Legislature(2023 - 2024)BUTROVICH 205
04/22/2024 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB104 | |
| HB50 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 104 | TELECONFERENCED | |
| + | HB 50 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 50-CARBON STORAGE
3:37:00 PM
CO-CHAIR GIESSEL reconvened the meeting and announced the
consideration of CS FOR HOUSE BILL NO. 50(FIN), "An Act relating
to carbon storage on state land; relating to the powers and
duties of the Alaska Oil and Gas Conservation Commission;
relating to carbon storage exploration licenses; relating to
carbon storage leases; relating to carbon storage operator
permits; relating to enhanced oil or gas recovery; relating to
long-term monitoring and maintenance of storage facilities;
relating to carbon oxide sequestration tax credits; relating to
the duties of the Department of Natural Resources; relating to
carbon dioxide pipelines; and providing for an effective date."
3:38:30 PM
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources, Anchorage, Alaska, stated that today's presentation
would include a summary of HB 50, focusing on the changes made
in the House and noting the changing dynamics that make this an
important opportunity for the state.
3:39:30 PM
HALEY PAINE, Deputy Director, Division of Oil and Gas,
Department of Natural Resources, Anchorage, Alaska, delivered a
presentation on HB 50. She noted that the presentation applies
to Version D.
3:39:59 PM
MS. PAINE advanced to slide 2:
[Original punctuation provided.]
TWO CORE PURPOSES OF HB 50
Make Alaska's subsurface resources available for
maximum use
• Enables the Department of Natural Resources (DNR)
to lease state lands for geologic storage of
carbon dioxide and issue right-of-way leases for
carbon dioxide transportation pipelines
• Empowers the Alaska Oil and Gas Conservation
Commission (AOGCC) to regulate the geologic
storage of carbon dioxide on all lands in the
state, including protection of correlative rights
MS. PAINE noted that HB 50 addresses carbon capture,
utilization, and storage (CCUS). She explained that this is a
catch-all phrase for capturing CO2 from industrial processes.
This CO2 would then be cleaned, dehydrated, transported, and
finally stored in deep underground caverns. She stated that
"deep underground" means that the CO2 would be injected to a
minimum of 2,400 feet. She noted that it would most likely be 5-
6 thousand feet below the surface, which is a significant
distance from water sources.
3:41:36 PM
MS. PAINE advanced to slide 3:
[Original punctuation provided.]
ALASKA'S CCUS OPPORTUNITIES
"The United States commits to supporting collaboration
with Japanese counterparts to evaluate the potential
for cross-border carbon dioxide transport and storage
hubs between Alaska and Japan." Japan Official Visit
to State Dinner - White House April 10, 2024
"HD Hyundai Heavy Industries, the world's largest
shipyard, and Greece-based shipowner Capital Product
Partners have designed a specialized vessel to carry
liquefied CO2. They envision such ships transporting
their cargo to depleted offshore oil-and-gas wells,
where it would be pumped in and entombed for permanent
storage. Capital Product Partners signed a deal for
four such ships, to be delivered in 2025 and 2026,
that together cost more than $300 million." A New
Solution for CO2 Emissions: Bury Them at Sea January
31, 2024 Wall Street Journal
MS. PAINE noted that timing has been an important consideration
for HB 50. She stated that several factors play a role,
including 45Q tax credits, which provide an incentive for the
capture and sourcing of CO2. She explained that the 45Q tax
credits are only available for entities that begin construction
on a CCUS facility by January 1, 2033. She added that it can
take 5-7 years for facilities to begin capturing CO2. She noted
that industry interest is increasing.
3:44:13 PM
SENATOR KAUFMAN asked if this is designed for shipping liquified
CO2 one direction while shipping a separate product in the
opposite direction - or if this is only designed for CO2.
3:44:38 PM
MS. PAINE replied that this design is for the single-direction
transport of CO2.
3:44:50 PM
CO-CHAIR GIESSEL commented that she receives many questions
related to how and why capturing CO2 is necessary - and how it
benefits Alaskans. She requested a simple explanation of why
Alaska is doing this.
3:45:31 PM
MR. CROWTHER said that there are two very simple distillations.
First, 45Q tax credits and international requirements are
driving investments in CCUS projects, which then create economic
benefits (e.g. more jobs and diversified industrial activity).
