Legislature(2023 - 2024)ADAMS 519
02/19/2024 08:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB50 | |
| HB126 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 50 | TELECONFERENCED | |
| += | HB 126 | TELECONFERENCED | |
| + | HB 115 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 50
"An Act relating to the geologic storage of carbon
dioxide; and providing for an effective date."
8:37:23 AM
Co-Chair Foster listed the invited testifiers.
8:38:15 AM
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, relayed that the committee received the
memorandum response provided by the Department of Natural
Resources (DNR) (copy on file) that answered members
questions regarding the bill. He offered that the first
question was by Representative Josephson regarding enhanced
oil recovery and taxes. He summarized that in the House
Resources Committee an amendment was adopted that removed
the reference to the state corporate income tax and
maintained the federal tax that prevented the recipient
from receiving a credit toward both federal and state
corporate income tax structures. He did not anticipate a
significant impact on the bill regarding taxes paid by the
industry. He cited the question asked about Cook Inlet
seismicity and its impact on carbon sequestration. He
reported that DNR's answer included a discussion on the
history and nature of seismic activity in the region and
how the department anticipated the impacts. The Class VI
injection well program required extensive evaluation of
seismicity and monitoring.
Co-Chair Foster asked for a refresher of the fiscal notes.
Mr. Crowther summarized that there were four fiscal notes
in the bill packet. The fiscal note from DNR (FN 11 (DNR)
anticipated that the department had the existing capacity
to cover the program with no additional operating costs.
The revenue was indeterminate. He noted the Department of
Revenue (DOR) fiscal note (FN 10 (REV) was the same with no
fiscal impact and indeterminate revenues. He indicated that
the fiscal note for the Department of Environmental
Conservation (DEC) (FN 9 (DEC)) had zero fiscal impact and
no revenue impact. He deferred to the Alaska Oil And Gas
Conservation Commission (AOGCC) (FN 12 (CED)) to speak to
its fiscal note.
8:41:41 AM
BRETT HUBER, CHAIRMAN, ALASKA OIL AND GAS CONSERVATION
COMMISSION, ANCHORAGE (via teleconference), relayed that
the fiscal note showed the appropriation request for FY 25
for two positions; one fully exempt Senior Carbon Engineer
(Range 26) and one fully exempt Carbon Assistant (R18). In
addition, the commission requested $350 thousand in
services that included contracted expertise for project
development legal costs for the primacy process. He
commented that in the outyears, FY 26, FY 27, and FY 28
only estimates were provided due to many unknowns. He
communicated that it was the intent of the legislation that
the industry would fund the regulatory process.
8:43:28 AM
Representative Josephson referenced the issue that the
owner of the carbon dioxide must remain entitled for 50
years via the Environmental Protection Agency (EPA). He
wondered how the "critical" oversight would happen. Mr.
Crowther answered that the Class VI program for carbon
sequestration had to be developed by the state and approved
by a federal partner. There was a general requirement that
the requirements be as stringent as the federal program.
There was often discretion in how the federal agency
implemented the mandate. The EPA promulgated a Class VI
rule with the 50 year period. He thought that if the state
could design a program that included liability, title
ownership, and implemented costs and structure charges that
protected the requirements for monitoring and was as
restrictive, stringent, and functionally achieved the same
ends, the federal government was likely to view it as an
equally extensive regulatory program by the state. He
mentioned the state of Louisiana and specifically, how the
EPA had interpreted regulations, it appeared that flexible
or adaptive approaches were unacceptable. He deduced that
the issue was understanding how the federal regulators were
performing its discretionary role. Representative Josephson
asked why the state would ever want to have title to the
carbon and what would that mean for revenue generation and
liability. Mr. Crowther replied that the original structure
of the legislation anticipated amendments responding to the
EPA requirements. He relayed that the concept of the state
assuming the title, transfer of the facilities, and
monitoring was to help induce the development of projects
with industry. He indicated that the regulatory environment
was recently established, therefore, the state was not able
to offer such direct inducements.
