Legislature(2023 - 2024)ADAMS 519
03/11/2024 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB50 | |
| HB116 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 50 | TELECONFERENCED | |
| + | HB 116 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 50
"An Act relating to the geologic storage of carbon
dioxide; and providing for an effective date."
2:07:13 PM
Co-Chair Foster relayed the committee would consider
amendments to the bill. He noted there were individuals
available for questions.
2:07:45 PM
Co-Chair Edgmon MOVED to ADOPT Amendment 1, 33-GH1567\R.11
(Dunmire, 2/28/24). [Note: due to the length of the
amendment it is not included here. See copy on file for
details.]
Co-Chair Foster OBJECTED for discussion.
Co-Chair Edgmon explained the amendment. He requested
technical expertise at the table to address details of the
amendment. He prefaced that the underlying bill related to
carbon storage on state land and a number of other
functions. He stressed the iterative process from the
Department of Natural Resources (DNR) Alaska Oil and Gas
Conservation Commission (AOGCC) as the framework was
developed in addition to the iterative process of the
Environmental Protection Agency (EPA) when it came to the
Class VI primacy application that only several other states
had gone through. He remarked that it had been a learning
process for DNR and the EPA and building on the level of
understanding, it was Alaska's turn to compile the
framework that best suited the state's purposes and needs.
The amendment allowed HB 50 to comport with region 10's and
the EPA's understanding of working with AOGCC on a number
of provisions that would strengthen the bill and make it
more in step with the EPA and to prepare Alaska for going
forward. He asked to hear from the AOGCC chair on the
details of the amendment.
2:09:50 PM
BRETT HUBER, CHAIR, ALASKA OIL AND GAS CONSERVATION
COMMISSION, stated that Co-Chair Edgmon had described
exactly the reason for DNR's portions of the amendment. The
department was walking through the process of primacy,
which created a regulatory body in Alaska AOGCC that
was meeting the mission of the EPA through the Clean Water
Act and the Safe Drinking Water Act. Throughout the process
there would be a back and forth between the state and
federal agencies to ensure it worked for both parties. He
relayed that at the end of the previous session he had
asked the EPA to review the legislation to identify
anything problematic in the state's effort to seek primacy.
In response, the EPA had two comments, both were addressed
in Amendment 1. The first related to the "good cause
exception," which he stated was pretty typical in a
regulatory process. He explained that the exception
described the way something should be done unless it did
not work and there was another way to meet the same
objective. He explained that other states had indicated to
Alaska that the EPA would not approve the exception;
therefore, the amendment removed the good cause exception.
Mr. Huber continued that the second EPA comment related to
the post-closure period or certificate of completion and
when it could be allowed. The EPA looked at a 50-year
horizon, which was somewhat flexible if all of the goals
and requirements of the EPA were met. The EPA liked to see
the 50-year horizon reflected in the bill. The bill
initially specified a post-closure could be done after 10
years, while the amendment specified the 50-year threshold
had to be met or the commission had to find that all of the
requirements were met as if it were a 50-year threshold.
The amendment reversed the language but had the same
practical effect.
2:12:18 PM
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, relayed that DNR viewed the amendment as
conforming to the EPA requests. He had nothing additional
to add to the explanation.
Representative Galvin characterized the amendment as
comprehensive and "meaty." She looked at page 2, line 20 of
the amendment and appreciated the requirement for an annual
report to the legislature. She thought it would be helpful
because [carbon storage] was an emerging market. She had
had conversations in her office on her concern about the
pricing and what the state was doing to ensure it was
building a bank of knowledge on potential revenue for the
state. She wondered if the amendment included pieces of
transparency to help "us" better understand the market.
Mr. Crowther replied that DNR pointed to language on line
21 referencing the operations and accounting of the trust
fund in addition to the licensing applications and the
decision and issuances of leases. The department
anticipated that things about market development and
different commercial terms from operators would be present
in the report.
Representative Galvin referenced the establishment of trust
information and information on licensing applications. She
thought it could be more intentional to help the state
understand revenue that the companies were appreciating and
to help have a better set of numbers. She stated that the
market someday would hopefully have more than discretionary
decisions at some point. She thought more information was
needed if possible.
Mr. Crowther answered that the annual report would include
that type of information, which would be intended to inform
the legislature. The department would be happy to present
on regular oversight responsibilities, specific topics, and
on the progress of the program. The department did not
believe changing the language in the amendment language was
necessary. He viewed reporting to the legislature as a
regular order of business for DNR.
Co-Chair Foster WITHDREW the OBJECTION to Amendment 1.
There being NO further OBJECTION, Amendment 1 was ADOPTED.
2:16:39 PM
Representative Josephson MOVED to ADOPT Amendment 2, 33-
GH1567\R.9 (Dunmire, 2/27/24) (copy on file):
Page 1, line 2, following "Commission;":
Insert "relating to the definition of 'waste';"
Page 2, following line 10:
Insert a new bill section to read:
"* Sec. 4. AS 31.05.170(15) is amended to read:
(15) "waste" means, in addition to its ordinary
meaning, physical waste ["PHYSICAL WASTE"] and
includes
(A) the inefficient, excessive, or improper use of, or
unnecessary dissipation of, reservoir energy; and the
locating, spacing, drilling, equipping, operating or
producing of any oil or gas well in a manner that
[WHICH] results or tends to result in reducing the
quantity of oil or gas to be recovered from a pool in
this state under operations conducted in accordance
with good oil field engineering practices;
(B) the inefficient above-ground storage of oil; and
the locating, spacing, drilling, equipping, operating,
or producing of an oil or gas well in a manner
causing, or tending to cause, unnecessary or excessive
surface loss or destruction of oil or gas;
(C) producing oil or gas in a manner causing
unnecessary water channeling or coning;
(D) the operation of an oil well with an inefficient
gas-oil ratio;
(E) the drowning with water of a pool or part of a
pool capable of producing oil or gas, except insofar
as and to the extent authorized by the commission;
(F) underground waste;
(G) the creation of unnecessary fire hazards;
(H) the release, burning, or escape into the open air
of gas [,] from a well producing oil or gas or from a
fuel line carrying oil or gas, except to the extent
authorized by the commission;
(I) the use of gas for the manufacture of carbon
black, except as provided in this chapter;
(J) the drilling of wells unnecessary to carry out the
purpose or intent of this chapter."
