Legislature(2023 - 2024)ADAMS 519
05/15/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB140 | |
| SB48 | |
| SB77 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 48 | TELECONFERENCED | |
| + | SB 75 | TELECONFERENCED | |
| + | SB 140 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 178 | TELECONFERENCED | |
| += | SB 77 | TELECONFERENCED | |
SENATE BILL NO. 48
"An Act authorizing the Department of Natural
Resources to lease land for carbon management
purposes; establishing a carbon offset program for
state land; authorizing the sale of carbon offset
credits; and providing for an effective date."
8:44:38 PM
RENA MILLER, SPECIAL ASSISTANT, DEPARTMENT OF NATURAL
RESOURCES, introduced the PowerPoint presentation "Senate
Bill 48: Summary of Changes/Sectional Analysis" dated May
15, 2023 (copy on file). She explained that she would
detail the changes to the bill that were made in the
Senate. She skipped to slide 3 and noted that the House
Resource Committee had heard the companion bill HB 49 six
times and amended it, the House Finance Committee heard the
bill five times, the Senate Resources Committee heard SB 48
four times and amended it, and the Senate Finance Committee
heard it five times and amended it. The bill passed the
Senate earlier in the day and her presentation would be the
first discussion of the bill as amended by the Senate.
Ms. Miller advanced to slide 4 and explained that she would
compare SB 48 with HB 49 as amended. The first change was
the title, which was revised to reflect amendments made in
the Senate. The changes were as follows: added "relating to
the powers and duties of the Alaska Oil and Gas
Conservation Commission" [Section 1]; and "relating to oil
and gas lease expenditures" [Section 16]. She noted that
Section 1 was new to SB 48 and was the same as Section 3 of
HB 50. It provided the Alaska Oil and Gas Conservation
Commission (AOGCC) with the authority to acquire primary
enforcement responsibility for Class VI wells from the
Environmental Protection Agency (EPA). She explained that
Class VI wells were used to inject carbon dioxide into deep
rock formations.
Ms. Miller continued that Section 2 was formerly Section 1
of HB 49 and provided a full exemption from the state
procurement code. It was amended to exempt only contracts
with registries. There was no change to Section 3.
8:48:04 PM
Ms. Miller continued on page 5 of the presentation. She
indicated that Section 4 was also unchanged from HB 49 and
conformed to the new carbon management purpose lease
program. She explained that Section 5 was formerly Section
4 and detailed the new carbon management program. The
following was added to the section:
• DNR must solicit competitive interest on receiving
an application
• DNR to weigh revenue to state in case of competing
leases
• Leases must include performance benchmarks and will
be terminated if failure to meet
• In Best Interest Finding, DNR must consider impacts
on mining, timber and other resource development; the
known mineral potential in the area; and value to the
state
• State land will remain open to other resource
development
• Annual report to Legislature
Ms. Miller stated that Section 6 of SB 48 was unchanged and
was conforming to Section 5 of HB 49.
Ms. Miller advanced to slide 6. She relayed that Section 7
was new and was conforming to the requirement in Section 5
of HB 49 to solicit competitive interest. She noted that
Section 8 was formerly Section 6 and established the Carbon
Offset Program at the Department of Natural Resources
(DNR). The following was added:
• Additional criteria to evaluate in a Best Interest
Finding, including impacts to other resource
development sectors; assessment of mineral potential
in area; and potential revenue to the state
• State land to remain open to other resource
development
• Removal of new fund; credit sale revenue will go to
general fund
• Ability for DNR when considering contracts under the
procurement code to evaluate revenue and value to the
state
• Prohibition against contract commissions over 30%
• Annual report to the Legislature
• Revisions to definitions section to reflect the
evolving nature of the carbon offsets industry and
ensure statute durability
Ms. Miller advanced to slide 7. She relayed that Sections 9
through 11 of SB 48 were formerly Sections 7 through 9 of
HB 49 and there were no changes. Additionally, Sections 12
through 15 were formerly Sections 10 through 13 and there
were no changes. She shared that Section 16 was new and
would disallow carbon lease or project costs as oil and gas
lease expenditures. Finally, Section 17 was formerly
Section 14 and was unchanged. She expressed that the
department appreciated the Senate's changes to the bill and
thought that it made many improvements to the legislation
that addressed the concerns about the program. She believed
that the programs would be successful if the department
could be transparent with the legislature and with
Alaskans. She concluded her presentation.
