Legislature(2023 - 2024)ADAMS 519
04/18/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB49 | |
| HB50 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | 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."
2:59:22 PM
Co-Chair Foster noted the committee had left off on slide
23 in the last hearing on the bill.
RYAN FITZPATRICK, COMMERCIAL ANALYST, DIVISION OF OIL AND
GAS, DEPARTMENT OF NATURAL RESOURCES, continued a
PowerPoint presentation titled "HB 50 Carbon Capture,
Utilization, and Storage," dated April 11, 2023 (copy on
file). He began on slide 24 titled "Funding Sources." He
provided an overview of the three funding mechanisms in the
bill, which all served different functions. The first was a
regulatory program charge for the Alaska Oil and Gas
Conservation Commission (AOGCC), which was similar to the
regulatory cost recovery fee for oil and gas leases. The
mechanism funded AOGCC operations for its work on Carbon
Capture, Utilization, and Storage (CCUS) projects. The
second was the leasing and licensing of state lands
Department of Natural Resources (DNR) charge, which
included lease rentals, carbon dioxide injection charges,
and revenue sharing agreements between CCUS operators and
DNR. He elaborated that the funds went to the state general
fund with a portion diverted to the Alaska Permanent Fund.
The leasing and licensing of state lands would be the
primary revenue driver for the state.
Mr. Fitzpatrick turned to slide 25 titled "Funding: Closure
Trust Fund" and addressed the last of the three charges,
the carbon storage closure trust fund. He explained that an
injection charge went into a long-term fund to cover
potential long-term liabilities for the state associated
with the management of the carbon dioxide after a site had
been closed and the state took title to the carbon dioxide.
He noted it was a separate charge from the money that went
to the general fund; the funding was kept in a separate
fund to pay for the long-term liabilities.
3:02:17 PM
Mr. Fitzpatrick moved to hypothetical revenue opportunities
on slide 26. He underscored that DNR had developed the
hypothetical scenarios based on potential opportunities. He
clarified that the slides did not indicate the scenarios
would occur or occur in the manner shown. The intent was to
illustrate potential opportunities that Alaska may be able
to take advantage of. The first scenario was a regional
power facility sequestering approximately 250,000 tons of
carbon dioxide per year. The amount was equivalent to many
of the regional power facilities operating in Anchorage and
the Fairbanks area. The second scenario was a North Slope
emitting facility. There were currently several of the
types of facilities operating on the North Slope. He
explained that the scenario involved the retrofit of an
existing facility. The third scenario was a carbon dioxide
import and sequestration facility for carbon dioxide that
did not originate from within the state's borders and could
come into the state most likely through maritime transport
from the Asia Pacific region for sequestration in Alaska.
Mr. Fitzpatrick turned to slide 27 and provided caveats to
the hypothetical revenue opportunities. He stated that not
all carbon dioxide emissions were feasibly captured, but
technology continued to rapidly develop. Capital
expenditures required to retrofit existing facilities may
not be met by existing incentives. For example, the 45Q tax
credit only covered a certain amount of funding and some
capture and sequestration opportunities were more expensive
than the credits may support; therefore, not all
opportunities may come to fruition. He noted the slide also
included a bit more information about the assumptions that
went into the revenue analysis.
3:04:59 PM
Mr. Fitzpatrick turned to slide 28 and provided modeling
detail on the hypothetical revenue opportunities. The slide
showed a couple of different line items for each of the
three hypothetical scenarios [presented on slide 26]. The
first was the exploration license, which was the initial
phase of project development where a company applied to DNR
for an exploration license for a given amount of acreage.