He opined that this is one reason Alaska should be open to these
projects. Second, CCUS projects generate revenue for the state.
He explained that Alaska has valuable pore space that is not
being utilized and opined that Alaska has an obligation to
maximize the development of the state's natural resources. He
pointed out that investors in mining, oil, and gas - which are
currently driving economic activity and revenue in the state -
are increasingly concerned with carbon management. He emphasized
the importance of carbon management solutions close to activity
sites in order to drive continued investments in locations such
as the North Slope. He opined that this is an important long-
term consideration. He reiterated that carbon sequestration
offers an economic benefit as well as direct state revenue,
along with a maximization of other resources.
3:48:00 PM
SENATOR WIELECHOWSKI directed attention to the fiscal notes for
HB 50 and asked for clarification regarding the magnitude of
revenue the state might expect.
3:48:31 PM
MR. CROWTHER replied that small in-state projects with existing
emissions sources - or new in-state energy generation - could
result in revenue ranging from $1 million to $10 million. Large
scale projects could potentially result in $10 million to $100
million. Importing CO2 would be an additional step up. Each of
these has development challenges and uncertainty around how this
would be applied in Alaska.
CO-CHAIR GIESSEL noted that the Department of Revenue is also
available for questions. She shared her understanding that
GaffneyCline has done modeling for DNR and asked if this is the
type of information that Senator Wielechowski is looking for.
3:50:13 PM
SENATOR WIELECHOWSKI replied yes. He directed attention to the
Department of Revenue (DOR) fiscal note, which states that CCUS
projects could potentially impact revenues from oil and gas
production tax, oil and gas property tax, and corporate income
tax (petroleum and non-petroleum). He asked about the potential
negative impacts of CCUS projects.
3:50:54 PM
DAN STICKEL, Chief Economist, Tax Division, Department of
Revenue, Juneau, Alaska, answered that the Department of Revenue
(DOR) fiscal note is indeterminate, as potential impacts may be
positive or negative. He said that HB 50 would decouple the
state from the federal 45Q tax credit, which would have a
positive impact on state revenue. He explained that it is
difficult to say what impact HB 50 would have on other taxes and
royalties. He said that this may positively impact oil and gas
investment and production, leading to an increase in revenues
from associated taxes and royalties. Conversely, these
investments could have a short-term negative impact due to
additional lease expenditures against the oil and gas production
tax.
3:53:03 PM
SENATOR KAWASAKI asked how contingent the state is on the 45Q
tax credit being economic for companies to utilize CCUS
technology.
3:53:18 PM
MR. CROWTHER replied that the state is not contingent on the 45Q
tax credit; instead, the state makes its resources available,
and the details of the projects are driven by the private
market. He added that the 45Q tax credit does not apply to the
international importation CO2. He surmised that there may be
other mandates guiding those projects. He reasoned that, while
the 45Q tax credit is the driver for projects in the state, HB
50 does not make the state dependent on this consideration. He
reiterated that the state is offering a commodity that is
necessary in order to pursue projects.
3:54:25 PM
SENATOR KAWASAKI asked if the state has any liability if a
company takes 45Q tax credits and was able to defray CCUS costs
in the state as a result.
3:55:03 PM
MR. STICKEL asked for clarification that the question is about
differentiating CCUS costs from other lease expenditure costs.
SENATOR KAWASAKI replied yes.
MR. STICKEL answered that DOR anticipates developing regulations
to fully implement HB 50; however, current law includes a robust
definition of lease expenditures. He explained that under
current law, "enhanced oil recovery" activities are considered a
lease expenditure. A carbon capture facility - independent of an
enhanced oil recovery project - would not be a lease
expenditure. He reiterated the need for additional regulations
that would detail where the line is drawn between the two.
SENATOR KAWASAKI said that he would like to discuss this more
offline. He opined that it is necessary to ensure developers
cannot simultaneously use the federal 45Q tax credit and the
state tax regime and suggested that further clarification is
needed.
3:56:31 PM
CO-CHAIR GIESSEL surmised that this issue would come up again.
She asked to see the modeling that DNR received.
3:56:51 PM
MR. CROWTHER replied that the information from GaffneyCline
would be made available. He clarified that the data is not
"modeling" that shows expected revenue streams with different
variables, because there is currently no CCUS in Alaska. He said
that DNR has done "scenario planning."
