Legislature(2023 - 2024)ADAMS 519
03/24/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB50 | |
| Presentation: Carbon Management Legislation Opportunities | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 49 | TELECONFERENCED | |
| + | HB 50 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 50
"An Act relating to the geologic storage of carbon dioxide;
and providing for an effective date."
1:35:42 PM
Co-Chair Johnson CLOSED public testimony for the prior
day's meeting on HB 39-APPROP: OPERATING BUDGET; CAP; SUPP
and HB 41-APPROP: MENTAL HEALTH BUDGET.
^PRESENTATION: Carbon Management Legislation Opportunities
1:36:27 PM
Co-Chair Foster continued to review the agenda for the
meeting. He explained that the presentation would give a
high level overview of HB 49 and HB 50.
1:37:07 PM
JOHN BOYLE, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
offered the PowerPoint Presentation entitled, "Carbon
Management Legislation and Opportunities," dated March 24,
2023 (copy on file).
Co-Chair Foster noted that Representative Ortiz had joined
the meeting.
Commissioner Boyle continued to slide 2 titled Outline:
• Alaska's Opportunities in Carbon Management
• What is carbon management?
• What are Alaska's opportunities?
• HB 49 Carbon Offset Projects on State Land
• HB 50 Carbon Capture, Utilization and Storage
Commissioner Boyle moved to slide 3 titled Alaska's
Opportunities in Carbon Management, showing the first
topic of the presentation. He turned to slide 4 titled
Carbon Management simplified. He explained that it was
essential to understand the concept of carbon management
in order to learn about the opportunities it offered. One
method of carbon capture entailed the actual capturing of
carbon. Carbon that was produced as a result of industrial
or manufacturing activities could be captured and
sequestered underground. He pointed to another method of
carbon management using nature based offsets for carbon in
the atmosphere, by managing state lands and forests in a
way that enhanced the ability to absorb and pull carbon out
of the atmosphere.
Commissioner Boyle continued on slide 5 titled Carbon
Management:
Different emissions, different carbon management
tools:
Scope 1
Emissions made directly, such as running a power
plant or vehicles.
Scope 2
Emissions made indirectly, such as buying
electricity to power an office building.
Scope 3:
Emissions associated with a business's value
chain.
Commissioner Boyle defined how emissions were classified in
carbon management. He noted that scope three related to
emissions on a consumer level. He delineated that both
scope one and scope two emissions would ideally be captured
from the source and correlated to carbon capture,
utilization, and storage. He indicated that it was
difficult to manage scope three emissions from individual
use: car emissions, lawn mowers, snow blowers, etc. with
carbon capture. Carbon offsets were associated with scope
three emissions.
1:42:38 PM
Commissioner Boyle advanced to slide 6 titled Carbon
Management - not so simple! and explained that the market
was rapidly evolving and there were a number of types of
carbon credits that were currently available or in the
development process for household, industrial,
manufacturing, agriculture, etc. emissions. He offered that
a myriad of opportunities existed for the state to
monetize certain elements of its natural resources'
portfolio. He voiced that an essential element of both
pieces of legislation was that the department needed a
broad framework and flexibility to determine what credit
programs would best fit the situation. The department
currently had not determined what type of credit programs
worked for the state that offered the best opportunities to
monetize its carbon resources.
1:44:29 PM
Representative Galvin restated that the department was
asking for flexibility in order to navigate the best
opportunities for the state. She asked where the
opportunities for the state lay within the world market.
Commissioner Boyle responded that he would address the
topic later in the presentation. Representative Galvin
hoped that there would be avenues for local communities to
determine what would be the best fit for them as well.
1:46:14 PM
Commissioner Boyle continued to slide 7 titled HB 49 and
HB 50:
Frameworks for Alaska to engage in two areas of carbon
management:
1)Carbon capture, utilization, and storage (CCUS)
'the below ground'
2)Carbon offset programs on state land
'the above ground'
Bills are NOT:
• New taxes on industry or Alaskans
• Emissions limits
• A "cap and trade" system
• Locking up land
Commissioner Boyle felt that it was important to emphasize
what the bills were not doing. The goal was not to tax
Alaskans based on the carbon activities in which individual
citizens engaged in nor create conservation units that had
very restricted land management plans and prevented
Alaskans from engaging in traditional use.