Renumber the following bill sections accordingly.
Page 33, line 5:
Delete "Section 40"
Insert "Section 41"
Co-Chair Foster OBJECTED for discussion.
Representative Josephson explained the amendment. He
relayed that in 2017/2018 he was the co-chair of the House
Resources Committee and around 2017 there was a Hilcorp gas
leak in the northern Cook Inlet that lasted several months.
He detailed the event had been well-covered in the press
and there had been concern about the environment. He had
been working on oil spill legislation at the time (HB 322)
and he recalled that the deputy commissioner of the
Department of Environmental Conservation (DEC) at the time
has said DEC needed clarification that AOGCC had
jurisdiction over the fact and site of the leak. Former
Senator Holis French was sitting on AOGCC at the time (and
had disputes with his employer over unrelated matters) and
implored colleagues to take jurisdiction over the leak. At
issue was gas that has been leaked after being metered and
severed from a property. It was his understanding there was
a pipeline that ran to a point, AOGCC believed it had
jurisdiction to that point, and the pipeline may have run
out to a platform. At some point, during the journey to the
platform, the majority of AOGCC concluded it no longer had
jurisdiction.
Representative Josephson elaborated that Senator French had
identified two problems. Senator French thought his
employer had not been doing the job required. First,
reservoir pressure was declining due to the gas leak, which
was wasteful or waste and could impact oil production.
Second, the depletion of the gas was another form of waste.
Senator French had taken the issue to superior court which
had ruled in favor of AOGCC. Senator French had
subsequently taken the issue to the state supreme court. He
detailed that in 2021, the supreme court had ruled a final
ruling (case S-1722) that agreed with Senator French and
that jurisdiction obtains. The ruling found that when AOGCC
ruled it did not have jurisdiction it did not provide any
evidence to that effect. The supreme court reversed the
decision and the attorney fees were vacated. The matter was
remanded to commission for further proceedings. He
understood that AOGCC could say it had jurisdiction but it
was not in the mood to exercise jurisdiction or it lacked
the resources for jurisdiction, or it thought that it was
fully mitigated because Hilcorp was a good actor; however,
it could not say that it lacked jurisdiction because it was
not true as a matter of law.
Representative Josephson explained that the amendment
established that as a matter of law AOGCC had jurisdiction.
What AOGCC chose to do with its jurisdiction was at its
discretion. He believed the former [DEC] deputy
commissioner Kristin Ryan [note: Kristen Ryan was the
director of DEC's Division of Spill Prevention and
Response] was correct when saying DEC needed jurisdiction.
He believed Senator French was right. He shared that
Senator French had recently been asking AOGCC to make a
statement and concede that it has jurisdiction.
2:23:32 PM
AT EASE
2:24:54 PM
RECONVENED
Representative Ortiz asked for verification that the
adoption of the amendment would specify that AOGCC had
jurisdiction.
Representative Josephson agreed.
Representative Stapp referenced language on page 2, line 5
of Amendment 2 reading "or from a fuel line carrying oil or
gas" He noted that most individuals in Interior Alaska had
heating oil tanks with lines to their houses. He asked what
the implication of the language may be. He requested to
hear from Mr. Huber on the impact of the amendment.
Representative Josephson noted the clause on line 6 reading
"except to the extent authorized by the commission." He
thought that under the circumstance described by
Representative Stapp the commission could absolve
homeowners of any worry about AOGCC exercising jurisdiction
over something so de minimis. He relayed that the opponents
of Senator French's position made the same argument
Representative Stapp asked about and the [state] supreme
court had said they were wrong. The court ruled that AOGCC
had jurisdiction.
2:27:27 PM
Mr. Huber agreed with a number of points made by
Representative Josephson; however, his understanding was
slightly different on a couple of the points. He relayed
that AOGCC had broad jurisdiction that reached everywhere
but Denali National Park. Separately, there was what was
subject to AOGCC's jurisdiction and what was part of its
operations. He highlighted that the court did not review
and take testimony and re-try a case after an
administrative decision; it looked at the administrative
decision only. The case had gone from the superior court to
the supreme court and the supreme court had sent it back
with remand. He believed the supreme court had correctly
specified that AOGCC had broad statewide jurisdiction, but
it did not tell the commission how to apply the
jurisdiction. He addressed the couple of points reviewed by
Representative Josephson. The first was waste being a
problem due to loss of pressure. He confirmed that under
the specific circumstance the gas had been produced and
metered and then sold, at which time it became private gas.
He explained that the sold gas had no way of affecting the
reservoir pressure any longer. He stated that the volume of
gas in the line was no different than putting a gallon of
oil in a can. Once it was sold, it belonged to the
purchaser.
Mr. Huber relayed that AOGCC ensured pore pressure and if
there was waste of the resource, the state received value
for any wasted resource. He explained that those things
happened above the point of severance from the unit. After
that point it became private gas, just as a homeowner's
fuel tank contents belonged to the homeowner. From AOGCC's
perspective, it had the ability to do the work it needed
above the metering. He viewed the amendment as opening a
can of worms on the oil and gas side because it did not
define the kind of fuel line and could include homeowners.
The agency was concerned it would create an expectation it
could not meet. He stated that DEC had jurisdiction over
gas leaks like the one that occurred in Cook Inlet. He
clarified that DEC's environmental jurisdiction pertained
to clean up, whether there was a problem, and how to deal
with the problem. He stated that AOGCC's regulatory
jurisdiction for waste did not apply. He understood what
the maker of the amendment was aiming to accomplish, but he
did not believe the amendment obtained the goal without
creating some gray areas and difficult issues for the
agency to do its job.