3:57:23 PM
CO-CHAIR GIESSEL asked for confirmation that the data from
GaffneyCline does not take into account what would need to be
done in terms of the lease expenditures - or how they would play
in to different scenarios. She noted that consultants have done
this in the past.
3:57:44 PM
MR. CROWTHER shared his understanding that GaffneyCline did not
model expected lease expenditures under development scenarios.
He noted that there is a framework to identify what is
considered a lease expenditure - and CCUS does not fit this
framework. He suggested that a question to ask might be, "do
more projects occur that result in enhanced oil recovery that is
a valid lease expenditure today - and what are the revenue
metrics associated with that?" He said that some conceptual
analysis has been done and has shown a positive outcome in most
scenarios. He offered to share this data with the committee.
3:58:55 PM
MS. PAINE advanced to slide 4 and continued the presentation on
HB 50:
[Original punctuation provided.]
AGENCY RESPONSIBILITIES IN HB 50
AOGCC - Subsurface Regulator
• Issue storage facility permits
• Safeguard human health and the environment
from underground injection
• Protect other mineral interests and property
rights
• Amalgamate pore space
• Provide public notice and hearings
• Administer penalty provisions
• Determine storage capacity and volumes
• Utilize carbon storage facility administration
fund
• Review and issue site completion certifications
DNR - Landowner
• Issue carbon storage exploration licenses &
leases and manage:
• Commercial payments
• Work commitments and annual reporting
• Transition and multiple-use management of
operations
• Administer carbon storage leasing consistent with
existing oil & gas framework
• Regulate CO2 pipeline leasing
• Administer carbon storage closure trust funds
• Perform long term monitoring and maintenance
MS. PAINE noted AOGCC would be seeking Class VI well primacy
from the EPA, meaning that AOGCC would be responsible for
implementing the Class VI rule in Alaska (i.e. the regulations
specific to carbon storage wells in the state).
4:01:30 PM
CO-CHAIR BISHOP asked for an update on the certification process
timeline.
MS. PAINE replied that there have been staffing updates,
including a carbon program officer. They are currently seeking
an engineer. She said that they have begun efforts on the
regulatory crosswalk, which has been done in concert with the
statutory review. They have also held regional meetings with EPA
Region 10 and EPA headquarters.
4:02:36 PM
MR. CROWTHER noted that some of the changes to HB 50 reflect the
EPA feedback.
4:02:49 PM
SENATOR CLAMAN asked if these changes are in the draft SCS or if
they are being suggested.
4:02:54 PM
MR. CROWTHER replied that the changes are in the draft SCS. He
noted that there are no additional EPA derived changes at this
time; however, DNR continues to conduct the exchange and review
through AOGCC.
4:03:14 PM
MS. PAINE advanced to slide 5 and continued the presentation on
HB 50:
[Original punctuation provided.]
HRES CHANGES TO HB 50
Notable Changes on CSHB 50(RES) (all references are to
sections of HB 50 as numbered in the current version
D)
• Policy statements for AOGCC and DNR removed
(secs.15 & 32)
• Clarifying language added to the Carbon Storage
Closure Trust Fund to prevent the fund from being
susceptible to the Constitutional Budget Reserve
(CBR) "sweep" and condensed the fund into a
single account (sec. 5)
• Added a new section to exempt the use of 45Q tax
credits against state corporate tax income
liability (sec. 37)
• Amended AS 46.03.020 to add caron dioxide
pipelines to the regulatory authority given to
the Alaska Department of Environmental
Conservation (sec. 38)
• Removed minimum commercial terms from AS
38.05.710 and directs the DNR commissioner to
establish minimum commercial terms in regulations
to be reviewed and updated every 5 years (sec.
15)
• Modified AS 38.05.720 to account for the
dismantlement, removal, and restoration (DR&R)
obligations of an enhanced oil recovery reservoir
transitioning to a carbon storage lease and
provides a definition for "enhanced oil or gas
recovery" (secs. 15 & 32)
MS. PAINE noted that the Carbon Storage Closure Trust Fund
(CSCTF) was set up to conduct long-term monitoring and
maintenance and post-site care.
4:07:20 PM
SENATOR KAWASAKI asked how the department would distinguish
between "enhanced oil recovery" and a "shut well" situation. He
surmised that this would depend on the price of oil and how much
it costs to inject.