8:54:58 PM
Representative Galvin appreciated the information and the
work the department had done. She noted that Ms. Miller had
referenced prohibition against a contract commission of
over 30 percent. She recalled that there were two various
potential contractors who had mentioned a contract
commission of 20 percent. She was curious about the
discrepancy of the two figures.
Ms. Miller responded that the two hypothetical scenarios
showed up in the department's crediting tables. In the
scenarios, the 20 percent figure was applied because it was
somewhat of a norm in the field, although it could vary
depending on the particular project. Some of the smaller
projects required a larger commission than some of the
larger projects. The department felt that the 30 percent
figure allowed for appropriate negotiating leeway that
could potentially include other terms that were of value to
the state. If a situation arose in which the 30 percent
figure was prohibitive, the department would return to the
legislature to discuss the issue.
Representative Galvin recalled that two different
organizations had presented before the committee about the
carbon program. She thought the organizations had told the
committee that the contract commission percentage was
somewhere between 18 and 20 percent. She asked Ms. Miller
to provide some examples of the other terms that could be
negotiated as a state. She understood that the norm was up
to 20 percent.
Ms. Miller responded she thought that the American Carbon
Registry (ACR) was one of the organizations that had
presented to the committee and had likely echoed 20 percent
as the norm. One of the negotiating terms that might
increase the percentage was developer training for DNR
staff in order to manage future projects in which the
department was the sole developer.
Representative Galvin relayed that she had done some quick
math for one of Ms. Miller's examples and the total was $60
million for one contractor. She was concerned about the
increased cost if the percentage was increased by 10
percent and thought it was a substantial sum to dedicate to
training purposes. She supported the bill but wanted to
ensure that the legislature was protecting Alaska's
interests.
9:00:07 PM
Representative Josephson recalled that there was an earlier
amendment sometime in the bill's hearing process that
included language about a $10 million spending cap, beyond
which the legislature would need to provide additional
oversight. He asked if his recollection was correct.
Ms. Miller responded that the Senate Resources Committee
had maintained the full exception to the procurement code
and had implemented an amendment that would require
legislative approval for contracts exceeding $10 million.
Ultimately, the Senate Finance Committee sought to remove
the requirement for legislative approval to foster a
process that would provide transparency, competition, due
process, and fairness.
Representative Josephson commented that he was aware that
the bill had always had an allowance for other potential
resource development. He asked how decisions would be made
about leaving forests intact in situations in which forest
had to be removed, such as in the case of Fort Knox [gold
mine].
Ms. Miller responded that the mineral estate was the
dominant estate. The bill would not change the fact that an
area could only be closed to minerals with the
legislature's action. The first step would be for the
department to assess the known mineral potential of an
area. When a project was created, it was important to know
where the high potential areas were and to project the way
the area might look in the future. An option would be to
exclude a forest from a project area in order to avoid
having to account for carbon loss within a project that
aimed to increase carbon stock increases. There were also
opportunities within a project area to accommodate surface
disturbance, including the potential for a subsurface mine,
which would help determine how many credits a project would
be able to generate.
Representative Hannan referred to Section 16 of the bill
which included descriptions of oil and gas industry lease
expenditure dialogue. She had a conversation with Ms.
Miller and was assured that the bill would be unrelated to
the sequestration apart from well primacy. She asked for
more information on the choices behind the language of
Section 16.