The revenue in early years corresponded to the per acre
license fee. He elaborated that as the project developed
and shifted into a development lease after going through
the AOGCC permitting process. He explained that once the
permit was obtained, the license could be converted into a
lease (a longer-term guarantee). Typically, the acreage
associated with the project was down selected to the
acreage that would be included in the actual project. The
revenue decreased in those years because there was less
acreage under contract at that point. The majority of the
revenue in all three scenarios began at the point where the
project went into operation and carbon dioxide began to be
injected underground. He stated that for all three
scenarios there started to be injection fees, including per
ton injection fees and revenue sharing agreements. The
scenario on slide 28 modeled a $2.50 per ton injection
charge. He noted the slide showed the injection piece
associated with each of the project scenarios.
Mr. Fitzpatrick noted that the North Slope scenario [shown
on slide 28] included one additional revenue source. The
scenario showed a 50/50 split between sequestration and
enhanced oil recovery. He elaborated that some of the
technical experts at the Division of Oil and Gas came up
with a conservative estimate of what that volume of CO2
might be able to recover in terms of additional oil. The
modeling compared the volume of oil to current revenue
sources books in terms of the dollar value of oil to the
state.
3:08:03 PM
Representative Hannan stated when the committee had
previously heard the bill it had been told that a number of
partners had come to DNR to look at the opportunity. She
asked if the opportunity had included all three revenue
opportunity sectors. She wondered if half of the
opportunities were power facilities. She stated that the
only named corporations in the bill packets had been North
Slope operators; therefore, she presumed it was what
industry had come to the state with. She was curious
whether transporters of future carbon sequestration and/or
power facilities were the industry partners.
Mr. Crowther replied they could not speak for individual
companies on their decisions to undertake projects. He
highlighted Usebelli as a fuel provider to power providers
that was very interested in the projects. There was a power
facility affiliate also interested. From the North Slope
perspective, the current operators operating in Prudhoe Bay
were working to understand what the projects would look
like in addition to an Alaska liquid natural gas (LNG)
associated project under evaluation for North Slope
operators. There were countries and companies in the
international market assessing what general sequestration
capacities were in different jurisdictions. The department
had reached out related to what Alaska's geology was like,
what potential opportunities may look like, and what the
framework would look like. He relayed that the scenario
would require the development of technology for shipping
that was not currently present. He thought it was fair to
say that in a general sense and in an Alaska sense all
three of the categories were being looked at by companies
at some level.
3:10:26 PM
Mr. Crowther addressed the bill's fiscal notes. He began
with DNR's zero fiscal note and explained that the
department believed it could handle the program startup
with existing resources. Similarly, the Department of
Environmental Conservation did not have a fiscal note.
Additionally, the Department of Revenue did not have a
fiscal note because the state was still working to assess
the revenue potential based on how project economics
developed. He reviewed the AOGCC fiscal note and explained
that the funds would enable the pursuit of the Class VI
primacy DNR believed was necessary for the program.
Additionally, DNR believed the Environmental Protection
Agency (EPA) had grant funding that would be identified
hopefully as soon as the coming summer that could offset
any costs incurred by the state to pursue primacy.
Ultimately, the department did not expect the state would
have to pay any cost for project standup.
Representative Galvin thought it seemed like a nice pathway
for oil and gas to find a greener way toward development
and potentially a way for the state to get more revenue
from other parts of the world. She wondered how the
department came about the revenue component in terms of the
agreement between the state and oil and gas companies. For
example, a long-term oil and gas lease was typically around
12.5 percent of the price. She understood the topic under
the bill was a little trickier. She highlighted the aim of
maximizing the best for Alaska. She wondered if there was
space for the state to seek more revenue. She did not want
to chase anyone out of the state, but she thought there may
be an opportunity to negotiate the rates. She asked what
DNR had done to study the possibility.