MS. PAINE replied that AOGCC would need to do an injection order
approval (as it currently does). She explained that any well
that is operating must do so under an approved permit. This
permit states whether the well is used for injection or
production and monthly metering reports (available on the
website) shows the draw amounts for each well. She said that any
transition must be managed by the AOGCC through an injection
order in a public process.
4:08:28 PM
SENATOR WIELECHOWSKI asked if there is a dismantlement, removal,
and restoration requirement for CCUS facilities.
MS. PAINE replied that HB 50, page 25, lines 12-18 addresses
site and facility closure; this includes remediation and removal
requirements and department approval prior to a closure being
issued.
4:09:33 PM
MS. PAINE moved to slide 6 and continued the presentation on HB
50:
[Original punctuation provided.]
HB 50 COMMERCIAL TERMS
Original Commercial Minimums
• Minimum rental rate of $20 per acre
• Minimum injection charge of $2.50 per ton of
carbon dioxide
CSHB 50(RES) (sec 15)
• AS 38.05.710 directs the commissioner to
establish minimum commercial terms in regulations
to be reviewed and updated every 5 years
Flexibility in Commercial Terms improves the State's
ability to maximize the resource:
• The value of pore space is highly dependent on:
• Geotechnical factors: depth, porosity,
permeability, seal, under burden, faults,
geochemistry, total dissolved solids, etc.
• Non-technical factors: source of CO2,
transportation distance, proximity to
infrastructure, complexity of land ownership
• Revenue mechanisms can be project specific and a
"gold standard" has yet to emerge. Fees can be
assessed as: rentals, bonus bid payments,
injection charges, minimum guaranteed payments,
percentages of gross revenue, and may include a
variety of escalators
• DNR is adept at evaluating the State's interest
to account for other non-monetary factors
• Regulations are more readily adaptable than fixed
statutory language
MS. PAINE explained that this flexibility is supported by the
administration and reflects a growing understanding of the
industry. She briefly explained how this understanding has
shifted as additional states have begun to issue their own
leases and licenses, which has provided valuable information.
She noted that pore space is not inherently valuable; rather, it
is valuable based on geotechnical factors that vary by location.
4:13:20 PM
SENATOR WIELECHOWSKI asked whether Gaffney, Cline & Associates
(GaffneyCline) advised DNR when the original minimums were
determined.
4:13:35 PM
MS. PAINE replied no. She explained that the original numbers
were generated from DNR's evaluation of other states'
agreements. She explained how these numbers were determined.
4:14:32 PM
SENATOR WIELECHOWSKI asked whether DNR has received advice from
GaffneyCline or other experts regarding what the commercial
terms should be.
4:14:44 PM
MR. CROWTHER replied that he is unsure whether DNR has received
information from any of its consultants, research, working
groups, or from participation with the PCORE Partnership about
the commercial terms that are being seen in different projects.
He added that DNR has not received advice to set any particular
term. He shared his understanding that DNR has been gathering
information - and DNR's conclusion is a synthesis of this
information. Namely, that the flexibility allows for iterative
development via the public regulatory process - as opposed to
being set in law and potentially missing the market's evolution.
He pointed out that some of this information has come over the
last several months.
4:15:54 PM
SENATOR WIELECHOWSKI expressed concern that HB 50 does not
include commercial terms, leaving this solely at the discretion
of the DNR commissioner. He noted that the current legislature
has no experts on this complex issue. He reiterated his concern
and asked whether DNR would be willing to share the work product
received from its experts - related to commercial terms and
other aspects of HB 50 - with the legislature.
MR. CROWTHER replied that he would endeavor to share this
information; he noted that some of these reports may contain
commercially sensitive data, though there are a variety of
materials that can be shared.
4:17:16 PM
SENATOR WIELECHOWSKI asked if DNR would be willing to have the
aforementioned experts testify before the committee.
MR. CROWTHER replied that DNR would be willing to do so;
however, DNR would first need to check the status of the
contract.
4:17:49 PM
MS. PAINE added that a portion of the information on slide 7 is
gleaned from public documents associated with various leases.
She noted that the original document sources can be shared as
well.
4:18:16 PM
SENATOR WIELECHOWSKI directed attention to HB 50, Section 15,
(page 6, lines 10-14) which establishes the commercial terms
provision. He noted that this indicates that the DNR
commissioner would establish the commercial terms and asked
whether the department would object to adding language that
would require any terms to be "in the best interest of the
state" or to require a "best interest" finding.