2:30:14 PM
Representative Stapp stated his primary concern was that he
did not want to add another regulatory authority over his
home fuel tank. He would likely oppose the amendment.
Representative Josephson wrapped up the amendment. He
referenced a report by the supreme court Justice Daniel
Winfree (now retired) that noted the trial court applied
rational basis review, concluded the commission's
determination that gas once metered and severed from a
property could not be waste was reasonable. The supreme
court had reversed the ruling and identified the product as
waste. The committee had heard that DEC would have some
environmental authority, which he characterized as
wonderful. However, it was his understanding that AOGCC was
about getting the most money out of the play, which had not
occurred under the particular circumstance. The supreme
court had concluded AOGCC had jurisdiction over the matter.
He highlighted that Mr. Huber had not stated that AOGCC did
not have jurisdiction, he had stated AOGCC did not want to
exercise it. He thought that was where the issue arose. He
believed that to assuage homeowners, AOGCC could issue an
order specifying it would exercise its jurisdiction to
punish bad actors wasting the state's resources, but not in
a circumstance related to homeowners. He asked for members'
support.
Co-Chair Foster WITHDREW the OBJECTION.
Representative Stapp OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Hannan, Josephson, Ortiz
OPPOSED: Cronk, Galvin, Stapp, Tomaszewski, Coulombe,
Edgmon, Johnson, Foster
The MOTION to adopt Amendment 2 FAILED (3/8).
2:33:49 PM
AT EASE
2:37:45 PM
RECONVENED
Representative Josephson MOVED to ADOPT Amendment 3, 33-
GH1567\R.7 (Dunmire, 2/27/24) (copy on file):
Page 6, line 28:
Delete "and"
Page 6, following line 28:
Insert a new paragraph to read:
"(3) be conditioned on an obligation by the licensee
to, upon termination of the license, promptly remove
all improvements and equipment as provided in AS
38.05.735; and"
Renumber the following paragraph accordingly.
Page 9, line 21:
Delete "and"
Page 9, line 24, following "38.05.181":
Insert "; and
(3) a clause requiring the licensee or lessee to
remove all
improvements and equipment as provided in AS
38.05.735"
Page 11, following line 23:
Insert a new section to read:
"Sec. 38.05.735. Removal and restoration after
termination. (a) Upon termination of a license under
AS 38.05.705 or 38.05.710 or a lease under AS
38.05.715, a licensee or lessee shall 1 promptly
remove all improvements and equipment, except as
otherwise approved in writing by the commissioner, and
shall restore the land to a condition that is approved
by the commissioner. A licensee or lessee shall
(1) remove buried pipe unless all oil and residue is
removed from the pipe and the ends are suitably
capped;
(2) use adequately designed and constructed waterbars,
revegetation, and chemical surface control to minimize
erosion of access roads, material sites, and other
areas;
(3) remove culverts and bridges in a manner
satisfactory to the commissioner;
(4) leave each cut and fill slope in a stable
condition;
(5) dispose of materials from access roads, haul
ramps, berms, dikes, and other earthen structures in a
manner approved by the commissioner;
(6) dispose of vegetation, overburden, and other
materials removed during cleaning operations in a
manner approved in writing by the commissioner;
(7) remove all equipment and supplies from the site;
and
(8) report all discharges to the commissioner.
(b) A licensee or lessee may, at the option of the
licensee or lessee, pay to the department an amount
determined by the commissioner to be sufficient to
conduct the removal and restoration required under
this section."
Page 25, lines 1 - 2:
Delete "equipment and facilities"
Insert "improvements and equipment as provided in AS
38.05.735"
Co-Chair Foster OBJECTED for discussion.
Representative Josephson explained the amendment. The
amendment had been brought to him by the former director of
the Division of Oil and Gas. He was reminded that 1972
Trans-Alaska Pipeline System (TAPS) tax law had a
dismantle, remove, and restore (DR&R) provision. He had
requested for the amendment drafter to mirror the TAPS
DR&R. He remarked that had to monitor [a carbon storage
location] for what he thought sounded like 50 years. The
amendment created a requirement where possible to
dismantle, remove, and restore a site of a CCUS [carbon
capture utilization and storage] well or operation.
Mr. Crowther relayed that DNR appreciated the intent and
focus on DR&R, which was an authority the department
regularly administered for existing authorities in a
variety of ways. The department did not support the
amendment because DNR believed the legislation already
addressed the requirements through the requirement that
leases include conditions related to DR&R and that the
AOGCC certificate of completion also included a requirement
with language specific to the removal of equipment in the
CCUS context. The department did not believe the amendment
was needed. Additionally, the inclusion of language similar
to TAPS dismantlement created some inconsistencies or
specific requirements that were not applicable to the CCUS
context. He noted that subsection (b) of the amendment
spoke to the option of a licensee or lessee to defer or
pass the obligation to the state in exchange for a set
payment. The department believed the provision may raise
issues in relation to the EPA Class VI primacy approval and
could potentially create ambiguity as to the state's scope
of responsibility and the right methodology to set the
cost. The department did not support the amendment, while
it did appreciate the focus on making sure restoration was
part of a project, which was the reason the language was
included in the legislation.
2:41:46 PM
Representative Josephson asked where the DR&R language
resided in the bill.
Mr. Crowther replied that he was referencing two sections
of the bill. The first was the new Section 38.05.710
related to license procedures. The second was located on
page 10, lines 11 and 12 of the legislation, which
specified that any other condition or obligation the
commissioner considered necessary or was required by
regulation. He explained it was an umbrella authority of
the commissioner to require a variety of things in licenses
and leases. He stated that DR&R obligations were an
inherent part of that authority and were part of the
general authority used by the department at present.
Additionally, the new Section 41.06.170(b)(6) on page 24 of
the committee substitute (CS) required an operator show the
operator had plugged the wells, removed equipment and
facilities, and completed reclamation work as required by
the commission and DNR.