1:48:53 PM
Representative Hannan pondered the idea of carbon capture.
She hypothesized a scenario regarding a lease in the Arctic
National Wildlife Refuge (ANWR) where the oil had a value
if kept undeveloped and whether that was considered carbon
capture. Commissioner Boyle answered that the scenario was
not specifically what carbon capture and sequestration was.
He related that he had heard discussions regarding
monetizing mineral resources where an entity had the right
to develop but a state, nation, communities, or an
individual could choose to forego development to reduce
carbon emissions. He deemed that the scenario was an
emerging concept but was currently unaware of any specific
credit opportunities as of yet.
Commissioner Boyle continued that the state was focused on
the voluntary compliance market. He elaborated that
compliance markets were the result of a government
regulated activity like the carbon credit, cap and trade
system implemented by the state of California Air Resources
Board. He indicated that some of Alaskas native
corporations, i.e., Sealaska, Chugach, etc. utilized the
California compliance market to monetize some of their
forested lands. He noted that Europe had a very advanced
compliance market that operated under a regulatory
structure with emission limits. In that case, carbon
credits were being traded at over $100 per metric ton of
carbon. He contrasted compliance to voluntary markets that
were based on entities private goals to achieve certain
environmental benchmarks and were unregulated and
ungoverned. He reiterated that the state currently was only
interested in voluntary markets offering more variation in
pricing but less than the compliance market. However, he
understood that voluntary carbon markets were trending to
future growth due to a recognition that allowing industry
to engage in a market based system to address emissions was
more effective than an imposed system.
1:53:34 PM
Commissioner Boyle advanced to slide 8 titled Carbon
Offset Markets. He reported that the slide highlighted the
difference between the compliance and voluntary markets and
their projected growth. He pointed to the $850 billion
value for 15 gigatons of transacted volume in carbon
credits in the compliance market in 2021 versus the
voluntary market at $2 billion. He elaborated that in 2022,
the value of the voluntary market increased tremendously.
The voluntary market could be anywhere from $10 billion to
over $40 billion dollars in value in the future. All
indications were pointing to increasing opportunities for
the state and he believed that the state had a competitive
advantage regarding its geography relating to the
credits. He pointed out that carbon credits issued in
places that were more pristine and iconic had higher
premiums on the voluntary market. He thought that the state
being able to market itself as a "pristine environment"
would command a higher premium in carbon markets.
Commissioner Boyle examined slide 9 titled Carbon Offsets
- State Resource Base. The slides map denoted the states
resource ownership in purple at over 100 million acres. The
state had a tremendous resource base, tens of millions of
forested acres for carbon offsets. He pointed to slide 10
titled Carbon offsets Opportunities:
• Alaska has the resources.
o Forest carbon potential:
o 100 million acres of uplands
o Tens of millions of acres of forested State
lands
• Kelp potential:
o 60 million acres of tide and submerged lands
• New source of State revenue
• Constitutional responsibility for
maximum use
Commissioner Boyle commented that the state had over 30,000
miles of coastline and 60 million acres of tide and
submerged land. He believed that carbon resource potential
from monetizing state land and state submerged lands in
new ways afforded the state the opportunity to increase
revenues. He reminded the committee that the Department of
Natural Resources (DNR) responsibility was to maximize and
develop state resources for public benefit and felt that
the carbon opportunity fit in well with its constitutional
obligations under Article VIII.
1:59:39 PM
Representative Stapp asked how the process would work. He
wondered how the Alaska Permanent Fund Corporation (APFC)
could work hand in hand with the states emerging carbon
markets and not short the states carbon market.