3:13:15 PM
Mr. Crowther referred to slide 26 showing the assumptions
that went into the revenue including the per ton injection
and rental charges. He stated that DNR was seeing in the
market that the projects were very challenged by the cost
of carbon capture. He detailed that it was very expensive
to capture carbon dioxide. He explained that any other
project costs were challenging to fit within the 45Q tax
credit incentive. The legislation gave the [DNR]
commissioner the authority and responsibility to identify
different frameworks to best capture the value for the
state, whether it was a per ton injection charge, rental
fees, or other revenue sharing mechanisms. The department
viewed the legislation as allowing flexibility to seek out
the best deal for the state in different ways to recoup the
revenue. He reiterated that the projects were cost
challenged in some instances. He explained that it was
necessary to take into account that if the state made a lot
of revenue from a project that did not ultimately move
forward, the state ultimately would make no revenue. He
offered to follow up with additional information.
Representative Galvin looked forward to the follow up
information. She believed it was important for the
legislature to be evaluating. She appreciated the work that
went into the detail to be provided. She recognized that
globally, oil and gas companies were moving "more in this
direction" to be good stewards. She stated the companies
would make the choices because they were doing it in other
areas and it helped them to get the investments necessary
to continue their projects. She wanted to encourage the
companies to do so and to take on their fair share of the
burden. She understood there were costs associated with the
effort and she believed part of it was good business. She
looked forward to seeing the numbers down the line.
3:15:34 PM
Representative Coulombe looked at the fiscal notes on slide
29, including $988 million to AOGCC [in FY 26 onward,
funded with receipts into the Carbon Storage Closure Trust
Fund]. She noticed that the fiscal notes for HB 49 had been
growing with time. She asked if the HB 50 fiscal notes were
final.
Mr. Crowther replied that the department did not anticipate
changes to the fiscal notes.
Mr. Fitzpatrick reviewed a sectional summary of the bill
beginning on slide 31. He relayed that Sections 16 and 33
of the bill contained the lion's share of the lifting in
terms of statutory enactments. He noted that many of the
bill sections contained conforming language.
• Section 1: Short title of bill: Carbon Capture,
Utilization, and Storage Act
• Section 2 (AOGCC): AS 31.05.027 Grants AOGCC
jurisdiction to regulate carbon storage unit
operations in the state like oil and gas (bill Sec.
16)
• Section 3 (AOGCC): AS 31.05.030(h) Authorizes AOGCC
to seek primary enforcement authority for permitting
and regulating Class VI injection wells for CO2 (Class
VI primacy discussed earlier in the presentation)
• Section 4 (AOGCC): AS 31.05.030(m) Conforming
changes to clarify authority in the Geothermal
Resources part of AS 41.06
• Section 5 (AOGCC): AS 37.05.146(c) Adds carbon
dioxide storage facility administrative fund to list
of separate funds with sources not from UGF
appropriations (bill Sec. 33, proposed AS 41.06.160)
• Section 6 (DNR/AOGCC): AS 37.14.850 Creates Carbon
Storage Closure Trust Fund to provide non-sweepable
fund account for post-closure operations of State
agencies. Fund source is an injection surcharge (bill
Sec. 33, proposed AS 41.06.175)
• Section 7 (DNR): AS 38.05.069(e) Adds carbon storage
(bill Sec. 16) to mineral estate disposal exemptions
for agricultural lands disposal
• Section 8 (DNR): AS 38.05.070(a) Adds exemption for
carbon storage leasing (bill Sec. 16) from generalized
state land leasing provisions in AS 38.05.070105
(when state lands are leased for purposes other than
extrication of natural resources)
• Section 9 (DNR): AS 38.05.130 Adds carbon storage to
provisions requiring lessees to pay damages to
landowners and post bond for that purpose; and
providing lessee access to the mineral estate if a
surface owner refuses to engage in a surface use
agreement; same statutory process that exists for
other mineral estate development of split estate
created by AS 38.05.125 (primarily for situations when
CCUS project developers entered onto surface lands not
otherwise owned by the state)