8:48:22 AM
Representative Hannan mentioned that eligible lease
expenditures for enhanced oil recovery when using carbon
injection could still be deducted against oil production
taxes. She inquired about the potential impacts of the
credits and the amount of lost revenue. Mr. Crowther wanted
to defer the answer to someone from DOR.
Co-Chair Foster indicated that there was not an invited
testifier from DOR available.
Mr. Crowther summarized the framework of how the
administration and DNR viewed the issue. He answered that
in the current environment of enhanced oil recovery, the
cost associated with it was a lease expenditure under
existing provisions. He viewed it as a "good outcome" under
the statutory and constitutional obligations to maximize
resource recovery and development. In the event that there
was increased enhanced oil recovery associated with the
carbon programs the department regarded it as a good thing
in terms of ultimate recovery, both from a royalty and
economic perspective." In addition, he felt that the
states interest was the commodity would become more
competitive while reducing the environmental footprint. He
offered to work with DOR to model hypothetical situations.
Representative Hannan commented that the bill was presented
as a significant revenue producer when it was first
introduced. However, after further inquiry she understood
that there was as much risk for loss of revenue. She wanted
to see more modeling and noted that the fiscal note had
predicted that the bill was a revenue generator. The
capital investment over the 10-year span showed reduced
revenue for the state.
8:52:29 AM
Co-Chair Foster requested reaching out to DOR to obtain an
answer in writing.
Representative Galvin recalled the initial excitement
regarding the carbon capture and sequestration programs for
significant revenue generation. She cited the fiscal note
with a decrement of $738 thousand. She understood and was
empathetic with the need for environmental responsibility,
particularly for industry to develop projects that
attracted investors. However, she also, wanted to be
cautious about what the state was gaining and losing in the
process. She wondered whether the state could gain revenue
from carbon sequestration. Mr. Crowther replied that there
were 4 revenue generation scenarios with a positive impact
for the state. In the order of revenue magnitude, the first
and second were the use of carbon capture on state lands
that could generate fees for the state via in-state power
generation and adoption on the North Slope for existing
operations. The third scenario that had significant revenue
generation potential but needed international development
was the importation of carbon dioxide into the state. He
deduced that the framework in the legislation needed to be
in place to investigate the potential. He discussed the
fourth scenario and believed that entities like mines and
North Slope oil producers wanting to respond to the
increasing pressure for carbon capture and carbon
management would generate significant indirect benefits to
the state. If carbon capture was part of any energetic
development activity, the state could offer the opportunity
while preserving the value of its other commodity
resources. He exemplified that if some North Slope
operators transitioned to carbon neutrality and new
investors developed billions of dollars of hydrocarbon
resources because of the carbon capture program it was "a
huge value preservation and generation" for the state.
Representative Galvin relayed that some oil companies were
already reinjecting and had been for some time, to help
them continue their production of enhanced oil and gas. She
asked if a price structure was discussed once the injection
went beyond the need for enhancement. Mr. Crowther answered
that the bill provided for the commissioner of DNR to
establish commercial terms for access to state subsurface
resources. The value would be derived from things like
injection fees and lease rental fees. He guessed that if
there was increased use of the 45Q tax credit, the state
could increase fees, etc. He believed the legislation
offered the "flexibility" to change the terms.
8:59:45 AM
Representative Galvin appreciated Mr. Crowther's comments
on seismicity. She referenced page 2 of the bill that
predicted reasonable confidence in the long-term integrity
of the potential sequestration sites. She was attempting to
comprehend reasonable confidence and wondered what
reasonable confidence implied. Mr. Crowther deferred the
answer to a DNR expert. He cited the third paragraph of the
memorandum that referred to the state's 1964 earthquake
that was the largest in human recorded history. The
department noted the earthquakes lack of impact on the
different reservoirs holding hydrocarbons. He reasoned that
was the impetus for the reasonable confidence for the lack
of associated issues.