Commissioner Boyle responded that different markets traded
in different ways. He was unsure how markets were
manipulated by different entities. He deduced that gauging
by the worlds interest, a level of confidence existed that
the voluntary market was an effective and efficient way to
price carbon. He indicated that DNRs approach would be
circumspect and would change its management goals as time
progressed.
Representative Ortiz was interested in the kelp potential
listed on slide 10. He asked how the program would provide
revenue to the state and how it would work. Commissioner
Boyle replied that the state could be both an active and
passive participant and contemplated the state fulfilling
both roles. He exemplified that in a passive role, the
state may choose to lease lands to private developers of a
carbon offset project and collect lease revenues.
Alternatively, the state may decide to manage its own
carbon offset project and play an active role in maximizing
state revenue. He observed that the Alaska Native
Corporation entering into contracts with other entities to
develop carbon offset projects with a provision that the
entity trained the corporation in order to develop its own
projects in the future.
2:06:53 PM
Commissioner Boyle continued on slide 11 titled CCUS -
Global Demand:
There is a growing trend of CCUS projects around the
world as companies compete to provide oil and gas to
competitive markets in foreign jurisdictions that have
implemented carbon taxation, and more companies
include environmental targets in their corporate goals
and performance.
Commissioner Boyle related that in 2021, the Occidental
Petroleum Company shipped a cargo of over 2 million barrels
of oil to a refinery in India that was certified as net
zero offsetting the amount of carbon the oil would be
emitting. He commented that blockchain technology enabled
the differentiation of barrels of oil that were certified
as offset and considered greener barrels of oil than
those that were not, and he pointed to growth in the
green oil market. He noted that in the gulf coast of the
United States (US) there was a large number of developing
projects in CCUS as well as active CCUS projects in Wyoming
and North Dakota. He offered that Alaska had large amounts
of the type of geology for sequestering carbon that was
located on state land and not privately owned, which
offered a competitive advantage over other jurisdictions.
Alaska could sequester other countries' carbon in its vast
geologic basins.
2:12:28 PM
Representative Tomaszewski asked Commissioner Boyle to
explain blockchain technology and how it would be utilized
in carbon sequestration. Commissioner Boyle responded that
block change technology was a distributed electronic leger
system that could track a particular cargo transaction as
it progressed through its transportation and distribution
systems. The oil matched the identification number that was
certified as net zero at its destination. The system
verified that the product delivered was the product
ordered. He summarized that it was the underlying
technology that could identify a fungible commodity.
2:15:46 PM
Co-Chair Johnson guessed that theoretically, the state
could offset its own oil production if it became a mandate
by the federal government. She assumed there was some
registry or official certification for carbon capture and
offset and wondered whether there was a value to the state
having its own standards or criteria to determine credits
or offsets. She believed that it was a new and subjective
endeavor. She wondered about the integrity of the
certification process and thought the state should be
aware of what it was selling.. She asked for comment.
Commissioner Boyle responded that there were various carbon
registries for the voluntary market. He elucidated that an
important element of a carbon registry was that it offered
a robust certification process to ensure that the carbon
was truly being offset. He opined that the states
reputation was an important factor in that the credit
purchaser could trust the offset transaction. He was
uncertain whether the state should develop its own
registry. In terms of developing a carbon offset project,
he believed that it was important for a registry to have
integrity and credibility in certifying carbon offset
projects. Co-Chair Johnson commented that if the state was
going to invest in a program, it was imperative it operated
ethically and in good faith.
2:21:25 PM
Representative Hannan referred to slide 11 and observed
that most of the CCUS was happening near where the resource
was being produced or there was an efficient transportation
system to transport the carbon. She deemed that most of the
CCUS in Alaska would happen in Cook Inlet versus the North
Slope, which was difficult and costly for transport and
would create a lot of carbon to transport it to the Arctic.
