVE SADDLER questioned the potential risks for CO2
escapement.
MR. OLDS answered that the liabilities question has been
discussed, and he deferred to the Department of Law (DOL). He
stated that currently there are no regulations associated with
carbon alone. The regulations for other emissions, such as
methane, are guided by monitoring. He added that there could be
some permitting and compliance regulations created.
CHAIR MCKAY added that if high amounts of CO2 escape into a low
area, it could result in suffocation from lack of oxygen, but
CO2 is already present in the atmosphere.
2:23:50 PM
REPRESENTATIVE MEARS expressed the opinion that CO2 should be
kept in the ground and not in the atmosphere; however, she
expressed the concern that this could result in spending more
money than what would be saved. She suggested that the state
needs to continue to find ways to use this for revenue
generation. She stated that the potential amount of carbon
being discussed is in DEC's fiscal note, of which, she added,
this number is "not a real number."
CHAIR MCKAY responded that if there is no interest in CO2
sequestration, then there would be no resulting fiscal cost.
COMMISSIONER DESIGNEE CRUM responded in the affirmative. He
added that there would be no cost if there is no program to
administer.
CHAIR MCKAY reiterated the point that if "nobody comes to the
table, then the program basically goes dormant."
COMMISSIONER DESIGNEE CRUM responded in the affirmative. He
added that the proposed legislation would increase the economic
viability of a potential gas line because of the rebated funds
from the federal taxes. He advised that this would be providing
a new energy source in Alaska for the long term.
REPRESENTATIVE MEARS argued that, without a solid figure for the
potential of revenue generation, the $1.5 million in the two
fiscal notes would be spending money prematurely.
2:27:27 PM
REPRESENTATIVE ARMSTRONG expressed the understanding that
because Alaska has some of the lowest emissions, the state would
need to rely on other countries to barge in carbon for storage.
She questioned why companies would choose to store CO2 in Alaska
over other locations. She also questioned whether there have
been any potential clients identified.
COMMISSIONER DESIGNEE CRUM expressed the opinion that the
overall competitive aspect would help the potential for
additional liquefied natural gas pipelines, and these companies
would then be more interested in doing other projects. He
mentioned several examples.
2:29:14 PM
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources, in addressing the potential scale of the CO2
sequestration in the state, answered that there are already
existing sources of large-scale emissions, as up on the North
Slope. He pointed out that the CO2 emissions already created by
projects in Alaska could be sequestered in the state; thus,
generating revenue in Alaska via injection fees and other fees.
He reiterated that a large-scale natural gas project could move
forward with a significant amount of emissions to sequester, and
this could provide the potential to boost other natural
resources. He added that imported CO2 would also create some
amount of revenue. He continued that there is value in all
these scenarios, and if there is no option of sequestration for
companies, the value of oil and gas in the state could diminish.
He argued that potentiating all the other developments is a very
important aspect of the proposed legislation.
2:31:53 PM
REPRESENTATIVE ARMSTRONG clarified that the $1.5 million in the
fiscal notes would not be an up-front cost for the state. She
questioned the timeline in which the state can expect a pipeline
to be built.
MR. CROWTHER, in response to the first question, stated that per
the DNR fiscal note, there would be some start-up cost, but
potentially if there is no activity, positions would not be
filled, and the funds would not be used. He stated the funds
would be initially required; however, there would be a gauge to
this and time to evaluate the market. If there is activity, he
suggested that the oil and gas industry would expect some
federal funds to offset the costs.
2:34:35 PM
CHAIR MCKAY questioned primacy and permitting on a Class VI
well.
2:35:14 PM
BRETT HUBER, Commissioner, Alaska Oil and Gas Conservation
Commission (AOGCC), Department of Administration, began by
stating that the U.S. Environmental Protection Agency (EPA)
defines a Class II well as a well used to inject fluids
associated with oil and gas exploration and production, while a
Class VI well is used to inject CO2 for long-term storage for
geological sequestration. He added that Class VI wells do not
have an oil and gas exploration requirement. He continued that,
concerning the fiscal note, it would provide for two new
positions at AOGCC, and these positions purposely would take
over the primacy application process from EPA, as well as other
duties. He expressed the understanding that consultants would
be needed for the transfer of these responsibilities. He noted
that the additional staff would add expertise for other issues
at AOGCC. He also noted that DNR has already mapped out the
process of taking over duties concerning primacy from EPA. He
covered the details of DNR's work in relation to this. He
stated that several states have already adopted acceptable
regulations for carbon storage and have transitioned from EPA;
therefore, "there is a good road map to achieve this primacy."