• Sections 1013 (DNR/DOG): AS 38.05.135(a)(e) Adds
carbon storage program (bill Sec. 16) to mineral
leasing statutes primarily providing for revenue
collection by adding reference to injection charges
(proposed Sec. 38.05.700(c))
• Section 14 (DNR): AS 38.05.140(a) Adds carbon
storage provision to exemptions for coal bed methane
under AS 38.05.180(gg) and unconventional gas under AS
38.05.180(ff) because carbon storage leasing might be
possible in unmineable coal seams
• Section 15 (DNR): AS 38.05.184 Adds carbon storage
leases to prohibition in the Kachemak Bay oil and gas
closure area (DNR tried to track allowances for CCUS
project development to where existing oil and gas
project development was allowed)
• Section 16 (DNR/DOG): Adds new sections to AS 38.05
Alaska Land Act as Article 15A Carbon Storage
Exploration Licenses; Leases (proposed AS 38.05.700
795); detailed summary after next slide
3:19:38 PM
Mr. Fitzpatrick briefly highlighted slide 32 showing a CCUS
theoretical timeline. He provided Section 16 detail on
slide 33. He relayed that the section addressed the DNR
carbon storage license and lease provisions. He explained
that the section enacted a number of new statutes:
AS 38.05.700
Provision for applicability carbon storage statutes
and authority for DNR to adopt regulations to
implement these statutes.
AS 38.05.705
Allows the commissioner to issue carbon storage
exploration licenses on state land and establishes
work commitment obligations, minimum economic terms,
bonding requirements, default provisions, and renewal
provisions.
• 5-year exploration license term
• Conversion of the license to a lease upon
fulfillment of work commitment, acquiring storage
facility permit from AOGCC, ability to meet
commercial terms
AS 38.05.710
Procedures for issuance of a carbon storage
exploration license. These are modeled after existing
procedures for oil and gas exploration licensing under
AS 38.05.133
• Identify land, minimum work commitment, economic
terms, 90 days for competing proposals
• Written finding - including competitive process
if competing proposals are submitted
• Subsection 715(h) provides a right of first
refusal opportunity for existing lessees under AS
38.05.135 181 (i.e., mineral lessees for coal,
oil and gas, geothermal, or other exploitable
minerals).
AS 38.05.715
Provision allowing conversion of an AS 38.05.705-710
carbon storage exploration licenses to a carbon
storage lease.
AS 38.05.720
An oil and gas lessee converting from enhanced oil
recovery to carbon storage must apply for a carbon
storage lease.
AS 38.05.725
Requirements for plans of development and operations,
and provision for unitization, as with oil and gas
leasing.
Mr. Fitzpatrick elaborated on AS 38.05.720. He explained
that when an oil and gas lessee reached a point where they
were no longer engaged in enhanced oil recovery and had
become more engaged in storage, the statute required the
lessee to apply for a storage lease from DNR and AOGCC.
Representative Galvin stated that at some point in the
development of a well there came a time when the
reinjection was no longer helping extract the oil. She
asked how it was measured. She wondered if the state got
involved or oil companies just reported that they had
switched over to a storage area.
Mr. Crowther responded that the nature of the injection
through the well could be measured by AOGCC and/or the
nature of production from the field could be measured by
DNR in the course of its lease management. There were a
number of variables to assess to set a reasonable industry
standard to indicate a well was no longer in operation and
transitioned to carbon [storage]. He stated at that time,
the statutory authority requiring a switch to a carbon
lease would be triggered.
Representative Galvin asked if the lease rate would be
different.
Mr. Crowther replied that DNR would require an operator to
obtain the right and compensate the state for the authority
to inject carbon.
Mr. Fitzpatrick concluded his review of Section 16 detail
on slide 33:
AS 38.05.730
Payments from carbon storage licenses and leases are
to be deposited in the general fund except for the
amount allocated to the Permanent Fund under art. IX,
sec. 15, of the Alaska Constitution.
AS 38.05.795
Definitions for specific terms used in the proposed
Article 15A Carbon Storage Exploration Licenses;
Leases
Mr. Fitzpatrick continued the sectional summary on slide
34.