She asked if he could narrow down the geographic scope of
CCUS in the state. Commissioner Boyle responded that the
administration was contemplating making all state land that
was geologically conducive to sequestration available. He
noted that she had correctly pointed out that it was ideal
to co-locate the CCUS facility where the carbon generating
activity was due to the profit margins of sequestration. He
indicated that all of the facilities on the North Slope
associated with the oil industry created emissions and they
were sitting on top of geology that was conducive to CCUS.
He pointed to coal fired powerplants in Interior Alaska
that also had sedimentary basins that were conducive to
sequestering carbon. He suggested that entities involved in
generating coal fired power may be interested in
sequestering its carbon in the Interior. He speculated that
the development of a liquefied natural gas project in
Nikiski, that produced other valuable energy related by-
products would likely drive the development of CCUS in Cook
Inlet. He remarked that it was speculative, and he did not
think the economic conditions currently existed, but the
potential was there for some time in the future when
economics changed.
2:27:32 PM
Representative Galvin was curious about the Alaska Native
Corporations and the work it had already done in monetizing
carbon offsets. She asked the Commissioner to share his
knowledge of the native corporations successful projects
as an example of something that was currently working and
generating revenue. Commissioner Boyle answered that the
governor had looked at what the native corporations had
accomplished as he considered how the state could monetize
the same types of activities. He mentioned a study that the
state had undertaken that evaluated the monetary potential
of carbon offsets on state forests. The department had a
high level of confidence that a myriad of opportunities
existed to monetize and bring in state revenue. He
cautioned that he wanted to avoid overpromising the
amount of revenues that could be collected.
2:30:47 PM
Commissioner Boyle discussed slide 12 titled Carbon
Markets:
• Approximately 35 commercial CCUS facilities today
globally.
• Targeted growth: 2,500 facilities to reach
International Energy Agency (IEA) scenario of net
zero carbon emissions by 2070.
Commissioner Boyle indicated that the graph showed the
projected world captured carbon by source (coal, natural
gas, industrial processes, and biomass) from 2020 to 2070.
There was a growing market and demand for carbon capture.
He continued on slide 13 titled Net Zero Greenhouse Gas
(GHG). The slide listed emission reduction initiatives of
North Slope companies. He noted that almost all of the
large North Slope operators had set aggressive emission
reduction standards and benchmarks for themselves. He
pointed to Santos and noted it had committed to net zero
emissions (scope 1 and scope 2) for the Pikka Project. He
discerned that if the state did not have a CCUS regulatory
framework or carbon offset program in place, the companies
would engage in the activities in other jurisdictions. The
department believed that the carbon generating companies
should be able to offset their emissions in the same
jurisdiction where the emissions were created. He believed
that oil and gas produced in Alaska was done in a manner
that was more environmentally and socially responsible. He
reasoned that if the state had a carbon emission and offset
regulatory regime in place it implied that the state could
responsibly develop its resources while addressing concerns
about the carbon intensity of the underlying activity. He
surmised that lacking a carbon regulatory and offset
structure, the state would miss out on monetizing a
resource. He stated that due to an Alaska Supreme Court
ruling, 25 percent of the revenues from CCUS fees would
accrue to the Permanent Fund.
2:35:58 PM
Representative Stapp referenced the companies listed on
slide 13 and asked whether emission reduction plans were
self-imposed and whether other global oil companies had
emission reduction targets. Commissioner Boyle responded in
the affirmative and added that the benchmarks were self -
imposed and were based on the own volition of the companies
to meet the environmental benchmarks. He added that, in
general, most of the companies operated around the world
and often in jurisdiction that had emissions compliance
requirements and were being pressured by their shareholders
and boards to manage emissions. He deemed that it would
take a considerable amount of time for the world to develop
sufficient renewable energy resources yet demand for energy
was growing. He shared statistics on the number of the
worlds population with inadequate and unpredictable energy
sources that wanted reliable energy to improve their
quality of life. He ascertained that in order for the
energy companies to increase energy production in a manner
that reduced the environmental impact they needed to adopt
emission standards. Representative Stapp wondered what the
continued investment of Alaskas oil and gas would be
without the standards. Commissioner Boyle believed that if
the companies could offset their carbon generation in the
state it would make a stronger case to their shareholders
and help to promote or encourage further investment.