Ms. Miller responded that Section 16 amended AS
43.55.165(e) which the was current oil and gas tax credit
statute and it articulated items that could not be claimed
as lease expenditures. She clarified that the items all
related to oil and gas activity. There was only one example
in which costs were incurred as part of the capital
expenditure for a carbon management purpose or a carbon
offset project. The change was not related to potential
lease expenditures on underground storage projects. She
thought the issue would come before the legislature when
developing the leasing and regulatory framework for
underground carbon storage. There was concern in the Senate
that there could be a carbon lease or project on the same
surface area as an oil and gas development. If the
situation occurred, the Senate wanted to ensure that
capital expenditures for the carbon purpose were not to be
deducted as lease expenditures from the oil and gas
production tax.
Co-Chair Foster asked if there were additional questions.
Ms. Miller requested that Mr. Neil Steininger speak to the
details of the way in which the projects would be funded.
9:06:37 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, (via teleconference), expanded upon
the question. There were some amendments made in the Senate
related to the structure of the funding of the carbon
offset program. The revenue collected under the program
would be tracked as a separate fund code in the state
budget for the expenditures. The funds would live within
the general fund but would be accounted for separately. The
amount of revenue collected would be transparent to the
public and the legislature and would be published in the
Department of Revenue Revenue Source Book released
annually. It would be similar to the way in which
Department of Motor Vehicles (DMV) receipts were reported
upon and appropriated. Appropriations for the operating
side of the carbon offset program would be included in the
operating budget each year. As the revenues began to flow
into the state, expenditures would be transitioned over to
the direct expenditures of the new code that would be
established by the Legislative Finance Division (LFD).
Mr. Steininger continued that appropriations related to the
actual carbon offset project would be in the operating
budget; however, costs associated with specific projects or
credit projects would live within the capital budget which
would allow the department to spread the costs over
multiple years. There would be carry-forward language
beginning in FY 25 in the operating budget which would
allow the department to carry over more funds than the
amount that was strictly necessary for a given fiscal year.
Co-Chair Foster indicated that there were five fiscal notes
dated within the last week. He asked whether Ms. Miller
would like to speak to the fiscal notes.
9:09:45 PM
Ms. Miller commented that the committee was already
familiar with three of the fiscal notes dated within the
last week. The main change was revising the narrative to
reflect the elimination of the carbon offset fund. There
were two fiscal notes the committee had not yet heard. The
first was related to OMB component by the Department of
Commerce, Community and Economic Development (DCCED) with
the control code azWox (copy on file). The fiscal note
related to the addition of Section 1 of SB 48 which would
grant AOGCC the authority to pursue primacy from the U.S.
Environmental Protection Agency (EPA) over Class VI wells.
There was $908,000 in FY 24 and $888,000 in FY 25. She
noted that AOGCC had applied for grants from the EPA to
help with the costs of the responsibility of enforcement,
which would supplant the general fund.
Ms. Miller continued that the second new fiscal note was
OMB component 2888 by DCCED with the control code qqAuO
(copy on file). The fiscal note related to the Alaska
Energy Authority (AEA). She forgot to mention earlier that
the Senate had amended the bill so that 20 percent of the
revenue generated from the carbon offset program would be
deposited into the renewable energy grant fund [AS
42.45.045]. The change had generated the fiscal note, which
was indeterminate.
Representative Josephson asked if the carry-forward dollars
would be subject to the sweep.
Mr. Steininger responded that the monies would not be
subject to the sweep.
Representative Josephson asked if the reasoning was because
the legislature had fully appropriated the monies already.
Mr. Steininger responded in the affirmative.
Representative Stapp commented that his main concerns about
the bill were related to the procurement process, the lack
of oversight, and the competitive interest clauses. He did
not want the bill to be used as a capital expenditure in
order to sequester carbon and receive a state tax credit,
which he thought would have happened if the amendments in
the Senate were not passed. He asked if the committee was
"missing anything." He wondered if all concerns had been
addressed.
Ms. Miller responded that the department had heard similar
concerns from legislators in both bodies. The department
appreciated the Senate's collaboration in working towards
resolutions and finding ways to provide transparency and
responsiveness to the legislature and Alaskans.