Representative Stapp stated carbon sequestration was new.
He was satisfied with DNR's response regarding the umbrella
authority. He did not know everything that went into the
construction of [carbon storage] facilities and he was
concerned about codifying things in a cleanup statute that
talked about removing buried pipe and oil residue. He
reasoned that given the 50-year timeframe, the state could
redefine some of the technical aspects at a later date. He
did not believe anyone on the committee knew exactly what
would go into carbon sequestration.
Representative Josephson provided wrap up on Amendment 3.
He did not know whether the modifications could be made at
a later date. He considered the constitutional law related
to the state impairment of an obligation to a contract. He
remarked that taxes could change midstream and could be
retroactive, which was an oddity. He did not know whether
the legislature could say it wanted something more specific
at a later date. He did not know what DNR's requirements
would be under subsection 6, page 25, line 10. He had asked
for the amendment to be drafted to mirror TAPS. He asked
for members' support.
Co-Chair Foster WITHDREW his OBJECTION.
Representative Stapp OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Josephson, Hannan, Ortiz, Galvin
OPPOSED: Stapp, Tomaszewski, Coulombe, Cronk, Edgmon,
Foster, Johnson
The MOTION to adopt Amendment 3 FAILED (4/7).
2:46:27 PM
Representative Josephson MOVED to ADOPT Amendment 4, 33-
GH1567\R.8 (Dunmire, 2/27/24) (copy on file):
Page 11, following line 23:
Insert a new section to read:
"Sec. 38.05.735. Prohibited areas. A department or
other state agency may
not issue a carbon storage license or lease in the
following areas:
(1) the Susitna Flats State Game Refuge, as described
in AS 16.20.036(a);
(2) the Trading Bay State Game Refuge, as described in
AS 16.20.038(a);
(3) the Clam Gulch Critical Habitat Area, as described
in AS 16.20.595;
(4) the Anchor River and Fritz Creek Critical Habitat
Area, as described in AS 16.20.605(a);
(5) the Redoubt Bay Critical Habitat Area, as
described in AS 16.20.625(a);
(6) the Kachemak Bay State Park, as described in AS
41.21.131 and 41.21.140(b);
(7) the Kachemak Bay State Wilderness Park, as
described in
18 AS 41.21.140(a);
(8) the Captain Cook State Recreation Area, as
designated by the governor under AS 41.21.415;
(9) the Kenai River Special Management Area, as
described in AS 41.21.502(a); and
(10) the Knik River Public Use Area, as described in
AS 41.23.230."
Page 22, line 10:
Delete "and"
Page 22, line 12, following "commission":
Insert "; and
(15) that the proposed storage facility is not in an
area described in AS 38.05.735"
Page 29, line 27, through page 30, line 1:
Delete all material.
Renumber the following bill sections accordingly.
Page 33, line 5:
Delete "Section 40"
Insert "Section 39"
Co-Chair Foster OBJECTED for discussion.
Representative Josephson explained the amendment. He shared
that he had been invited to the Cook Inlet Water Quality
Summit in Anchorage on October 24, 2023, and had also been
a panelist. He elaborated that no such conference had ever
been held like it in state history. He listed various
entities in attendance. He detailed that attendees had
heard presentations on DR&R, Cook Inlet offshore oil and
gas platforms, endangered Cook Inlet Beluga whales, the
Clean Water Act, and more. He remarked that salmon returns
in the area were not what they once were due to many
reasons including air emissions. He stated that current
statutes protected Kachemak Bay from oil development, which
was a great thing. He referenced a handout showing maps
associated with Amendment 4 (copy on file). He had asked
Legislative Legal Services to provide all of the other
sites within Cook Inlet that would be worthy of protection.
The list was shown in the handout. He was asking the
committee to consider doing something good for Alaska,
while the state would inject carbon into the ground for the
first time. The map included the Redoubt Bay Critical
Habitat Area, the Trading Bay State Game Refuge, the Kenai
River Special Management Area, and the Captain Cook State
Recreation Area. He pointed out that a number of the areas
did not have oil fields in their vicinity. He noted the
committee could talk about Clam Gulch, which was not "of
this type." He wanted to protect areas that were not
currently developed in oil and gas fields from carbon
later.
Representative Stapp looked at the maps in the handout
provided by Representative Josephson and saw numerous
existing state and federal units and gas storage facilities
within many of the boundaries. He asked why the state would
not find it acceptable to put the carbon back in the ground
if it was amenable to taking oil and gas out of the ground.
Representative Josephson recognized the point and replied
that he would be amenable to the removal of the Susitna
State Game Refuge, Kenai River Special Management Area, and
Clam Gulch Critical Habitat Area from the amendment to
address the concern.
2:51:51 PM
Representative Stapp remarked that extraction had been done
in the areas for years. He stated that he was pro-
development and especially in light of the impending Cook
Inlet gas shortage, he did not think it would be wise to
pull future development opportunities off the table. He
stated that the CCUS bill helped the state continue to not
have a gas crisis for the individuals on the Railbelt. He
opposed amendments that could hurt the situation.
Representative Galvin considered a scenario where the Clam
Gulch, the Kenai River Special Management Area, and Susitna
State Game Refuge were removed from the amendment. She
asked if the amendment would be a problem in terms of
existing plans. She thought that given it was new
technology, it made sense to think about the issue. She
remarked that if there was space to set aside sensitive
areas in the state it would be good to know what it would
do for the market.
Mr. Crowther responded that the department could not speak
to the kind of entities or specific areas. He stated that
depleted oil and gas fields or producing fields nearing the
end of life were targets and areas with existing fields
could seek carbon sequestration. Additionally, there were
other kinds of geologic strata that could see carbon
sequestration that were generally present throughout Cook
Inlet including unmineable coal seams and saline aquifers
that historically had not been assessed for oil and gas.
The department believed many of the areas included in the
amendment could potentially be carbon sequestration areas,
but the work to differentiate one area from another had not
yet been done.