• 17 (DNR/DOG): AS 38.35.020(a) Amended to include
carbon dioxide for pipeline transportation right-of-
way (ROW) leasing purposes
• 18 (DNR/DOG): AS 38.35.020(b) Amended to allow the
DNR commissioner to exempt pipelines from ROW leasing
when transporting carbon dioxide for enhanced oil
recovery or pressure support within existing fields
(does not exempt pipelines from regulation, just a
ROW)
Mr. Fitzpatrick elaborated on Section 18 and explained it
was similar to the way the state treated oil and gas
pipelines: if they were transporting over long distances
the state issued a right-of-way lease and infield lines
were covered under unit regulations. He continued to review
the sections on slide 34:
• 19 (DNR/DOG): AS 38.35.122 Conforming amendment to
bring some carbon dioxide pipelines under the same
title as "product" pipelines
• 2023 (DNR/DOG): AS 38.35.230 Amends definitions of
"lease," "pipeline" or "pipeline facility,"
"transportation," and adds "carbon dioxide" to
accommodate carbon dioxide pipeline provisions
• 2432 (AOGCC): AS 41.06.005060 Conforming
amendments separates AS 41.06 into two articles one
for geothermal and one for carbon storage
• 33 (AOGCC): AS 41.06 Adds new sections as Article 2.
Carbon Dioxide Injection and Storage beginning at AS
41.06.105. Detailed summary on slide after next.
Mr. Fitzpatrick turned to slide 35 and noted that Section
33 was the next large scale section of the bill and
included AOGCC statutes. He pointed to the timeline on the
slide and highlighted the AOGCC carbon storage permitting
statutes. He reviewed Section 33 statutes in detail on
slide 36:
AS 41.06.105
Provides AOGCC jurisdiction over carbon dioxide
storage facilities to prevent waste, protect
correlative rights, and ensure public health and
safety; "waste" is defined in AS 41.06.210
3:26:21 PM
Mr. Fitzpatrick turned to slide 36 and continued to review
the sectional detail:
AS 41.06.110 Concerns AOGCC's authority to carry out
the purposes and intent of AS 41.06.105-210
AS 41.06.115
Provides that waste is prohibited in a carbon storage
facility or reservoir
AS 41.06.120
Provides permit requirements for storage facilities
AS 41.06.125
Creates a public hearing requirement for storage
facility permits issued by AOGCC - notice is given to
property owners within 1/2 mile
AS 41.06.130
Specifies the criteria for the AOGCC to approve a
carbon storage facility permit
AS 41.06.135
Allows AOGCC to include parameters, limitations, or
restrictions in a permit and to protect and adjust
rights and obligations of persons affected by geologic
storage
AS 41.06.140
Concerns amalgamation of property interests for
storage facilities
Mr. Fitzpatrick explained that AS 41.06.140 addressed units
that may have more than one property owner.