9:02:00 AM
MARWAN WARTES, GEOLOGIST, DIVISION OF GEOLOGIC AND
GEOPHYSICAL SURVEYS, FAIRBANKS (via teleconference),
answered that Deputy Commissioner Crowther accurately
pointed out that reasonable confidence was intended to
capture the statistical uncertainty. He explained that it
was impossible to accurately predict a given earthquake;
all the characterizations of seismic hazards were
probabilistic. He acknowledged that Cook Inlet had a long
history of earthquakes, but the infrastructure and
regulatory structures were built around the known risk. The
evaluation for any development considered the known seismic
risk.
Representative Galvin asked if the same information fitted
for the North Slope region. Mr. Wartes responded that the
North Slope was recognized as having a much lower seismic
risk and was quite stable. Representative Galvin asked if
there was more than CO2being sequestered and asked for
clarification.
Mr. Crowther replied that the intent of the legislation was
to inject pure and highly compressed CO2 underground. Any
given waste stream had other constituent parts and would
need to be managed appropriately. He stressed that the
focus of the program was pure CO2. Representative Galvin
appreciated the description of essential CO2. She asked
what other elements could be expected. Mr. Crowther
responded that his scientific experience prevented him from
confidently proving a definitive answer. He surmised that
flammable hydrocarbons needed to be removed and things like
water and other gases like nitrogen that may persist
because they could not be filtered from the waste stream.
He offered to follow up in writing.
9:07:15 AM
Co-Chair Foster indicated that DOR was available. He
requested that Representative Hannan restate her question.
Representative Hannan reiterated her question regarding
credits against enhanced oil recovery efforts as carbon
sequestration expanded, and how it would impact the oil
production tax revenue.
DAN STICKEL, CHIEF ECONOMIST, DEPARTMENT OF REVENUE, TAX
DIVISION, JUNEAU (via teleconference), apologized that he
had not been following the beginning of the hearing. He
answered that the extent that allowable lease expenditures
on enhanced oil recovery depended on who was making the
expenditure and whether it was on leases for enhanced oil
recovery versus another storage option. He deduced that the
division would need to see the bill after it was amended to
provide a final commentary. Representative Hannan voiced
that initially the bill's fiscal notes anticipated
substantial income over 10 years. She noted that the fiscal
notes had changed. She wondered if there was no longer an
expectation of large revenue production due to the bill's
effect on oil and production tax. Mr. Stickel replied that
her concern was valid. He reiterated that he wanted to
review the bill after the amendment process to provide
final commentary.
9:10:50 AM
Representative Stapp acknowledged the distinction between
Class II and Class VI wells. He understood that the
Inflation Reduction Act (IRA) increased the commodity price
of CO2, officially through the 45Q credits. He was also
aware that depending on whether North Slope companies
capture or sequester carbon the state could gain $60 to
$130 per ton. He did not favor a scenario where the
producers engaged in carbon capture facility production
exclusively for the purpose of the 45Q credit thus,
decreasing revenue the producers would otherwise pay the
state through production tax. He was unsure whether the
bill allowed the scenario or not. He did not want to
incentivize producers to seek federal resources "on the
dime of our state production tax." He favored the bill,
other than the issue he presented. Mr. Crowther restated
the question as whether a project that received the 45Q
tax credit and had a reduction to an otherwise state
obligation if the sum of two things incentivized the
project. Representative Stapp simplified the question. Mr.
Crowther offered to respond in writing. He thought that the
answer was complex.
9:13:40 AM
Representative Josephson shared that he attended a two day
forum on Cook Inlet attended by tribes, the federal
government, nonprofits, etc. and there were great concerns
regarding Cook Inlet water quality. He asked about
exceptions regarding "slurry" that was allowed to be
deposited into the unit. He recalled that it was unique to
Cook Inlet. Mr. Crowther answered that he understood that
he was referring to DEC's discharge authority. He deferred
the answer to DEC and would follow up.
9:15:51 AM
Co-Chair Foster set an amendment deadline for Tuesday
February 27, 2024, at 5pm.
HB 50 was HEARD and HELD for further consideration.