Mr. Crowther elaborated that the amendment would limit
opportunities in areas where the state did not know whether
they were available geologically. He stated that from the
department's perspective all of the areas listed in the
amendment had existing legislative framework governing
their management. Some of the areas had restrictions on
different kinds of surface use and some had restrictions on
different subsurface use and disposal. All of the
requirements were in place currently and DNR managed them
vis--vis oil and gas and other kinds of land use. He
stated that the amendment would restrict subsurface leasing
even if allowed by current law. The department believed the
amendment was too broad and constrained opportunity without
reflecting the balance the legislature had put in place for
the areas.
2:55:54 PM
Representative Hannan asked about the parcels of land
covered in the amendment with the most restrictive language
would require legislative action to allow subsurface use
for carbon storage. Alternatively, she asked if it was
AOGCC or [DNR] commissioner authority.
Mr. Crowther believed two of the areas were already
restricted by law to subsurface disposal. He explained that
if there was intent by the legislature to allow carbon in
those areas it would require subsequent legislative change.
Most of the areas on the list were not closed; therefore,
subject to the restrictions currently in place, if HB 50
passed, DNR could conduct subsurface leases in the areas.
HALEY PAINE, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES, agreed with Mr. Crowther's
statements. She relayed that of the ten locations listed in
the amendment, five were open to surface and subsurface
access for oil and gas, and two had prohibitive surface
access, but allowed subsurface access. The remaining three
were outside of the state's areawide leasing program or did
not have specific authorizations already in statute.
Generally, they would be considered limited as by default
they did not have surface access.
2:57:55 PM
Representative Hannan thought it sounded like they all had
surface access. She asked about the two that were currently
excluded from subsurface use.
Ms. Paine clarified that there were two that did not allow
surface access, but subsurface access was allowed. The two
areas were the Clam Gulch Critical Habitat Area and the
Captain Cook State Recreation Area.
Representative Hannan asked if the rest of the areas had
some authority for surface or subsurface carbon
sequestration that could be exercised currently without
legislative action, including Kachemak Bay State Park.
Ms. Paine clarified that the research performed by DNR
looked at what the statute allowed or did not allow. The
five areas that articulated use for oil and gas that the
language in the bill was modeled off of were the Susitna
Flats Game Refuge, the Trading Bay State Game Refuge, the
Anchor River and Fritz Creek Critical Habitat Area, Redoubt
Bay Critical Habitat Area, and Kenai River Special
Management Area. She explained that statute allowed for
surface and subsurface access in those areas. Statute was
silent on the uses for the Kachemak Bay State Park and
Kachemak State Wilderness Park and did not prohibitively
allow for oil and gas leasing. The two areas were also
zoned out of the state's areawide leasing boundary.
Representative Galvin thought committee members understood
that carbon capture was an important component for oil and
gas development. She was hearing from companies and the
department that there was a need to have a carbon zero
option. She stated that it helped companies get investments
for those looking for ESGs [environmental, social,
governance] or environmentally sound oil and gas
development. She thought investors would expect the state
would be mindful of extra sensitive areas and may have some
areas set aside. She appreciated it was the intention of
the amendment.
3:01:46 PM
Representative Josephson asked if Ms. Paine had stated that
the Kenai River Special Management Area, where people dip
net by the hundreds, was theoretically open for oil and gas
development.
Ms. Paine responded that it was her understanding there
were no specific limitations. She reviewed the map and
noted that many of the sections were located outside DNR's
areawide leasing program. She deferred to the Department of
Law for more details on specific restrictions in the areas.
Representative Josephson referenced Representative Stapp's
comments about impeding oil development. He asked Ms. Paine
for verification that his amendment did not say anything
about the status of oil development in the habitat areas,
wilderness parks, or recreation areas.
Ms. Paine replied that she did not see anything in the
amendment that discussed oil and gas.
Representative Josephson asked for verification that
currently someone could develop the subsurface at Clam
Gulch and Captain Cook, but they could not go through the
surface.
Ms. Paine believed there were restrictions in place in the
statute referenced by Representative Josephson that talked
about whether surface access was already allowed in those
locations. She would have to look at the statute to provide
a more detailed response.
3:03:46 PM
Representative Josephson stated that the bill as written
specified that oil and gas development was restricted in
those areas where families went on weekends to camp and
clam; however, the areas were not restricted from carbon
storage. He asked if his statement was correct.
Ms. Paine responded that it was the intent of the
department to mirror its current authorities, allowances,
and restrictions as they pertained to oil and gas. She
stated that carbon storage was predominately a subsurface
activity, and the surface impact was minimal. She remarked
that a carbon storage facility at the surface could be a
wellhead or shed in size. She imagined DNR would attempt to
always mirror carbon storage with oil and gas in terms of
how it treated and respected the individual legislative
designated areas.
3:05:07 PM
Representative Cronk wanted to err on the side of caution
of setting any limits, especially because the technology
was new.
Representative Stapp agreed. He thought it was disingenuous
to say that the amendment did not have any impact on gas
development. He remarked that DNR had told the committee
that it had not yet done the geological survey. He reasoned
that if the geological survey determined the only place
with the right geology was the Susitna State Game Refuge
where there were existing leases, it basically meant carbon
could not be sequestered within Cook Inlet. He asked what
it meant for future prospects of oil and gas development in
Cook Inlet if carbon could not be sequestered there. He
stated that companies that wanted to sequester carbon
wanted to do so because they wanted to have an
environmentally more freely developed method of extraction.
He stressed that if the ability was taken away, there would
not be oil and gas development in the region.