3:27:41 PM
Mr. Fitzpatrick moved to slide 37 and continued reviewing
bill sections:
AS 41.06.145
Creates specifications for recording a carbon storage
facility certificate to put future property purchasers
on notice (recorded in the DNR Recorder's Office)
AS 41.06.150
Creates statutory requirements for AOGCC to ensure
environmental protection and reservoir integrity in
storage facilities and reservoirs
AS 41.06.155
Clarifies preservation of rights, including
deconfliction of development of other minerals by
drilling through or near a storage reservoir (AOGCC
would be responsible for making sure that there was
not a conflicting development plan between CCUS that
the development of minerals occurring the same areas)
AS 41.06.160
Authority for AOGCC to collect fees and establishes
the "carbon dioxide storage facility administrative
fund" under the general fund (regulatory cost recovery
mechanism)
AS 41.06.165
Specifies that storage operators hold title to
injected carbon dioxide until a certificate is issued
under AS 41.06.175, including liability for damage
associated with injected carbon dioxide
AS 41.06.170
Specifies the eight factor criteria for certificate of
completion a transfer of title of CO2 (requirements to
close a carbon storage facility)
AS 41.06.175
AOGCC will collect a "carbon storage facility
injection surcharge" for post closure administration,
deposited in the "carbon storage closure trust fund"
established in AS 37.14.850 (bill Sec. 6) (the
surcharge funded the long-term liability account and
the amount was set by the AOGCC on a facility by
facility basis)
AS 41.06.180
AOGCC may impose civil penalties for violations of its
carbon storage statutes
AS 41.06.185
Excludes AOGCC's carbon storage statues from enhanced
oil recovery (EOR), except when an EOR related
reservoir is converted for storage
AS 41.06.190
Authority for AOGCC to enter into agreements with
other government entities and agencies for carbon
storage purposes
AS 41.06.195
AOGCC authority to determine injection and storage
amounts, and providing for fees
AS 41.06.210
Definitions for terms used in AOGCC's carbon storage
statutes
3:30:11 PM
Mr. Fitzpatrick reviewed the last sections on slide 38. He
explained that Sections 34 through 37 [were conforming
amendments] related to areas currently open to oil and gas
leasing that would be open to carbon storage leasing and
areas closed to oil and gas leasing would be closed to
carbon storage leasing. Section 38 was an amendment to the
existing Alaska corporate income tax statute that
prohibited the application of 45Q tax credits to the Alaska
corporate income tax. He explained that the 45Q was the
federal tax credit for CCUS. He detailed that because
Alaska adopted the federal income tax code by reference,
the bill section carved out the 45Q tax credit from the
Alaska corporate income tax code, so Alaska was not renting
the credit under its own state corporate income tax
structure.
Mr. Fitzpatrick relayed that Section 39 added a new
subsection to existing statute for DNR to administer
storage facilities and stored carbon after a certificate of
completion was issued (when the state took title of the
C02). Section 40 provided authority to the Department of
Environmental Conservation to adopt regulations for carbon
dioxide pipelines. Sections 41 through 43 were general
provisions for adopting regulations, title changes, and
effective dates.
Representative Tomaszewski highlighted AS 41.06.115 on
slide 36 related to the prohibition of waste. He looked at
the definition of waste on page 29 of the bill: "waste"
means, in addition to its ordinary meaning, physical 24
waste, and includes inefficient, excessive, or improper
operation of a storage facility 25 or well. He asked about
the ordinary meaning of waste. He asked for additional
details on what the waste could be and what the department
was anticipating.
Mr. Crowther deferred the question to an AOGCC colleague
online.
Co-Chair Foster noted the individuals were not online.
Mr. Crowther responded that the department would follow up
with the information.
Representative Galvin stated it was important work to think
about how to roll back impacts of a hydrocarbon dependent
world. She remarked it seemed like the work was just
getting started. She thanked the department. She thought
perhaps Alaska could be a proving ground or an opportunity
as an active depository was yet to be seen. She understood
the bill was a framework to determine whether there was
interest in commercially pursuing [carbon storage] on a
global scale. She appreciated the efforts and efforts made
to protect the state's interests. She would be watching
with optimism. She hoped they could make a dent in the
global challenge in addition to bringing in some revenue.
Mr. Crowther appreciated the committee's time. He looked
forward to providing more information to move the bill
forward.
HB 50 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the schedule for the following
day.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 50 2023 04 17 DNR Response to HFIN Q April 11, 2023.pdf |
HFIN 4/18/2023 1:30:00 PM |
HB 50 |
| HB 49 ACR_AK HFIN Presentation 041822.pdf |
HFIN 4/18/2023 1:30:00 PM |
HB 49 |
| HFIN DNR HB 50 CCUS Presentation 041123.pdf |
HFIN 4/18/2023 1:30:00 PM |
HB 50 |