MR. CROWTHER replied no and added that the department believes
this obligation to be inherent. However, he surmised that
clarifying this in statute would make it clear that the
intention is to act in the best interest of the state. He
indicated that requiring transparent legislative oversight and
public process regarding decisions made by the commissioner
would serve to further ensure this.
4:19:33 PM
SENATOR KAWASAKI expressed concerns regarding whether the
minimum rentals and injection charges would amount to the money
being spent to administer the CCUS program and requested
additional information. He noted that he has an additional
question about the Clean Air Protection Fund (CAPF).
4:20:06 PM
MR. CROWTHER explained that, with respect to fees assessed to
cover the costs of the program, high-level AOGCC costs are
assessed and recouped from operators via the regulatory cost-
charge mechanism. This is analogous to what is currently done
for AOGCC operations relating to oil and gas. He noted that,
from a DNR/land-owner perspective, no additional costs are
expected.
4:21:04 PM
SENATOR KAWASAKI asked for clarification regarding who would
bear the costs (and who would recoup the costs) for well-
delineations.
4:21:24 PM
MR. CROWTHER clarified that the project proponent would be
responsible for funding the project; there would be no cost-
recovery, rebate, or reduction from the state.
4:21:41 PM
SENATOR KAWASAKI asked whether the company would pay for
confirmation analyses done by the state prior to releasing pore
spaces. He questioned whether these analyses would be attributed
to the company. He explained that he is unsure whether there is
a mechanism by which the state would determine the amount of
pore space that it has to offer.
4:22:11 PM
MR. CROWTHER replied that the Division of Oil and Gas (DOG) has
experts on staff who are familiar with characterizing reservoirs
and who would be able to determine whether proposed explorations
are reasonable. He explained that utilizing this expertise would
not incur any additional costs. He added that, if one hundred
projects were to come forward, DNR would come before the
legislature to request additional funding; however, this funding
would be project specific. He reiterated that one or two major
projects could be managed by existing staff.
4:23:02 PM
SENATOR KAWASAKI questioned what factors would drive a company
to seek CO2 sequestration in Alaska. He asked if DNR anticipates
that companies in other locations would seek out carbon
sequestration and have it sent via pipeline - or whether
companies currently existing in Alaska would be more likely to
take advantage of this opportunity.
4:23:48 PM
MR. CROWTHER replied that, across the industry (within the US
and internationally), transportation is a significant cost for
projects. He explained that areas with beneficial geology are
made more appealing if emissions locations are at the same site.
He noted that transportation costs are also a concern for
projects with low emissions that require transport via pipeline.
DNR anticipates that most of the emissions sources would be
domestic, such as small in-state power generation, existing oil
and gas operations, or potential expansions of in-state
industrial activity (e.g. Cook Inlet). The latter could include
emissions imported via vessel and sequestered near the docking
site. He reiterated that projects requiring long-distance
emissions transport (whether domestic or international) are not
anticipated.
4:25:08 PM
SENATOR WIELECHOWSKI asked whether DNR, other departments, or
the consultants have done any modeling of what projects might
look like.
MR. CROWTHER replied yes and added that DNR would be happy to
share these. He noted that many of these models use the 45Q tax
credit as the revenue stream rather than using a variable
revenue stream. He briefly discussed how the various costs may
impact the revenue amount.
4:27:06 PM
CO-CHAIR BISHOP asked how DNR determines what volume of CO2 can
be placed in a reservoir. He questioned whether it is one-to-one
with oil and gas and surmised that DNR has calculations for
determining the available space.
MR. CROWTHER deferred the question.
4:28:17 PM
CO-CHAIR BISHOP commented that this information could be
provided to the committee at a later time, if needed.
4:28:44 PM
MARWAN WARTES, Chief, Energy Resources Section, Division of
Geologic & Geophysical Surveys, Department of Natural Resources,
Fairbanks, Alaska, explained that, in the case of an oil and gas
field, the volume of oil and gas that is produced provides
parameters. He shared his understanding that these calculations
are done with a model that makes assumptions based on porosity,
permeability, and volume calculations. He offered to provide
more detailed information to the committee.
