Legislature(2023 - 2024)BARNES 124
02/15/2023 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB50 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 50 | TELECONFERENCED | |
HB 50-CARBON STORAGE
1:25:53 PM
CHAIR MCKAY announced the only order of business would be HOUSE
BILL NO. 50, "An Act relating to the geologic storage of carbon
dioxide; and providing for an effective date."
1:26:50 PM
AARON O'QUINN, Leasing Section Manager, Division of Oil and Gas,
Department of Natural Resources, on behalf of the sponsor, House
Rules by request of the governor, gave a PowerPoint
presentation, titled "HB 50 Carbon Capture, Utilization, and
Storage Sectional Analysis" [hard copy included in the committee
packet]. He drew attention to slide 2, which provided the
summary of the carbon capture, utilization, and storage (CCUS)
project process. He pointed out that the presentation would
cover funding, the sectional analysis of HB 50, and a review of
governing statutes, including the Alaska Oil and Gas
Conservation Commission (AOGCC) statutes.
MR. O'QUINN moved to slide 3, titled "CCUS Project Process," and
gave a summary of the CCUS project and the Alaska statutes which
relate to each step. He directed the committee to a flowchart,
which described the life of a CCUS project. This process was
described as exploration, permitting, investment, leasing,
storage, facility closure, and post-closure.
MR. O'QUINN moved to slide 4 and addressed the CCUS project's
projected timeline, which is estimated to be between five and
ten years from conception to construction and injection.
1:31:11 PM
MR O'QUINN moved to slide 5, titled "Funding: Administrative
Fund," which read as follows [original punctuation provided]:
• Sec. 31: AS 41.06.165. Fees; carbon dioxide storage
facility administrative fund
• Creates fund to cover AOGCC operating costs
associated with oversight of carbon storage, like fees
collected for oil and gas oversight
• Intent is to ensure available funding for
responsible oversight of carbon storage facilities.
Balance is expected to be expended on a cash flow
basis
• Income account revenue sources:
• Fees received under AS 41.06.165(a)
• Fees received under AS 41.06.125 and 41.06.200
• Earnings on the fund
• Legislature must appropriate from the administrative
fund for:
• AOGCC operating expenses
• Expenses incurred by cooperating agencies
(e.g., DEC or DNR) supporting administration of
carbon storage facilities
MR O'QUINN reviewed the types of funding that would be created
by HB 50 and the regulating statutes. He explained that the
administrative fund's purpose would be to fund AOGCC as well as
the oversight of carbon storage facilities.
1:32:10 PM
REPRESENTATIVE SADDLER asked whether AOGCC's primacy request
would represent a bottleneck in the progress of carbon capture
projects.
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources, clarified that the primacy pursuit would have to be
reviewed and authorized by the U.S. Environmental Protection
Agency (EPA), so there could be a bottleneck during this
process. However, other states are in similar situations, and
he pointed out that EPA has issued guidance memos that indicate
there would be favorability for states seeking primacy, as well
as funding opportunities. He added that the fiscal note only
deals with the startup of seeking primacy. In response to a
follow-up question, he suggested that if HB 50 advances this
session, it is possible primacy would occur within two to three
years.
1:34:50 PM
REPRESENTATIVE MCCABE asked whether anything has been learned
from consultants, such as Stantec, regarding the efficacy of the
project.
MR. O'QUINN referenced a Stantec report that compared other
states and their approaches to the primacy issue. He gave an
example of an application by Louisiana for the primacy of a
Class VI well. He told the committee that several reports would
be available, one of which would analyze commercial terms from
different jurisdictions in order to evaluate how minimum values
proposed in the bill compare to other jurisdictions, and this
could be compared to the maturity of the market.
REPRESENTATIVE MCCABE requested copies of the Stantec and
Gaffney Cline reports, along with any other associated
materials.
1:38:33 PM
MR. O'QUINN, in response to Representative Rauscher, expressed
the understanding that once an application receive primacy it
would be handed to the state, and it would not have to reapply.
He stated that he would check with EPA and Louisiana and report
the answer back to the committee.