Representative Hannan argued in favor of the amendment. She
highlighted Kachemak Bay State Park and Kachemak State
Wilderness Area and the state park and the reference that
state statutes governing and establishing the parks did not
reference "this." She pointed out that none of the state's
statutes referenced carbon sequestration because it had not
been around when any of the land jurisdictions had been
made; however, the state did come up with a process to
create guidelines and articulate some areas for critical
habitat that were off limits to certain kinds of
development. She argued that at the outset the legislature
could dictate ten places where carbon sequestration could
not be done; however, if the market developed over the next
5 to 50 years and needed a space, the legislature could
revisit the issue and open the areas for carbon
sequestration. She believed the people who used the
specific areas and fought for protection and a public
process had an expectation there would be an additional
public process. She stressed that the locations had not
been open to leasing or big oil development. She stated
they were close by [to oil development] and she wanted the
law to be narrow at the outset. She stated that if in the
future there was a lot of importation of carbon to be
sequestered underground, the laws could be modified over
the next 20 years to meet the demand. She underscored that
at the outset she wanted to protect the lands that people
had already statutorily argued for to be protected. She was
in support of Amendment 4.
3:09:10 PM
Representative Coulombe thought the environmental impacts
of developing oil were being equated with carbon storage.
She asked what the sponsor was worried about if there was
carbon storage in the areas. She stated that it seemed
there would be a small imprint on the surface. She noted
there had been discussion about the possible seismic impact
and that carbon could leak, but she did not see it as the
same environmental impact as developing oil. She wondered
what Representative Josephson was trying to solve with the
amendment.
Representative Josephson responded that he could never know
whether he was being overly alarmist, but he recalled what
it felt like hearing about the oil spill in 1989. He
highlighted that Alaskans had been told it would never
happen. He cited language on page 24, line 12 of the
legislation that read "while the storage operator holds
title, the operator is liable for any damage the carbon
dioxide may cause, including damage caused by carbon
dioxide that escapes from the storage facility." He
emphasized there was additional similar language in the
bill. He relayed that the previous week, the former mayor
of Nuiqsut was in his office saying residents had been
getting sick due to a gas leak. The former mayor had used
an example of a baby with a headache because she could not
breathe. The reason he did not have amendments on the North
Slope was that they seemed to really want oil development
and there were not 50,000 people located in the area. He
stressed that the Kenai peninsula had 50,000 people who
recreated along the coastline. He stated that even
Representative Tom McKay, chair of the House Resources
Committee had been forthright in saying that while
unlikely, it could displace oxygen and people could
suffocate. He did not think that was likely to happen, but
the chairman had made the statement several times. He
stated that part of his problem with the bill was that it
was "a mystery, wrapped in an enigma, surrounded by a
riddle." He stated that the concept in the bill was new to
him. He remarked that there had been some protections for
the areas [listed in the amendment], some had oil and gas
protection, and many did not. He thought it was a
worthwhile debate.
3:12:24 PM
Representative Galvin was interested in offering an
amendment to Amendment 4. She requested an at ease to speak
with the sponsor.
3:13:05 PM
AT EASE
3:24:40 PM
RECONVENED
Representative Galvin MOVED to ADOPT conceptual Amendment 1
to Amendment 4. She noted she had conferred with DNR and
the amendment would remove all prohibited areas from
Amendment 4 with the exception of the Kachemak Bay State
Park, Kachemak Bay State Wilderness Park, and Captain Cook
State Recreation Area (items 6, 7, and 8 respectively). She
stated her understanding it would maintain the openness
necessary to potential investors and would reconfirm some
existing lands set aside.
Mr. Crowther appreciated the conceptual amendment focusing
on the three areas. He noted that the provisions already
referenced in law in items 6 through 8 contained a variety
of specific restrictions and processes for any activity in
those areas. The department understood the law
substantially limited the ability to do carbon
sequestration in the areas; therefore, DNR maintained that
the amendment was generally duplicative. The department
believed it was positive to remove the other areas where
carbon sequestration could occur and it was likely not to
occur where they could be removed from consideration.
Representative Stapp looked at the map provided by
Representative Josephson for Amendment 4. He asked why the
state would choose to prevent carbon sequestration on lands
that already allowed oil and gas development.
Representative Galvin provide wrap up on conceptual
Amendment 1. She was trying to pay special attention to how
much Alaskans cherish the particular sensitive land area.
She stated it was important to make sure there was careful
access to needed natural resources, but it was also
important to set aside areas. She believed the amendment
indicated to Alaskans that the legislature was listening
and it paid attention to the opportunity to include the
lands in a set aside, which may not be possible later. She
remarked the area was very large and the amendment did not
cut off opportunity.
3:29:04 PM
Co-Chair Foster WITHDREW the OBJECTION.
Representative Stapp OBJECTED.
A roll call vote was taken on the motion to adopt
conceptual Amendment 1 to Amendment 4.
IN FAVOR: Ortiz, Galvin, Hannan, Josephson
OPPOSED: Stapp, Tomaszewski, Coulombe, Cronk, Edgmon,
Johnson, Foster
The MOTION to adopt conceptual Amendment 1 to Amendment 4
FAILED (4/7).
3:29:51 PM
Representative Josephson WITHDREW Amendment 4.
3:30:12 PM
Representative Stapp MOVED to ADOPT Amendment 5, 33-
GH1567\R.13 (Dunmire, 3/7/24) (copy on file). [Note: due to
the length of the amendment it has not been included here.
See copy on file for detail.]
Co-Chair Foster OBJECTED for discussion.
Representative Stapp explained the amendment. He stated
there had been numerous discussions by the committee
regarding the 45Q financial incentives offered by the
federal government and what they did for terms of carbon
sequestration and class II and class IV wells. He believed
the state had one of the most complicated oil and gas tax
regimes globally. He provided a scenario where companies
looked to utilize a direct air capture facility to do
something incredibly expensive beyond what it would
normally do for enhanced oil recovery or something they did
not currently do in the event it wanted to pursue carbon
sequestration for a class IV well. The amendment would not
allow the expenditure to be utilized against a company's
existing lease expenditures. He noted that the Department
of Revenue (DOR) and DNR were available for questions. He
read from the amendment that added to the list of
exemptions:
costs incurred to construct, acquire, or operate a
facility for carbon capture, carbon utilization, or
carbon storage; however, costs incurred under this
paragraph that would otherwise constitute a lease
expenditure under (a) and (b) of this section may be
treated as a lease expenditure if the cost is
associated with a facility that uses carbon dioxide
for enhanced oil and gas recovery.
