Legislature(2023 - 2024)BARNES 124
02/17/2023 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HJR6 | |
| HB50 | |
| HJR6 | |
| HB50 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HJR 6 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 50 | TELECONFERENCED | |
HB 50-CARBON STORAGE
1:48:37 PM
CHAIR MCKAY announced that the next order of business would be
HB 50, "An Act relating to the geologic storage of carbon
dioxide; and providing for an effective date."
1:49:16 PM
NICK FULFORD, Senior Director, Gas and Energy Transition,
Gaffney Cline, on behalf of the sponsor, House Rules by request
of the governor, gave a PowerPoint presentation, titled "CCUS
Overview." He stated that he would be setting out the wider
considerations for carbon capture, storage, and utilization
(CCUS), especially the economic features that support these
types of technologies. He shared the experiences he has had
with CCUS projects worldwide. He stated that one important
question has always been: how to justify an investment of
billions of dollars in CCUS. He stated that he would be
explaining how this new sector is developing, where the profits
would be coming from, and how businesses would be created from
this technology.
MR. FULFORD addressed the major incentive strategies and
disincentive strategies used in implementing CCUS, as seen on
slide 4. He stated that the incentive strategies include
federal tax incentives, grants, and funding from the U.S.
Department of Energy, while disincentive strategies involve
penalizing industries, such as with a carbon tax for carbon
dioxide (CO2) emissions. He stated that HB 50 would not involve
any subsidies, assistance, or grants, but rather it would create
a framework for CCUS projects to leverage these strategies. He
stated that for incentive strategies, the taxpayer would be
paying, while disincentive strategies would be more of a direct
cost to the consumer. He pointed out that the projects often
involve the incentives and disincentives coming together. He
advised that implementing these CCUS projects often involve a
complicated system of stacking the benefits to create a highly
supportive revenue stream.
1:56:41 PM
REPRESENTATIVE MCCABE questioned how the 45(Q) federal tax
incentive would be for Alaska.
MR. FULFORD explained that the 45(Q) incentive has been
augmented in the Inflation Reduction Act. He explained that for
permanent sequestration of CO2 in Alaska, there would be a tax
credit of $85 per ton. He stated that it would be $50 a ton if
the CO2 was extended for recovery, which would be relevant in
Alaska. He stated that if a company operating a gas production
system in Alaska removes its own CO2, instead of venting the
gas, and it uses a geological sequestration site, a 45(Q) tax
credit could be used for a period of time. He added that for a
gas project that connects the CO2 to a pipeline, there would
also be a tax credit of $85. He advised that this would be a
significant financial incentive. Considering all the natural
gas resources on the North Slope, he suggested that the CO2
could be removed before the gas leaves Alaska, and this would be
a low carbon product.
2:00:14 PM
REPRESENTATIVE MCCABE asked whether companies could leverage the
federal 45(Q) tax credit to reduce its Alaska corporate tax.
MR. FULFORD responded that he is not a tax expert. He stated
that most of the storage projects are very complex, and to
collect the maximum benefit there would need to be a complex tax
partnership. He stated that with the 45(Q) it might be possible
to reassign the tax credit to other parts of the supply chain.
2:02:36 PM
MR. FULFORD moved to slide 5, to address the question why
governments would invest in projects that do not seem to have an
inherent product. He explained that some companies rely on
economies with hydrocarbon exports, like in Alaska. He stated
that a major goal for a hydrocarbon-based fuel economy would be
the ability to compete with renewable and low carbon energy;
this can be achieved by having a premium fuel or having a
strategy to deal with the emissions, like one that attracts
"green" financing. He also discussed the possibility of having
an import/export market, as Alaska's huge storage resources
could be matched with a country where the opposite is true.
MR. FULFORD moved to slide 6, which showed a map of the world,
and what solutions countries are adopting concerning carbon
pricing, which would be a carbon tax, an emission trading
system, or a combination of both. He noted that the countries
using a cap-and-trade system have an estimated value close to
that of the 45(Q) tax credit. However, he explained that when
considering the cost involved for CCUS, there would be a gap
between the revenue stream and what is needed to create a
sustainable investment.
2:09:00 PM
MR. FULFORD continued with slide 7, which addressed policy
options to incentivize CCUS deployment. He discussed several
methods for bridging the gap between economic viability and the
revenue system. Addressing capitol, he stated that one method
would be to apply direct grants to build projects. He added
that other methods would include using an investment tax credit
and using accelerated depreciation. He stated that on the
revenue side, production tax credits could be used, as with the
45(Q) tax incentive. He pointed out that other revenue methods
include direct payment methods and research and development. He
suggested that there are "pools of money" Alaska could access.
He added that the introduction of subsidies here has not been
considered.
MR. FULFORD moved to slide 8, which showed an overview of the
cost of CO2 capture, transport, and storage. He suggested that
this slide would also help explain the gap between cost and
revenue for CCSU projects. He explained that capture is the
most complex and costliest part of the process. The graph on
the slide compared the cost and effectiveness of the methods of
carbon capture, along with the cost for transportation. He also
addressed the cost of CO2 storage.
2:16:03 PM
MR. FULFORD advanced to slide 9 and provided examples of markets
with carbon capture projects around the world. He stated that
closing the gap between economic viability and the revenue
stream, while creating an incentive for CCUS, would be more
challenging for some markets than others. The graphs on the
slide compared these markets, and he suggested that Norway's
market would be a good example for Alaska. He proceeded with
slide 10, explaining the variables in the addressable markets,
and compared this with the potential market. From the
projection on the graph, he expressed the understanding that the
price for CO2 would be going up. He suggested that as
efficiencies and technologies become better in the future, the
cost curve for CCUS would come down. With this and the cost of
CO2 rising, he expressed the expectation that carbon capture
would emerge as a sustainable market in the future. He stated
that the remaining question would be the extent of the
timeframe.