REPRESENTATIVE SADDLER, concerning slide 4, asked whether the
same unitization that exists now would be used for the injection
process.
MR. O'QUINN responded that these would be new units, as current
units are for oil and gas production, and a new property right
would need to be established.
MR. CROWTHER, in response to a follow-up question, explained
that the bill would create the idea of potential coexistence of
the oil and gas operations with carbon sequestration. These oil
and gas operations would still be available for production
without interference from the carbon sequestration.
CHAIR MCKAY expressed the understanding that the Alaska Oil and
Gas Conservation Commission (AOGCC) is funded completely by the
oil and gas industry. Concerning this, he requested an
explanation of the funding for the administration of carbon
sequestration.
MR. CROWTHER expressed the understanding that the AOGCC funding
structure would be the same for carbon sequestration. He
deferred to AOGCC.
1:42:07 PM
BRETT HUBER, Chair, Alaska Oil and Gas Conservation Commission,
Department of Commerce, Community, and Economic Development,
described where the funding for carbon storage would come from.
He explained that the regulatory cost charge is assessed
volumetrically so it is spread across the industry. Concerning
funding, he stated that there would be a regulatory cost charge
and a regulatory cost structure. He suggested that this would
be funded by the industry, as it is not supposed to come from
the general fund.
1:44:35 PM
MR. O'QUINN moved to slide 6, titled "Funding: Closure Trust
Fund," which read as follows [original punctuation provided]:
• Sec. 4: AS 37.14.850. Carbon storage closure trust
fund.
• Creates two accounts: income account and operating
account
• Intent: Not subject to annual fiscal sweep, ensures
funding for closed storage sites after DNR takes title
and liability
• Income account revenue sources:
• Payments received under AS 37.14.850(c)
• AS 41.06.180 Carbon storage facility injection
surcharge (Bill Sec. 31)
• Amount set by AOGCC on issuance of storage
facility permit
• Based on anticipated expenses to be incurred
post-closure phases
• Earnings on the account
• Legislature must appropriate from the income account
and earnings to the operating account
MR. O'QUINN explained that the second revenue source would be
the Carbon Storage Closure Trust Fund, and the state could use
this to monitor a closed facility and remediate any issues that
might come up in post-closure.
CHAIR MCKAY noted that carbon dioxide (CO2) is inert and not
toxic like hazardous materials buried in landfills. He
expressed the understanding that CO2 would not be an
environmental threat.
MR. CROWTHER responded that CO2 is in the atmosphere around us
and is non-toxic in a general atmospheric sense. In terms of
workplace safety, he suggested that CO2 would have a very
different profile from other materials managed by industrial
operations.
REPRESENTATIVE SADDLER asked about the different functions of
the income and operating accounts referenced on slide 6.
1:47:37 PM
MR. O'QUINN responded to Representative Sadler's question by
explaining that the Carbon Storage Closure Trust Fund was
designed to be a non-sweepable fund, and this is because it
would be for a long-term purpose. He moved on to slide 7,
titled "Funding: DNR Rents and Charges," which read as follows
[original punctuation provided]:
• Secs. 911: AS 38.05.135(c)(e)
• Incorporates authority to collect rents, royalties,
and charges as is done with other mineral leasing
• Sec. 14: proposed AS 38.05.710. Carbon storage
exploration licensing
• Establishes a minimum rental rate of $20 per acre
• Establishes a minimum injection charge of $2.50 per
ton of carbon dioxide
• Sec. 14: proposed AS 38.05.735. Payments from carbon
storage exploration licenses and carbon storage leases
• 25% of revenue is deposited in the Alaska Permanent
Fund (Art. IX, Sec. 15, Alaska Constitution)
• Remaining revenue is deposited in the general fund
He pointed out that the slide outlines some of the projected
revenues from royalties and charges, including the twenty-five
percent allocation to the permanent fund as mineral revenue.
1:48:50 PM
REPRESENTATIVE ARMSTRONG asked how AOGCC came up with the
minimum rate and injection charge. She expressed the opinion
that the charge seems to be low.