9:15:03 PM
Representative Galvin drew attention to page 10, line 3 of
SB 48. She understood that a typical contract commission
agreement was 20 percent or less. She asked if the
department would be severely impacted if the figure
increased to 25 percent.
Ms. Miller responded that the department felt that 30
percent would offer flexibility and would avoid statutorily
contracting negotiated terms while preventing a potential
situation in which the prudency of entering into the
contract would be questioned. She noted that the industry
was rapidly evolving and she had heard that the allowance
was following norms. Some projects involving smaller
surface areas could generate more than 20 percent
commissions and the department would like the opportunity
to pursue such projects. Future projects could involve
environments like tundra and the department did not want to
limit itself.
JOHN BOYLE, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
responded that the intent was to maximize the amount of
revenue and value of the resources used in the projects. He
recalled that one of the slides in the presentation showed
the various types of carbon projects available. It could be
true that some organizations saw a certain commission
range, but if the state were to look to other types of
carbon projects, the projects might not fall into the same
parameters. The 30 percent figure seemed to be a good
compromise and would allow for the desired flexibility. For
example, kelp projects were nascent and accrediting bodies
were still crafting the logistics of the projects. It was
important to preserve the flexibility, but the Senate felt
that it was also important to implement a percentage cap.
9:19:24 PM
Representative Galvin asked for some examples of projects
that rose above 20 percent. She understood that the
committee had been told that the general cap was 20
percent. She was hoping for reassurance that the extra 10
percent was necessary. She reiterated that she was
supportive of the bill but wanted to ensure that the
legislature had set the correct guidelines.
Ms. Miller replied that she did not have additional data
because many of the project contracts were not available to
the public. She relayed that the committee had heard from
both ACR and the contractor Anew Climate, which both
related to the improved forest category, that the 20
percent figure was the norm for current projects. She noted
that the committee had also heard from potential developers
that for smaller niche projects, commissions could go
higher particularly because the project areas were smaller
which was something of which "they" wanted the department
to be aware.
Representative Galvin asked who "they" were. She understood
that ACR was aware of projects that would surpass 20
percent but the projects were not yet common.
Ms. Miller responded there were no protocols available at a
registry for a kelp project but developers and other
registries were actively working on fine-tuning the science
of how to verify the amount of carbon that kelp at the
bottom of the ocean had sequestered. She added that ACR had
shared that different projects could generate different
types of commissions.
Representative Galvin understood that the ceiling of 30
percent was being requested because there could be smaller
projects that could reach the figure and the department
would be limited. She asked if her understanding was
correct.
Ms. Miller responded in the affirmative and explained that
it was one reason for the request. A cap of 30 percent
would allow for some flexibility for the department to
pursue other projects that would be in the state's best
interest.
Co-Chair Foster set an amendment deadline for SB 48 for
11:30 a.m. on May 16, 2023.
SB 48 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 77 Amendments 1-4 051323.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 77 |
| HB 178 ANHB White Paper - Ongoing Barriers to Access Water and Sanitation in Rural Alaska 2023.pdf |
HFIN 5/15/2023 1:30:00 PM |
HB 178 |
| HB 178 CS WORKDRAFT 050223 v.B.pdf |
HFIN 5/15/2023 1:30:00 PM |
HB 178 |
| HB 178 VSW DEC Water 042723.pdf |
HFIN 5/15/2023 1:30:00 PM |
HB 178 |
| SB 140 Supporting Document What does it cost.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 140 |
| SB 140 Public Testimony 051523.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 140 |
| CS for SB48(FIN) Sectional Analysis.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 48 |
| SB48 Summary of Changes in Senate committees.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 48 |
| SB48 DNR Presentation to House Finance Committee 5-15-23.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 48 |
| SB 140 Amendent 1 Johnson 051523 - S.2.doc.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 140 |
| SB 77 Public Testimony Rec'c by 051523.pdf |
HFIN 5/15/2023 1:30:00 PM |
SB 77 |