2:22:12 PM
REPRESENTATIVE MEARS asked whether the increase of economic
projects would create more market opportunities.
MR. FULFORD responded in the affirmative. He expressed the
opinion that the number of entities looking for CO2
sequestration in Alaska would increase, especially concerning
the natural gas (LNG) market.
REPRESENTATIVE MEARS asked whether the CCUS market would follow
a typical supply and demand model. If so, she questioned
whether the price Alaska would be able to demand would increase
over time.
MR. FULFORD commented that an ever-increasing value has been
placed on carbon capture over the last ten years. He stated
that currently there is not a global market place to set the
price, but there are several international mechanisms settling
on $80 to $100 a ton, which is sufficient to attract investors.
He expressed the expectation that the factors would align in the
future and a sustainable market in carbon capture would emerge.
2:25:33 PM
MR. FULFORD continued to slide 11, which showed a comparison of
global oil and gas markets with mitigation and without
mitigation from CCUS. He suggested that global deployment of
CCUS could substantially alter the energy mix by 2050. He
pointed out that higher carbon oil would be replaced with lower
carbon products. He continued that there would be a growth in
LNG production, while renewables would become more effective
with technology. He suggested that CCUS growth is likely to
coincide with natural gas exports from the state, which could
potentially become important. He stated that Alaska's
significant natural gas resource could be enhanced by the
combination with CCUS.
2:29:00 PM
CHAIR MCKAY expressed optimism concerning the information
presented. He suggested that this optimism is hinged on the
45(G) tax credits. He asked what would happen if the federal
administration changed this and the tax credits go away.
MR. FULFORD expressed the importance of the question. He stated
that some investors have acknowledged that any significant
investment of capital resting on federal tax subsidies would be
risky. He recommended that the "jury is out" on whether 45(Q)
would be a sustainable mechanism. He reasoned that for some of
the smaller projects, the risks would be lower because they
would be operational very soon; however, for a larger, more
strategic venture, the availability of 45(Q) would be a
consideration. He suggested that 45(Q), and this type of
funding, would disappear when a sustainable market evolves.
CHAIR MCKAY pointed out that oil projects are regularly "stress
tested" or analyzed to see what the economics are at certain
per-barrel dollars. He suggested that the carbon capture
projects should be analyzed in a similar manner.
MR. FULFORD responded with an example from the Gulf Coast LNG
exporters. Because of the carbon intensity of the U.S. natural
gas, pressure from the European and Asian markets caused many
U.S. companies to de-carbonize their products, and from this the
infrastructure of the LNG production evolved, with the result
being a more valuable product. He stated that having a cleaner
product had increased the market. Per this example, he reasoned
that if the 45(Q) disappears, these projects would still be
economically viable.
2:34:15 PM
REPRESENTATIVE MEARS asked whether a company relying on carbon
tax credits would be denied a loan or not receive any
investments.
MR. FULFORD expressed the understanding that many lenders who
invest in a project that involves government grants would
consider this; however, from his 40 years of experience, he
expressed surprise by the number of lenders willing to fund
companies interested in CCUS.
2:37:37 PM
MR. FULFORD continued his presentation with slide 12, which
showed worldwide press clippings that supported the development
of carbon-neutral LNG; thus, promoting CCUS projects.
[HB 50 was set aside and the hearing on the bill was resumed at
2:49 p.m.]
HB 50-CARBON STORAGE
2:49:10 PM
CHAIR MCKAY announced that the final order of business would be
a return to HOUSE BILL NO. 50, "An Act relating to the geologic
storage of carbon dioxide; and providing for an effective date."
[The presentation and discussion had been recessed at 2:39 p.m.]
2:49:31 PM
NICK FULFORD returned to the presentation and the remainder of
the slides, which gave examples of CCUS projects around the
world. He stated that this shows the different legislative and
regulatory ways these projects have been facilitated. He stated
that slide 16 compares the beginnings of the LNG sector with the
CCUS industry. He pointed out Alaska's significance as one of
the first exporters of LNG. He suggested that the CCUS industry
is in its initial stages and "everybody is in the same boat,"
and if anything in the value chain fails, everyone is affected.
He suggested that this is helping to create a sustainable
business model.
2:52:06 PM
MR. FULFORD moved back to slide 15, titled "CCS Value Chain
Value Driver and Risks." He suggested that this is a helpful
summary of the risks and opportunities in each part of the value
chain. Referencing the first part of the value chain, he
reiterated that capturing CO2 is complex. He stated that the
best scenarios would involve facilities that are able to capture
carbon themselves, as there is not a "one size fits all" way of
doing this. In the next part of the chain, he discussed the
aggregation and temporary storage of carbon. In relation to
transporting carbon, he stated that this would be a simple
process. He addressed the final part of the chain, which is the
carbon sequestration. He pointed out the geological risks of
this, as CO2 "moves in very strange ways;" however, he observed
that it would be an efficient fluid to store. He stated that
some of the investors who are cautious about funding are also
cautious about the storage technology, as CO2 could be
unintentionally released. He suggested that the bond market is
becoming involved with CCUS, as insurers are becoming more
interested. He ended by saying investment has been increasing,
and this would lower the risks.
2:57:46 PM
CHAIR MCKAY announced that HB 50 was held over.