He suggested that the timeframes for other states have been
around two years. For the primacy process, he stated that there
is around $2 million in the fiscal notes. He added that there
are also opportunities for federal grants for this process. He
discussed the possibility that the amount to put primacy in
place would be recouped by the grants.
2:39:27 PM
CHAIR MCKAY questioned when AOGCC would hire personnel and
pursue Class VI well primacy. He questioned whether AOGCC would
wait until the state garnered interest in carbon storage before
the funds were used.
COMMISSIONER HUBER reminded that the primacy process would take
at least two years. He expressed the opinion that the proposed
legislation would provide the benefit of primacy if the state
were to pursue CCUS either now or in the future. He recommended
that doing so immediately is in the interest of the state. He
stated that other states that have sought primacy have seen an
increased interest in carbon storage.
2:40:41 PM
REPRESENTATIVE SADDLER questioned whether the cost incurred in
the first two years would be solely for seeking primacy.
COMMISSIONER HUBER responded in the affirmative. He added that
AOGCC expects to make-up the money spent on primacy through
federal grants. In response to a follow-up question, he said
that money on the fiscal note for future years is not money that
would absolutely be spent.
2:43:36 PM
MARY GRAMLING, Assistant Attorney General, Oil and Gas Section,
Department of Law, stated the DOL has not submitted a fiscal
note, as it does not see the bill causing significant
litigation.
2:44:35 PM
CHAIR MCKAY questioned the court case, City of Kenai v. Cook
Inlet Natural Gas Storage Alaska, 373 P.3d 473, 5/6/16.
MS. GRAMLING stated that in 2016, the Alaska Supreme Court
issued a ruling in a dispute between the City of Kenai, Alaska,
the State of Alaska, and Cook Inlet Natural Gas Storage Alaska
(CINGSA). The argument centered around whether CINGSA fell
under mineral usage; therefore, subject to the provisions of the
Permanent Fund. In response to a follow-up question, she said
that under the Constitution of the State of Alaska, leases must
allow for other reasonable uses, such as the exploration of
other minerals. She stated that HB 50 would allow the issuance
of leases for carbon storage.
CHAIR MCKAY asked how an oil and gas lease at 10,000 feet, with
a different organization operating a storage facility on the
surface, would be regulated.
COMMISSIONER HUBER answered that AOGCC would regulate it in the
same way other leases and storage facilities would be regulated.
CHAIR MCKAY asked for a comparison between the fees provided in
HB 50 and the fees in other jurisdictions.
2:50:53 PM
AARON O'QUINN, Leasing Section Manager, Division of Oil and Gas,
Department of Natural Resources, answered that there is
significant variation in fees and compensation in different
jurisdictions. He stated that the states are not setting
compensation levels through statute.
2:52:53 PM
CHAIR MCKAY noted that a future committee substitute would be
offered to allow the commissioner of DNR to raise the price
floor through regulation, if necessary.
REPRESENTATIVE MEARS asked why the bill would not tie potential
revenue to the worldwide market.
MR. CROWTHER answered that there are many different variables in
regard to leasing revenues.
2:56:51 PM
REPRESENTATIVE SADDLER asked whether the state would have the
ability to assess a fee on the percentage of the deal rather
than the land itself.
MR. CROWTHER expressed the belief that the fee could not be set
in statute because of the possible variances in market
conditions.
2:59:50 PM
REPRESENTATIVE MCCABE commented that the legislature would not
want to spend a large amount of money on creating these programs
without having an idea of the potential revenue generation. He
suggested that, in regard to this, other states need to be
studied to determine the revenue they are generating.
MR. CROWTHER responded that DNR submitted fiscal notes that
allow room to see how strong the investment will be in carbon
storage.
3:02:44 PM
REPRESENTATIVE ARMSTRONG suggested that the committee should
consider separating the primacy piece of the legislation in
order to allow more time to work on the framework of the bill.
3:04:15 PM
CHAIR MCKAY announced that HB 50 was held over.
3:04:25 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:04 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 10 Sponsor Statement 2023-01-19.pdf |
HRES 2/22/2023 1:00:00 PM |
SB 10 |
| SB 10 ver. A Sectional Analysis 2023-01-19.pdf |
HRES 2/22/2023 1:00:00 PM |
SB 10 |
| SB 10 Letters of Support received through 02.15.2023.pdf |
HRES 2/22/2023 1:00:00 PM |
SB 10 |