2:40:49 PM
Co-Chair Edgmon appreciated the presentation. He discussed
climate change, fossil fuel emissions, and the need to stop
carbon emissions and for the world to change. He
acknowledged that it would not happen swiftly. He stressed
that there was too much carbon dioxide in the atmosphere,
and it was proven by scientists around the world. He was
confounded that there was still no open discussion
regarding climate change. He mentioned the damaging effects
on the Arctic due to a changing climate. He emphasized that
it was not just corporate boards but countries that
acknowledged the changing climate. He wished that the state
would engage in global detailed discussions about climate
change. He referenced recent presentations in committee on
prior days on the Willow Project [Willow Project Update,
DNR, March 23, 2023] and the Spring 2023 Forecast
Presentation [Department of Revenue, March 22, 2023] and
noted that both of the PowerPoints were populated with
caveats. He recounted the FY 2024 10-year forecast had
projected revenues for carbon capture of $300 million in FY
24 increasing to $900 million per year. He thought the
proposals were speculative. He asked what level of
confidence Commissioner Boyle had in the revenue
projections. Commissioner Boyle answered that he was unsure
how to answer the question. He had not viewed the proposals
through the specter of specific revenue numbers, but more
broadly as a way to monetize state resources. He referenced
a report on a carbon offset pilot project done by
consultants that demonstrated the state could make tens of
millions in revenue. He offered that in terms of CCUS, it
could take up to two years to accomplish the permitting. He
was reticent to project any revenues by a time certain due
to many factors. He was certain that the state could embark
on the program with minimal costs and investment and was
extremely confident" that the state would gain some net
positive cash flow.
Co-Chair Edgmon appreciated the Commissioners answer. He
recounted that there was $300 million baked into the
revenue projection according to the ten year plan. He
acknowledged that there was a level of conjecture in the
projections. He cautioned that carbon capture was a moving
picture including the registries and the state should
proceed with care.
Commissioner Boyle interjected that much of the carbon
capture economics were driven by the increased amounts of
federal tax credits. The credits as they currently exist
would expire in roughly 10 years. One of the reasons why
the administration was pushing so hard to pass the bills
was due to the expiration of the federal tax credits that
played a crucial role in driving the economics of CCUS.
There was an urgency to have the state program in place so
the companies could take advantage of the tax credits.
2:50:29 PM
RENA MILLER, SPECIAL ASSISTANT, DEPARTMENT OF NATURAL
RESOURCES, introduced the next section of the presentation:
HB 49 - Carbon Offset Projects on State Land and
continued with an overview of HB 49 on slide 15 titled HB
49 Overview:
• Tasks DNR with exploring carbon offset opportunities
that align with Alaska's resource and land interests,
responsibilities.
• Enables carbon offset projects on state land and
Shorelines.
• Caps project terms at 55 years, protects existing
land use by Alaskans.
Ms. Miller expounded that the bill protected existing land
use by Alaskans. She referred to Representative Galvins
comments concerning local input on the projects. She
assured the committee that the bill required a best
interest finding by DNR for either a third party project or
a state project. The process included a comment period and
input by local entities and governments that would be
wrapped into a final decision.
2:52:19 PM
Representative Ortiz understood that the most valuable
offsets were for a term of 99 years. He inquired why the
bill set a 55 year term. Ms. Miller responded that 55 years
was typically the term of long-term state land leases for
other purposes. In addition, she determined that 55 years
was a sufficient amount of time to embark on a project and
generate a full suite of credits under the protocols that
the registries established. She indicated that depending on
the registry and the standards they imposed that were most
suited for ongoing managed land in Alaska, 55 years seemed
sufficient. Representative Ortiz deduced from her answer
that there would not be an added financial benefit to the
state with longer term leases. He asked for clarification.