MR. O'QUINN responded that the markets were surveyed, and he
pointed out that the mature markets, which are highly
competitive, do have higher fees. He explained that because
Alaska has a young storage market, in statute there would be a
floor for the revenues. He suggested that there was a desire
for the market to develop, and then higher rents and injection
fees would be anticipated.
REPRESENTATIVE ARMSTRONG asked why a 45(Q) exemption was not
included. She expressed concern that since the state does not
exempt the federal tax credits, it would become a negative
revenue. Under the scenario proposed on slide 6, she expressed
the understanding the state would take a "huge hit" on corporate
income tax.
MR CROWTHER acknowledged that the 42(Q) exemption was not
addressed in the proposed legislation. He agreed that it was a
relevant issue and could be a topic to be addressed in the
legislation. He said it was not a deliberate choice to leave it
out, but the framework mechanisms had been the focus.
1:51:53 PM
REPRESENTATIVE SADDLER asked for the confirmation that these
would not be new fees but rather the replication of analogous
fees. He expressed the understanding that the proposed
legislation would just bring the new property use into the
statutes.
MR. O'QUINN responded in agreement.
REPRESENTATIVE WRIGHT questioned what the high end of the fee
charges would be.
MR. O'QUINN responded that rentals have been $50, and higher in
more competitive areas. He stated that carbon taxes are driving
some of these numbers. He stated that the proposed legislation
would just set up the framework in the state, and this would
allow the industry to come to Alaska with its carbon for
sequestration.
REPRESENTATIVE SADDLER requested additional clarification about
the 45(Q) tax credits, as well as the revenue stream.
1:55:18 PM
MR. O'QUINN described how operators in Alaska would be assessed
a corporate income tax. He explained that Alaska has
incorporated the Internal Revenue Service (IRS) code, and by
this incorporation, it would be possible that the IRS 45(Q) tax
credits would also appear in the Alaska revenue code. He
offered the understanding that this had not been taken into
consideration when the proprietary leasing and permitting
components of HB 50 were prepared. He stated that he is not a
tax expert.
REPRESENTATIVE MCKAY expressed the understanding that these
would be two completely separate transactions. He surmised that
a company would pay fees to the state, but what it writes off on
federal taxes would be of no consequence to the state.
1:57:26 PM
REPRESENTATIVE ARMSTRONG pointed out a previous presentation
that had described the tax implication. She used North Dakota
as an example, as it had reported a net revenue loss of 17.59
million in corporate income tax because the way the 45(Q) tax
credit works. She noted that the fiscal note from the
Department of Revenue (DNR) references this as well. In
response to further questions from Chair McKay, she explained
that DNR took the North Dakota example and estimated Alaska
numbers.
MR. O'QUINN, in response to the example of North Dakota, pointed
out that the internal revenue code adopted would be the Alaska
code; therefore, Alaska essentially has its own 45(Q) tax code.
Although the intention of HB 50 would be to establish the
property and permitting rights, he acknowledged that the revenue
statute for the tax code may need to have additional revisions.
2:00:02 PM
CHAIR MCKAY asked for clarification that 25 percent of the
revenue from carbon capture would go into the permanent fund and
dividends would be paid.
MR. CROWTHER concurred, explaining that the mineral revenues
associated with the development would go into the permanent
fund. He further expounded on the federal and state tax code
conversation.
2:02:12 PM
REPRESENTATIVE ARMSTRONG mentioned she has started working on an
amendment that addresses the 45(Q) tax credit.
REPRESENTATIVE MCCABE suggested that DNR add specific numbers to
the framework of the proposed bill. He drew a parallel between
this process and oil exploration.
2:04:14 PM
CHAIR MCKAY confirmed that DNR could be present at the next
meeting to "flush this out."
REPRESENTATIVE PATKOTAK, for future consideration, questioned if
the property were not state owned how this would apply to the
injection process. He pointed out that past legislation had
exempted state property from being rolled into a state
assessment tax. He used the example of Point Thomson and
questioned the value assessment of carbon once it is put in the
ground.
2:05:46 PM
MR. O'QUINN moved to slide 8, "Sectional Summary." He went
through Section 1 through Section 7 with brief comments on each
section.