Representative Stapp remarked that companies already
performed enhanced oil recovery as an existing lease
expenditure on the North Slope. His intent was to allow the
activity to continue, but to disallow incredibly expensive
new forms of carbon sequestration because companies were
incentivized through the change in federal tax law. He did
not believe the state should pay for that type of thing.
For example, he did not want companies to be able to build
a large carbon capture facility on the North Slope and bill
the state.
3:32:42 PM
Representative Josephson remarked that he had asked Mr.
Crowther in the past about the need to delineate oil
production capital expenses deductible under the carry
forward lease expenditures or net operating losses from HB
50 carbon sequestration. He recalled Mr. Crowther had
stated it was not necessary for the bill to cover that. He
asked if the amendment did a better job delineating what
was deductible on the one and not the other.
Mr. Crowther answered that the existing DOR management of
oil and gas lease expenditures involved an analysis of the
nature of the expense and the related association being
necessary for the production of oil and gas. There was
already an analysis and process for auditing those and DNR
believed many carbon-related expenditures would not be
allowed at present. The department supported the amendment
because it brought clarity and drew a clear line that costs
associated with storage (unambiguously or not), lease
expenditures, and costs associated with DOR that were valid
lease expenditures could continue to occur. He stated it
did not disincentivize enhanced oil recovery, which the
state benefitted from. The department believed the
amendment further clarified the process currently in place.
3:34:50 PM
Representative Hannan asked whose authority determined
whether cost associated with enhanced oil recovery was
allowed or not allowed. She asked if it shifted under the
amendment.
Mr. Crowther answered that the authority resided with DOR
and the amendment would not shift that authority. He
highlighted that AS 43.55.165(e) already contained 22 other
exemptions administered by DOR. He deferred to DOR for
additional details.
3:35:48 PM
FADIL LIMANI, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
(via teleconference), confirmed that nothing changed in
terms of administering and identifying the exemptions. The
exemptions were administered by the DOR Tax Division.
DESTIN GREELEY, REVENUE AUDIT SUPERVISOR, TAX DIVISION,
DEPARTMENT OF REVENUE, ANCHORAGE (via teleconference),
agreed with Mr. Limani's statement.
Representative Hannan wanted it on the record that the
legislature was intentionally drawing a line between
enhanced oil recovery activities currently allowed and the
future costs related to capturing carbon oxide. She asked
if DOR would come up with a definition or identify it by
specifying that a company had previously used "this" for
enhanced oil recovery and even if the company decided to
build a plant, it would not be deductible.
3:37:39 PM
Mr. Limani responded that DOR believed the amendment
provided more clarity for DOR to determine the different
provisions as to what some of the allowable lease
expenditures were and what may not be, specifically
pertaining to the carbon capture aspect.
Representative Hannan asked if DOR would develop the
language before receiving a deduction request.
Alternatively, she wondered if the department would wait to
develop the definition until receiving a deduction request.
Mr. Limani replied that DOR already had a robust and
extensive process to review lease expenditures. He
elaborated that its staff were experienced and qualified to
be able to determine the specific lease expenditures. The
department had audited 98 percent of lease expenditures in
the past several years. The process would not change;
however, looking at the different types of costs would
provide more clarity.
Representative Hannan stated that it was "kind of like
sludge." She elaborated that legislators wanted to make
sure that even though they were all agreeing to sludge,
they wanted to know what they were agreeing to. She wanted
to allow what was currently allowed for enhanced oil
recovery, but not set up a situation where a company built
a carbon sequestration facility merely to get an additional
tax advantage that took away from revenue production from
the state. She wanted to make sure DOR was on the record on
the issue.
3:40:12 PM
Representative Josephson asked about the costs associated
with the facility on lines 21 through 23. He asked if DOR
viewed the costs to be capital costs, operating costs, or
both.
Ms. Greeley stated the initial bill would be capital costs
and ongoing costs of a facility would likely fall under
operating costs.
Representative Josephson asked if there could not be a
deduction made for expenses in either case described.
Ms. Greeley answered that it depended on the circumstances.
She explained that if it was for enhanced oil recovery DOR
would have to look at the costs and what they were for. She
stated that operating costs could be part of a normal
enhanced oil recovery process already in place.
3:42:02 PM
Co-Chair Edgmon commented that all five of the amendments
looked forward into time and were projecting or being
preemptive in some respects and maybe prescriptive from
other perspectives. He looked at Amendment 5 and saw more
fine tuning, refining, and anticipatory things that could
happen in the future. He recognized it would likely be
several years before carbon capture activity would come to
Alaska at the scale that was needed to be economic. He
looked at the title on page 1, line 5 "for purposes of
calculating the oil and gas production tax." He highlighted
that it broadened the ability of the bill to come back in
the legislature in a very different format. He credited Co-
Chair Johnson for coming up with the idea. He asked if the
changes were worth that. He stated that the gist of the
amendment was good but he wondered if it would be opening
Pandora's box.
3:43:54 PM
Mr. Crowther responded that DNR and the administration
viewed the legislation as fundamental to establishing
framework for making the state's resources available for
sequestration and the regulatory framework to make sure it
was done safely. He stated it was natural that the
legislature may consider how the framework affected the oil
and gas production tax and otherwise. The department
believed the existing process had the ability to assess
things associated with lease expenditures based on their
focus on generating oil and gas production, which was the
reason the language was not in the bill as originally
introduced. The department did not want to make the bill
about broader topics and wanted to keep it focused on what
it believed was a broadly shared interest. He stated that
the department wanted the bill to be successful to bring
the framework forward to benefit Alaskans and did not
believe the bill was the appropriate vehicle to address
broader fiscal policy.
Co-Chair Edgmon thought it was worthy of bringing forward
the topic for discussion.