Ms. Miller replied that potential for longer term leases
existed, it depended on what other criteria Alaskas land
would be eligible to meet and the timelines associated with
it. Representative Ortiz asked who determined the
eligibility. Ms. Miller answered that the registry; the
entity in the middle between the projects and the
purchasers of the credits, had a series of protocols that
covered different types of projects. She detailed that each
protocol had specific requirements related to current land
practices and what type of project was chosen. The registry
had a time period associated with each project. Therefore,
depending on the project, a longer term lease could work
for the state. However, the department was viewing the
offsets as a way to generate revenue for the state but stay
within its mandate to maximize state resources for multiple
use.
Commissioner Boyle interjected that the states land
leasing statutes included the ability to offer renewals of
another 55-year lease.
2:57:16 PM
Representative Ortiz deemed that the original purchaser of
the offset would not be aware of the lease extension
provision or whether the extension would happen or not.
Therefore, the value was calculated lower at 55 years than
it would have been at 110 years. He was wondering whether
he was correct. Commissioner Boyle responded that he would
respond with more information. He assumed that a project
developer would know that state law granted an extension,
which would be weighed in the value of the credits. He
believed that the length of state land leases was a
reasonable discussion to have as policy developed.
2:59:17 PM
Ms. Miller advanced to slide 16 titled "HB 49 Overview:"
• Provides a process for third parties to lease
state land for carbon management purposes
(Section 4).
• Establishes the Carbon Offset Program at DNR to
undertake state projects (Section 6).
• Authorizes the use of the 3 state forests for
state sponsored projects (Sections 7, 10).
Ms. Miller listed the 3 state forests as the Haines State
Forest, Southeast Forests, and Tanana Valley State Forest.
Ms. Miller moved to slide 17 titled Carbon Offsets -
Potential Affirmed:
Anew report affirms potential:
• Identifies 3 'pilot' projects.
• Improved Forest Management protocols timber
harvest continues.
• Revenue potential of all three:
- approx. $81.6 million over 10 years
- approx. $311 million over 40 years
*Revenue potential as estimated by Anew at time of
report; an actual project may have different potential
depending on design, costs.
Ms. Miller pointed out that the report was not conclusive
or exhaustive, but it affirmed the potential for projects
that could be implemented fairly quickly and had revenue
potential. She remarked that the report [Carbon Offsets
Opportunity Evaluation, August 2022 (copy on file)] was
included in the members bill packets. The consultants
identified three pilot projects in the three forests as
well as forested lands in the Matanuska Susitna Borough
(Mat-Su). The lands were eligible for active timber harvest
and would fall under the improved forest management type of
project. She noted that the registry ANEW used was called
the American Carbon Registry and was one of four major
registries operating in North America. She recalled that
there were several Alaska Native Corporations projects
enrolled under the American Carbon Registry under the
improved forest management protocol. She turned to slide 18
titled Carbon Offsets - Potential Pilot Projects. She
pointed to the slides map that depicted where projects
could be located.
3:02:59 PM
Representative Hannan noted that the sectional only named
the Haines State Forest, which indicated to her that the
resources in the Haines Forest would be beneficial, yet the
presentation referenced three state forests. She asked for
clarification. Ms. Miller responded that the legislation
authorized all three state forests eligible for carbon
management projects. She elaborated that the Haines State
Forest was established in statute separately from other
state forests therefore, bill sections 7 through 9 was
specifically written to Haines, but sections 10 through 13
referenced state forests that included Southeast and Tanana
Valley. Representative Hannan asked about the Mat-Su
Forest. Ms. Miller replied that the Mat-Su area was not a
state forest but was forested state land.
3:04:29 PM
Representative Cronk asked how the process would be
conducted. Ms. Miller responded that the following slides
would answer the question.
Co-Chair Foster cited slide 17 and ascertained that the
key word was potential. He referenced the fiscal note
that showed $400 thousand in revenue in FY 2025 and others
showing a total of $1.5 million per year with the potential
for roughly $8 million per year. Ms. Miller agreed that
potential was a good word to keep in mind. She indicated
that the fiscal notes did not include the anticipated
revenue from the projects. The department lacked specific
information to include an accurate projection of revenue,
since the projects were not identified as yet.