4:30:11 PM
BRETT HUBER, Chair, Alaska Oil and Gas Conservation Commission,
Anchorage, Alaska, said that the amount of pore space in a basin
is determined by the geological characteristics of the basin. He
explained that it is not a simple one-to-one (i.e., if x amount
of gas comes out, x amount of CO2 goes in), because the CO2 will
behave differently with the rock properties than gas does. He
said that determining the amount of pore space requires
consideration of reservoir location; properties of the
reservoir; properties of the product to be stored; and how the
product will behave in the reservoir. He explained that rather
than quantifying the amount of pore space a reservoir has, the
question is, "will this reservoir accept x amount of injection?"
He briefly explained how the final calculations are used to
determine the amount of CO2 a reservoir can hold.
4:31:42 PM
CO-CHAIR BISHOP asked how the behavior of the product is
determined in a reservoir that did not previously store gas.
MR. HUBER replied that this would be determined based on a
catalogue of properties related to various rocks and
gases/fluids. The final determination is dependent on the
modeling. He briefly discussed the processes for gathering and
applying this information. He said that the modeling process is
outside his scope of expertise.
4:33:14 PM
SENATOR KAUFMAN asked whether one-way shipping from Japan is
viable, considering the shipping costs. He wondered whether the
economy of scale allows for the shipping.
MR. CROWTHER said that this is the crux of the issue when
determining whether the business model and industry will
develop, as shipping costs are high. He directed attention to
slide 3 and said that investment in - and construction of - CO2
carrying ocean liners signals that the industry is moving this
direction. In addition, the Japanese government has indicated
interest in this activity. These are indicators that CO2
shipment is being pursued in earnest. He acknowledged that
cracking the economic formula will continue to be a major
driver. In addition, he noted that international parties may
have incentive and restriction structures separate from the US
45Q tax credit. He agreed that where these countries see the
value - and how they manage costs while still recouping value is
an important question.
4:35:20 PM
MS. PAINE advanced to slide 7 and briefly discussed the peer
state leasing terms for Wyoming, Texas, and Louisianna. She
pointed out that these states individually negotiate agreements,
and none have statutory minimums.
4:37:29 PM
SENATOR WIELECHOWSKI directed attention to the "Public Process"
column on slide 7, and asked whether Alaska has a similar
statutory mechanism.
MS. PAINE replied that, at this time, HB 50 does not include a
review board; however, there would be a public process.
4:38:27 PM
SENATOR WIELECHOWSKI asked if DNR would object to assigning
review board or commission to review lease negotiations.
MR. CROWTHER stated that DNR understands the importance of the
role of public process and adhering to constitutional mandates
with respect to these negotiations. He explained that DNR does
not directly communicate with the state boards that oversee
decision-making. He said that he is not aware of any existing
board that would be capable of filling this function and
surmised that establishing a new board would incur additional
costs and would take time. He indicated that these are concerns
for DNR. However, he expressed understanding of why this type of
oversight is appealing.
4:40:10 PM
SENATOR WIELECHOWSKI pointed out that currently, only one person
would be deciding the terms that would be "in the state's best
interest" and opined that it would be better if this decision-
making power was dispersed through an oversight organization or
a board.
4:40:30 PM
SENATOR DUNBAR said that Alaska lacks elected boards and
commissions, instead including these under the executive branch.
He wondered which board would be the most capable - if statutory
authority were granted.
MR. CROWTHER commented that Alaska does not have a wide variety
of boards to oversee different department activities. He noted
that there may be different groups of decisions that receive
review from different boards. He said that the Oil and Gas
Royalty Advisory Board reviews and offers recommendations for
royalty-in-kind contracts. He shared his understanding that this
board consists of volunteer members and only meets when a
royalty-in-kind contract is considered (which may occur once
every few years). He reiterated that all decisions made by DNR
are subject to public process, receive public input, and are
subject to appeal. He emphasized the seriousness with which DNR
undertakes its constitutional obligations. He opined that this
process is robust and expressed appreciation for the legislative
oversight provided.
4:43:15 PM
CO-CHAIR GIESSEL recalled that Alaska once had an Oil and Gas
Competitiveness Review Board and surmised that this could
potentially fit the requirements of HB 50.
4:44:10 PM
MS. PAINE moved to slide 8 and continued the presentation on HB
50:
[Original punctuation provided.]