2:08:55 PM
REPRESENTATIVE MCCABE stated that Section 7 has caused concern
with some of his constituents. He read into the record a
portion of the Stantec report. He expressed the desire to make
it clear that the state would not be injecting toxins into the
ground.
2:10:46 PM
REPRESENTATIVE SADDLER questioned whether the owner of
agricultural lands, designated so in perpetuity, would be
allowed to extract minerals in the subsurface of the land.
MR. O'QUINN described the process of disposal for lands
designated for agricultural purposes. He stated that provisions
would be in the agreements for subsurface mineral leases of
these lands.
REPRESENTATIVE MEARS pointed out that the language of HB 50 only
mentions carbon capture for mineral uses.
MR. O'QUINN pointed out that in AS 38.05 through AS 38.05.183
includes the majority of the provisions for mineral leasing. He
pointed out that the proposed legislation would add carbon
storage to the range under AS 38.05.700.
2:13:23 PM
MR. O'QUINN continued his commentary on slide 8, Section 8
through Section 14. He moved to slide 9, titled "CCUS Project
Theoretical Timeline" and slide 10, titled "Section Detail:
Section 14 DNR/DOG)."
2:19:23 PM
REPRESENTATIVE SADDLER commented on the right of first refusal
concerning the leasing process for carbon capture. He suggested
that this would put the state in a poor bargaining position.
MR. CROWTHER explained that the lessee would have to meet a high
bar in order to take advantage of the right of first refusal.
2:20:14 PM
REPRESENTATIVE MCCABE reiterated how land rights operate in a
competitive process. If a company had an active oil or gas
lease, it would need to meet the highest bid in order to have
the right of first refusal. He questioned what would prevent a
company who already holds the lease to drill a hole for carbon
sequestration from going forward.
MR. CROWTHER explained that a lessee would be allowed to drill a
new hole and inject CO2 in order to enhance the production of
oil and gas. However, under the terms of this legislation, if
the company were to do a pure carbon sequestration project, it
would have to acquire a carbon storage lease.
2:23:32 PM
REPRESENTATIVE RAUSCHER asked how the [Cook] Inlet platforms
would be affected.
MR. CROWTHER explained that the platforms were one of the
considerations, and these companies would have the right of
first refusal before allowing another gas and oil operator to
convert or expand into a storage lease.
REPRESENTATIVE RAUSCHER asked whether taxes were being paid for
the area of the platform or the underground area.
MR. CROWTHER responded that the surface infrastructure is the
primary driver of the property tax generated.
2:25:20 PM
REPRESENTATIVE MEARS asked about the performance requirements
involved in the rights of first refusal.
MR. O'QUINN affirmed an operator cannot simply warehouse
acreage, as there would be a work commitment. He returned to
Representative Rauscher's question about the platforms and
stated that if the storage operator is not the same as the oil
and gas operator, it would be the responsibility of the new
operator to dismantle the platform.
REPRESENTATIVE SADDLER asked about the property tax revenue
structure.
MR O'QUINN stated that the proposed legislation would not
address taxation.
2:29:02 PM
MR. O'QUINN spoke about converting an exploration lease to a
long-term lease. He stated that this would delineate what
acreage the lessee would actually be using. He also described
the process of changing the terms of the lease when the purpose
of the well changes to a carbon capture well. He noted that all
plans would be reported to DNR.
MR. O'QUINN continued to slide 11, titled "Sectional Summary:
Secs. 15-31" and described the amendments, definitions, and the
new sections. He described the conforming amendments in Section
15 through Section 31. He continued to slide 12, calling
specific attention to where Section 31 would be in the timeline.
MR. O'QUINN moved to slides 13 through 15, which fall under the
title, "Section Detail: Section 31 (AOGCC)." He stated that
these slides concern conforming amendments dealing with
geothermal and carbon dioxide, protecting reservoir and water
integrity, bringing carbon dioxide into the jurisdiction of
AOGCC, public health mandates, and waste management. He noted
the details about how companies would go to AOGCC with concepts
and project designs to apply for permits. In addition, he
pointed out that AOGCC and DNR would have the authority to
regulate and the powers to protect the waters, the resources,
and public health.