Ms. Miller examined slide 19 titled Carbon Offsets - State
Project Parties. She commented that the slide listed the
participants in a carbon offset project. There were three:
project proponent, registry, and buyers. She would focus on
a hypothetical project that the state would undertake
through DNR. She explained that the project proponent would
be the State of Alaska. The project proponent held the land
and resource and would be the recipient of the project's
revenue. The buyers of the offset credits would be
companies with voluntary emission reduction targets. The
middle participant was the registry with certain rules that
according to the slide was a Nonprofit 'quality control'
ensuring project, credit integrity through scientifically
based project protocols. She stressed that the rules of
the registry existed to protect the integrity of the
credits the companies were purchasing. She characterized
the credits as backed by highly scientific, peer reviewed,
and factual in order to ensure the legitimacy of the claims
of the credits. The buyer could be confident that the
credit represented a real emission reduction and would
not be accused of green washing. She defined green
washing as a company making false claims about its
environmentally beneficial activities. She summarized that
the registry protected the integrity of the credits and was
a crucial party to the process. She cited Co-Chair
Johnsons query about creating an Alaska registry and
related that registries were non-profits and very distinct
from the proponent or the buyer.
3:08:25 PM
Representative Galvin asked who paid for the registry. Ms.
Miller answered that the project proponent paid the
registry an initial fee to open the project. Once the
project was proved to be successful and demonstrated that
it was achieving the emission reduction objectives, the
registry generated credits and accessed a fee based on the
credits. Representative Galvin asked whether the state or
the buyer paid the assessed fees. Ms. Miller answered that
the fees would be a portion of the credit issuance.
Representative Coulombe voiced that she did not want state
land locked up and favored that the state was not
engaging in contracts for 99 years. She was hesitant to see
the state commit for even 55 years for something so new
with unknown outcomes. She surmised that the offset land
was locked up in some way. She wondered how much use the
forest could retain once it was in an offset project. She
asked if a better use of the land was discovered whether
there was flexibility to shift to a maximum use model after
40 years of a 55 year contract. She wondered whether the
land could be logged and what would happen if the trees
started dying. Ms. Miller responded that land was not being
locked up, it would be committed to a specific management
plan. She noted that the improved forest management
projects were conditional on continued timber harvesting to
some degree. The management commitment was being locked in
versus locking in the land. The land was broadly available
to the public but there might be a varying degree of site
control that limited some access. She assured the committee
that there was an ability to terminate a project and remove
some of the land from the project, but the loss of carbon
storage had to be accounted for and it was possible that
there would be financial consequences. She noted that the
term was called a reversal. She added that involuntary
reversals for things like, insect infestation, wind
events, fire, other "acts of god" were covered under a
risk buffer or type of insurance pool required by the
registry to mitigate against that type of loss.
3:14:26 PM
Commissioner Boyle added that the best way of looking at
carbon offset as it related to forested land was in the
context of enhanced forest management. He delineated that
carbon credits could incentivize more proactive management
of forests. He provided the example of the forest in the
Anchorage bowl, Kenai, and Mat-Su that were damaged by
the spruce bark beetle infestation and the trees were left
dead and dying. He exemplified that an offset program could
incentivize removing and replanting the trees with a higher
value species and provide for other value added management
practices. He described ways in which the managed land
could yield multiple benefits under an offset program. He
shared that a mine could exist within an offset managed
forest if the footprint of the mine did not exceed the
additional carbon credit margins that were being earned. He
summarized that carbon credits would likely incentivize or
revitalize a timber industry, especially in interior
forests because it would provide an additional economic
mechanism that would make forest products profitable. The
existing practice of utilizing forests and harvesting timer
was not in opposition to a carbon offset project. The
harvesting and management would have to comply with the
particular terms of the offset project.