Deleted provision authorizing AOGCC to seek Class VI
well primacy
• This provision was enacted in 2023 as part of SB
48 (Ch. 2 SLA 2023) Certificate of completion
default period AS 41.06.170 (sec. 32)
Summary: Changed the default period for AOGCC to issue
certificates from at least 10 years to 50 years.
Rationale: When introduced, the 10-year period
reflected a standard that had previously been
acceptable to the Environmental Protection Agency
(EPA) for primacy, so long as it was supported by
geologic and engineering data. EPA now requires states
to match the 50 years in the federal requirements.
Removal of Good Cause exemption AS 41.06.110 (sec.
32)
Summary: Removed the exemption from AOGCC's authority
under carbon storage, which would allow a deviation
from a regulatory requirement upon a showing that the
objective of the provision can still be achieved
through other means.
Rationale: Although common place in oil and gas, EPA
is uncomfortable with good cause exemptions and would
like the federal requirements to be prescriptively
implemented.
MS. PAINE explained that the House Finance Committee worked with
AOGCC and DNR to create an amendment containing these changes.
These changes were based on feedback received from the
Environmental Protection Agency (EPA) and several states that
have completed the primacy process.
4:46:34 PM
CO-CHAIR GIESSEL asked for clarification that this was changed
in Section 32 of HB 50.
MS. PAINE replied yes.
4:46:49 PM
CO-CHAIR BISHOP asked if the change to the good cause exemption
(AS 41.06.115) would sync up with the 50-year extension.
MS. PAINE replied that these are two different changes that were
based on feedback from EPA. She explained that the 50-year
extension can be found on HB 50, page 24, line 31. She stated
that the good cause exemption - which is now renumbered to AS
41.06.110 - has been removed.
4:47:51 PM
MR. CROWTHER explained that the slide refers to "AS 41.06.110,"
which is a technical correction (changed from AS 41.06.115).
4:48:14 PM
CO-CHAIR GIESSEL sought clarification about which sections had
technical corrections. She asked if it should read "AS
41.06.115."
MR. CROWTHER replied that the section should be AS 41.06.110 and
added that this is the last technical correction on the slide.
4:48:36 PM
MS. PAINE advanced to slide 9 and continued the presentation on
HB 50:
[Original punctuation provided.]
HFIN CHANGES TO HB 50
Carbon storage closure trust fund AS 37.14.850 (sec.
5)
Summary: Removed the 'schedule of payments' provisions
through a memorandum of understanding (MOU) from AS
37.14.850(c), empowers the DNR commissioner to make
expenditures from the account for the purposes of new
AS 41.06.305, and authorizes AOGCC to make
expenditures from the fund in certain instances.
Rationale:
• An MOU setting payments is unnecessary with set
schedule provided in updated AS 41.06.175.
• Clarifies agency roles in managing/expending the
fund.
Carbon storage facility injection surcharge AS
41.06.175 (sec. 31)
Summary: Establishes project-specific accounts set as
an annual surcharge paid into over 12 years for a
total of $7.5 million, adjusted for inflation.
Rationale:
• Reflects an extended period of operator
responsibility.
• Simplifies from per ton charge and reflects best
practices of other Class VI primacy state.
• Provides surety to both State and operator on the
amount.
4:51:52 PM
MS. PAINE advanced to slide 10 and continued the presentation on
HB 50:
[Original punctuation provided.]
HFIN CHANGES TO HB 50
Title to carbon dioxide AS 41.06.165 (sec. 31)
Summary: When a certificate of completion is issued,
title to the CO2 is transferred to the owner of the
pore space, unless there is a contrary agreement,
rather than previous language in AS 41.06.170 that
transferred title of CO2
to the State.
Rationale:
• New section AS 41.06.305 allows State to perform
monitoring and maintenance functions without
taking title to storage reservoir.
• Reflective of subsurface ownership in Alaska
versus other states.
Long-term monitoring and maintenance AS 41.06.305
(sec. 31)
Summary: New article authorizing DNR to enter and
inspect storage facilities that have been issued a
certificate of completion and perform (where
appropriate) specified monitoring and maintenance
activities beyond regulatory responsibilities of Class
VI well permit.
Rationale:
Further clarifies role of DNR in the post-completion
period consistent with other jurisdictions.
4:53:50 PM
SENATOR KAWASAKI asked if there is a natural value for CO2 in
the ground.