REPRESENTATIVE MCKAY mentioned his experience in fracking and
the protection of natural resources. He said this bill has
similarities to fracking regulations and the engineering
required to protect clean drinking water.
2:39:18 PM
MR. O'QUINN agreed that drinking water would be protected under
EPA's Safe Drinking Water Act.
REPRESENTATIVE MCCABE put on the record that the minimum depth
of the injection well would be 2,600 feet.
CHAIR MCKAY mentioned that some of the reservoirs are 10,000 to
12,000 feet deep.
REPRESENTATIVE MEARS asked whether there is a statutory
requirement for a minimum well depth for storage.
MR. O'QUINN said there is no statutory depth for wells at this
time; however, there would be a broad regulatory authority
granted to AOGCC, and AOGCC likely would be promulgating
regulations concerning the condition CO2 would need to remain
in.
2:43:23 PM
REPRESENTATIVE MCCABE inquired how "waste" is defined in the
proposed legislation.
Mr. CROWTHER explained the regulations concerning waste would
include the full utilization of the carbon capture resource, and
it would prohibit inefficient, excessive, or improper operation
of storage facilities.
2:44:49 PM
MR. O'QUINN continued with the applicable statutes related to
the proposed bill.
REPRESENTATIVE SADDLER asked about corrosion and reservoir
integrity.
Mr. CROWTHER explained that reservoir integrity would concern
maintaining pressure by injecting CO2 at the correct rates, and
this is opposed to the corrosive qualities of carbon dioxide.
MR. O'QUINN explained that when injecting CO2, it must meet a
specific standard of purity and not have particulate matter.
2:50:14 PM
MR. O'QUINN continued his discussion of Section 31, which covers
post-closure administration, penalties for violations, authority
for agreements, and definitions.
2:53:24 PM
REPRESENTATIVE SADDLER referred to Section 06.170 and asked
about the state's liability. He questioned the risks in
capturing quantities of carbon dioxide.
MR. CROWTHER explained that CO2 basically remains in the wells
in perpetuity. He suggested that companies would not be willing
to take on the responsibility for long-term liabilities. He
expressed the opinion that companies would understand the
operational risks, the technical process risks, and the
commercial risks; however, maintaining liability on the books
for 100 years would be challenging, as companies do not know how
to put a number on this. He explained that this is why other
states in these circumstances have said they would assume title
with the CO2 underground. The risks might include CO2 migrating
into another underground reservoir, compromising the
productivity of the operation. However, from a trap and seal
perspective, he stated that there has not been an observed risk
of a 7,000-foot reservoir release to the surface, even with
seismic events.
2:57:37 PM
CHAIR MCKAY noted scenarios concerning companies drilling
through disposal zones to deeper zones and expressed the
understanding that this, and any problems that arise, would be
covered under AOGCC's regulations, and not covered in the bill,
as it would be too complicated. In a different scenario, he
pointed out that there may be a limited number of wells, with
the owner of the well required to pay the state to use the well.
He questioned what would happen if other companies wanted to
inject their CO2 into this well.
MR CROWTHER responded that the company who holds the exploration
license would pay the state the injection charge, while tolling
the other operators. He stated that this would be a commercial
arrangement between them.
CHAIR MCKAY questioned what would happen if the owner of the
well would not let other operators dispose of waste in the well.
MR CROWTHER stated that from a storage perspective, the operator
would be acquiring the exclusive rights; therefore, under the
proposed legislation, there would be an exclusive right for
sequestration. If another party wanted to participate in this,
there would have to be commercial terms. He acknowledged there
could be other issues with this.
3:01:20 PM
CHAIR MCKAY made closing comments. He announced that HB 50 was
held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 50 DNR CCUS Sectional Analysis Presentation to HRES 02.15.2023.pdf |
HRES 2/15/2023 1:00:00 PM |
HB 50 |
| HB 50 Sectional Analysis 2.1.2023.pdf |
HRES 2/10/2023 1:00:00 PM HRES 2/15/2023 1:00:00 PM |
HB 50 |