Representative Stapp relayed that the initial drafts of the
amendment had a much broader title that he had refined to
be as narrow as possible. He stated that the title change
was specific to lease expenditures pertaining to oil and
gas production tax. He stated it was narrower than
Amendment 6 (yet to be offered by Representative Hannan).
He did not want to open the bill up to a complete rewrite
of the oil and gas production tax, which was not the intent
of the amendment. He remarked that the other body had a
supermajority and could change the titles of bills anytime.
It was not his intent to encourage the behavior. He thought
it was important to define what the lease expenditures were
and were not in regard to carbon sequestration. He stated
he would defer if need be.
3:46:58 PM
Co-Chair Johnson stated that the intent was to eliminate
the ability for oil companies to double dip by receiving a
tax credit for carbon capture and production in addition to
an oil tax credit. She believed the intent of the amendment
was good. She asked if the only way to do the amendment was
with a title change.
Representative Stapp stated it was his understanding it was
the only way. He detailed that the language governing lease
expenditures was part of that, and he made the title as
narrow as possible. He reiterated it was not his intent to
rewrite oil and gas production taxes, especially without
debate in other committees. He believed they were relying
on two words from DOR when discussing the topic including
"necessary" and "ordinary." He believed what defined a
necessary and ordinary lease expenditure was clearly
outlined in existing statute. He believed moving forward
with new environmentally conscious carbon, there would be a
delta in the cost of things. He did not know the cost of a
direct air capture facility. He noted that a direct air
capture facility could be used for enhanced oil recovery or
carbon sequestration. He did not believe current DOR staff
would define that as necessary and ordinary lease
expenditures; however, his fear was that someone in the
future may. He was reminded by a conversation with DOR the
prior year when lease expenditures had to be recalculated
twice. He guaranteed some at ConocoPhillips knew what they
were not going to pay in 2014 when thinking about the
product.
3:49:49 PM
Co-Chair Edgmon stated his understanding the process would
take years to happen. He recalled his visit to North Dakota
and its experience with the topic. He considered the
prospect of having another piece of enabling legislation
that would accompany the current bill five years down the
road. He asked if it was completely out of the picture. He
wondered how likely it was the legislature would have to
revisit the topic five to ten years in the future to
assuage any concerns that HB 50 was its one shot.
Mr. Crowther responded that DNR anticipated that the
legislature may review the topic as the department learned
more about particular interest in the state's lands and as
the market more broadly developed. The department wanted
the core regulatory and leasing framework to be as
functional as possible and it believed that was
accomplished by HB 50. The department believed that moving
forward in a timely way was of great public interest. He
anticipated future legislative discussion and potential
enactments on the topic.
Co-Chair Edgmon appreciated the response because the topic
was ever evolving. He remarked that if the legislature
thought putting broadband language in statute would be
opening up a new frontier, the topic [of carbon capture]
was exponentially much more. He was not sure he would
support the amendment as written. He understood it was well
intended and he liked most of what was included; however,
he believed it might be too far afield in terms of exposing
what the bill could end up looking like.
3:52:15 PM
AT EASE
3:53:59 PM
RECONVENED
Representative Stapp thought there had been good discussion
around the table. He believed the issue would be addressed
at some point and he was weary about a title change. He
WITHDREW Amendment 5.
3:54:33 PM
Representative Hannan MOVED to ADOPT Amendment 6, 33-
GH1567\R.5 (Dunmire, 2/22/24)(copy on file). [Note: due to
the length of the amendment it has not been included here.
See copy on file for details.]
Co-Chair Foster OBJECTED for discussion.
Representative Hannan explained the amendment tried to
clarify and prevent companies from being able to double dip
on lease expenditures where they would receive a
substantial federal tax credit for carbon injection, but
also to be able to write off their injection development
cost against state oil and gas production taxes. The
amendment added costs associated with carbon capture
storage including construction and modification of new or
existing infrastructure among lease expenditures that could
not be applied against a company's oil and gas production
tax. It excluded costs associated with obtaining or
operating a license for carbon capture, carbon storage
exploration, or a lease for carbon storage. The statute
cited referred to the regime established in the bill. She
stated that expenditures for enhanced oil recovery being
used in gas fields, which had been ongoing for decades in
Alaska, would remain eligible under production tax
(reinjecting gas that happened to include associated CO2).
She stated that a company that built a facility to capture
carbon for reinjection was doing so to take advantage of a
45Q tax credit and should not get additional value against
its taxes owed to the state. She stated that her amendment
was a bit simpler than Amendment 5, but it also included
the issue raised previously by Co-Chair Edgmon. She thought
it was important to address the potential for double
dipping.
3:57:00 PM
Co-Chair Foster WITHDREW the OBJECTION.
Representative Stapp OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Hannan, Josephson, Ortiz, Galvin
OPPOSED: Tomaszewski, Coulombe, Cronk, Stapp, Edgmon,
Johnson, Foster
The MOTION to adopt Amendment 6 FAILED (4/7).
Co-Chair Foster noted that the amendment process was
complete. He communicated that Amendment 1 had been adopted
and the committee would receive a committee substitute with
the amendment incorporated at a later meeting.
HB 50 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 50 Amendments 1-6 030824.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 50 |
| HB 116 Sponsor Statement v.B.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 116 |
| HB 116 Sectional Analysis v.B.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 116 |
| HB 116 Summary of Changes CSHB116(STA).pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 116 |
| HB 116 Supporting Document - PPT.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 116 |
| HB 116 - Supporting Doc - Restorative Justice Lookback.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 116 |
| HB 116 - Supporting Doc - Restorative Justice Account Distribution.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 116 |
| HB 116 - Supporting Doc - Alaska Beacon Article 3.7.24.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 116 |
| HB 50 Amendment 4 Backup Josephson 031124.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 50 |
| HB 50 Amendments 1-6 ACTIONS 030824.pdf |
HFIN 3/11/2024 1:30:00 PM |
HB 50 |