MS. PAINE replied that CO2 is thought to be a useful product
that is used in other industrial processes. She explained that
the 45Q tax credit is structured for permanent sequestration.
She surmised that any entity that stored CO2 in the ground - and
later attempted to draw the CO2 out and sell it - would face
penalties.
4:54:45 PM
CO-CHAIR BISHOP asked if EPA imposes a penalty for inadvertent
release into the atmosphere.
4:55:03 PM
MR. HUBER replied that the penalty provisions contained in HB 50
are the same as the penalty provisions in oil and gas statutes.
These include a $100,000 maximum and a $10,000 per day fine. He
noted that EPA has a compliance division, though he is unaware
of a specific penalty structure for inadvertent atmospheric
release. He said that he could research this and provide
additional information. He stated that EPA finds the penalty
provisions in HB 50 to be in line with federal guidelines.
4:55:58 PM
SENATOR WIELECHOWSKI asked if AOGCC has jurisdiction over the
waste of gas, natural gas, or CO2.
MR. HUBER replied that AOGCC has jurisdiction over waste from
oil and gas resources. He explained that this form of waste
applies to product that is not being used, metered, and charged
to the state (e.g. if the product is escaping into the ground
and not being appropriately metered and charged). He said that
CO2 is an atmospheric constituent and is therefore valued
differently than a hydrocarbon. He questioned how waste would be
addressed in this instance, when the CO2 is being injected
rather than producing a project. He explained that, in this
case, the CO2 would be considered a private product that has
been produced, purchased, and for which storage space has been
purchased. He clarified that CO2 would not fall under the
jurisdiction of AOGCC in this instance.
4:57:34 PM
SENATOR WIELECHOWSKI asked how this would apply to an oil
company on the North Slope, where the CO2 is technically owned
by the state.
4:58:18 PM
MR. HUBER agreed that any production that is not metered - and
therefore the state is not receiving its fair compensation - is
a form of waste. He pointed out that CO2 and methane are valued
very differently - and therefore would have different value
chains for waste determination. He explained that AOCGG would be
responsible for determining the amount of CO2 brought in daily,
the daily injection rate, and whether the daily injection rates
are met. However, the Department of Environmental Conservation
would address any pipeline issues.
4:58:59 PM
SENATOR WIELECHOWSKI asked whether a company that retains the
title to the CO2 would pay property taxes (or any form of tax)
on the pore space.
MR. CROWTHER replied that the facilities associated with the
pore space would be subject to a property tax.
4:59:51 PM
SENATOR WIELECHOWSKI restated the question. He asked if title to
the CO2 is given to the company upon project completion, and the
company is using pore space owned by the state, the company
would then be required to pay property taxes or another form of
taxes (or royalties) on the pore space.
5:00:19 PM
MR. STICKEL replied that he would investigate this and follow up
with the committee.
5:01:08 PM
SENATOR DUNBAR asked about the environmental impacts of a
catastrophe resulting in a massive CO2 release. He also asked
which of the various funds would be available to remediate this
type of disaster.
5:02:05 PM
MS. PAINE replied that CO2 does not behave like other products,
such as oil. She explained that once the pressure vessel holding
the CO2 in the critical space is ruptured, it returns to a
gaseous form. It would then return to the atmosphere. She
briefly described this process, noting that CO2 travels quickly.
She surmised that there would be nothing remaining on the
surface or subsurface (which is the case with oil and gas).
5:03:13 PM
SENATOR DUNBAR asked whether this would be a violation of the
Clean Air Act (CAA).
MR. CROWTHER shared his understanding that there are no federal
regulations on CO2 emissions that would be triggered in the
event of this kind of disaster. He surmised that it would not be
a violation of CAA but acknowledged that he is not qualified to
speak to CAA applications. He noted that many other insurance
and liability requirements to operate may have been violated in
this instance.
5:04:15 PM
CO-CHAIR GIESSEL announced that the committee had run over time
and would resume the presentation at the next hearing.
5:04:33 PM
SENATOR KAWASAKI wondered whether DEC would have a
representative to answer questions at the next hearing.
5:04:38 PM
CO-CHAIR GIESSEL said the committee could request this. She
asked whether the GaffneyCline materials could be shared at the
next meeting.
MR. CROWTHER replied that the department would endeavor to make
this information available at the next meeting.
5:05:19 PM
SENATOR GIESSEL held HB 50 in committee.