3:19:13 PM
Ms. Miller interjected that the founding principle was to
grow more than can be harvested within the project area.
Co-Chair Foster wanted the committee to be comfortable with
the concept of an emerging new market. He intended to bring
the topic back before the committee at a later date. He
asked the department to continue with the presentation and
did not want to rush into the next section.
Ms. Miller discussed carbon offsets on slide 20 titled
"Carbon Offsets - State Project Process:
Concept/Feasibility
Project Development
Third-party Verification
Registry Review
Credits Issued
Ms. Miller indicated that the slide depicted a high level
overview of the state project process. She recounted that
the state could be the project developer or hire a firm to
develop the project. She pointed out that ANEW projected it
took 18 months to 24 months to develop a project to credit
generation. She elaborated that project development
entailed groundwork and fieldwork to determine the amount
of carbon the trees were capable of storing. The project
would eventually move into a design and concept. She
interjected that the forest management construct was the
commitment to manage the forest in a certain way over time.
The project proceeded to the registry review that required
retaining a third party to audit the findings and ensure
compliance with registry rules. Once the project was
approved the registry could then start generating credits
for the project. A steady flow of credits could be
generated over the years. She furthered that the project
required ongoing monitoring reports, fieldwork and
inventory updates required throughout the projects term.
3:23:50 PM
Representative Coulombe expressed concern that carbon
offsets would ultimately raise the cost of energy. The cost
of the offsets would be passed on to the consumer by the
purchaser. She worried about the high cost of energy in the
state.
Commissioner Boyle responded that the activity and
commitment to net zero whether or not it was being driven
voluntarily from within a company or imposed on industry by
government was happening. He ascertained that from the
perspective of the state, its participation was not a cost
driver, it was an off-ramp that enabled companies to divert
revenue to the state versus diverting the revenues to
another entity. One could argue that based on the
prospective benefits to the state, the revenues received by
the state would be redistributed amongst Alaska residents
to offset any additional costs associated with the
activities. He restated that state policy was not driving
the costs. The costs were not being driven by voluntary
compliance and regulatory markets. He believed that the
question was whether the state chose to participate and
drive benefits that helped offset costs or watch the
investment go elsewhere and deride no benefit.
Representative Coulombe thought it was something to
consider. She supported carbon credits and believed that it
was a benefit to the state but not necessarily a benefit to
the consumer and energy costs should be factored into the
discussion.
3:27:45 PM
Representative Ortiz shared that he had done a bit of
research on the topic and referenced the term leakage.
He relayed that if the trees on the land outside the
project area were being harvested it might affect the
offsets in the project area. He asked for more information
on leakage.
Ms. Miller responded that there were two types of leakage
in the carbon offset programs: activity and market. She
explained that activity leakage was the scenario as
described by Representative Ortiz. The registry actually
accounted for activity leakage in the calculation of the
carbon credits. She stated that the other type was market
leakage. Representative Ortiz restated that the registry
anticipated leakage and calculated that into the value of
the credits in the project area. He asked if he was
correct. Ms. Miller responded that the registry did not
anticipate it but was hedging against it. She deduced that
state projects had the benefit of existing land use plans
and harvest schedules that were public, and it was apparent
how adjacent lands would be managed. She added that market
leakage was also accounted for in terms of timber that
would not be harvested in the project area, but the same
amount of lumber would be needed from elsewhere. She saw
that as a benefit in keeping the credits legitimate.
3:31:35 PM
Representative Hannan commented that the current day was
the twenty-fourth anniversary of the Exxon Valdez disaster.
It was important to note the long-term cost of carbon and
if it was not paid for upfront, society had to pay for it
over a lifetime. She felt that a big issue regarding the
bills was the upfront costs of the projects and
understanding any ripple effects it caused.
3:32:52 PM
Co-Chair Foster noted that there would be future meetings
on the topic and to finish the presentation.
HB 49 was HEARD and HELD in committee for further
consideration.
HB 50 was HEARD and HELD in committee for further
consideration.