Legislature(1997 - 1998)

05/08/1997 10:10 AM TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 263 - MOTOR FUEL TAX:LIGNOCELLULOSE/10% ALCOHOL                             
Number 0401                                                                    
CHAIRMAN Williams announced the next order of business to be HB
263, "An Act repealing the exemption from the motor fuel tax for               
fuel that is at least 10 percent alcohol by volume, and                        
establishing a motor fuel tax exemption for motor fuel that is                 
produced from the processing of lignocellulose, that is at least 10            
percent alcohol by volume, and that is produced during the first               
five years of a facility's processing of lignocellulose from wood;             
and providing for an effective date."  He stated that Peter                    
Ecklund, Legislative Assistant, would present the bill.                        
Number 0412                                                                    
PETER ECKLUND, Legislative Assistant to Representative Bill                    
Williams, read the sponsor statement into the record:                          
"House Bill 263 was introduced to encourage a renewable energy                 
industry in Alaska.  Technology is now under development, which                
would allow ethanol to be reduced from wood and wood wastes.                   
Alaska could be at the forefront of a new high value added,                    
environmentally friendly wood ethanol industry.  Southeast Alaska's            
timber industry has suffered a terrible job loss over the last six             
years.  Absent any pulp mills, there are no current manufacturing              
techniques which use a low end, former pulp quality wood.  We may              
soon be `chipping and shipping' low quality logs and jobs from                 
"If we are able to entice investors to start wood ethanol plants in            
Alaska, we could employ many of the now unemployed timber workers              
of the region.  Wood ethanol plants could convert milling wastes,              
low quality wood chips and even paper into ethanol.                            
"Current Alaska law taxes motor fuel at 8 cents a gallon.  Gasohol,            
or gasoline blended with 10 percent ethanol, is exempt from this               
Number 0508                                                                    
MR. ECKLUND stated there was legislation that just passed the House            
a couple days ago, HB 63, that proposed to take away the ethanol               
tax credit.                                                                    
MR. ECKLUND continued to read the sponsor statement: "House bill               
263 proposes to end the 8 cent a gallon tax credit for all gasohol             
except for that gasohol that uses ethanol derived from wood.  Corn,            
barley and other grain based ethanol would not qualify for the                 
gasohol tax credit."                                                           
Number 0538                                                                    
MR. ECKLUND stated that there is a work draft committee substitute             
in the committee members file.  He then continued with the sponsor             
statement:  "Under that gasohol using wood ethanol would be taxed              
at 8 cents lower than the prevailing motor fuel rate.  So, if the              
motor fuel was raised in the future, the wood/ethanol gasohol tax              
rate would raise at the same rate and remain 8 cents below whatever            
the new motor fuel was.                                                        
"Also, the wood ethanol gasohol tax incentive would only be in                 
effect for the first five years of the wood ethanol plant's                    
existence, and once that ethanol is sold on the market the 8 cent              
a gallon tax credit would only be in effect for five years.                    
"According to the National Renewable Energy Lab, there are no                  
plants which currently produce ethanol from wood.  This legislation            
would send the message to investors that the state of Alaska wants             
to encourage a new renewable energy industry in our state, and                 
create an environmentally friendly high value-added wood product."             
Number 0654                                                                    
MR. ECKLUND passed out a revised fiscal note from the Department of            
Revenue.  He stated that currently there is no gasohol that is                 
produced from wood that can qualify for the tax incentive proposed             
in this bill.  He stated that the fiscal note reflects the fact                
that there would not be that tax incentive for corn, barely or any             
other ethanol.  The net benefit to the state would be $8 million in            
revenues the first few years and if and when a wood ethanol plant              
came on-line in Alaska, there would some reduction in that net                 
Number 0736                                                                    
REPRESENTATIVE JERRY SANDERS stated that he thought they just                  
passed a bill that would eliminate that; therefore, we would get               
this money back without HB 263.                                                
Number 0747                                                                    
MR. ECKLUND replied that HB 63 is not law yet, and the current law             
gives an 8 cent a gallon tax credit for all ethanol.                           
Number 0810                                                                    
REPRESENTATIVE BILL HUDSON asked what happens if HB 63 does become             
Number 0818                                                                    
MR. ECKLUND replied if HB 63 were to become to law and if HB 263               
were to pass and become law, it would still recapture those current            
ethanol tax credits that go to the out-of-state producers of                   
ethanol.  He stated that there would be no reduction to the general            
fund for ethanol or gasohol using wood ethanol unless and until a              
wood ethanol plant came on-line and sold into the market.  He                  
stated that currently the purpose is to encourage the development              
of this new technology and have Alaska be at the forefront of this             
new industry.  He stated that it is hard to tell what the fiscal               
impact could be in the future because it depends on whether or not             
we are able to entice someone to come to Alaska and create a new               
Number 0909                                                                    
REPRESENTATIVE HUDSON stated that HB 263 would have no bearing on              
HB 63, which eliminated the 8 cent tax exemption on gasohol,                   
largely made from grains, that are shipped to Alaska.  He stated               
the HB 263 states that the tax rate on motor fuel blended with                 
alcohol is the same tax rate as a gallon of other motor fuel.                  
However, he stated that HB 263, AS 43.40.010(4), Section 1, lines              
3 through 7 states, "The tax is not due on the motor fuel sold or              
otherwise transferred in the state that is at least 10 percent                 
alcohol by volume and has been produced from the processing of                 
lignocellulose derived from wood; and was produced in a facility               
that processes lignocellulose..."  He asked if this bill only                  
affords the 8 cent exemption from gas that has the additive of wood            
Number 1021                                                                    
MR. ECKLUND replied that is correct.  The only ethanol that would              
qualify to blended with gasoline and qualify for the 8 cent a                  
gallon tax incentive would be wood ethanol.  He stated that                    
currently there are no producers of wood ethanol, anywhere.  He                
stated that the capability is there as we are trying to encourage              
a company to come to Alaska and produce wood ethanol.                          
Number 1120                                                                    
REPRESENTATIVE HUDSON stated that he supports the legislation, not             
only because of Southeast Alaska, but because of the vast forests              
of the Susitna, Tanana, Fairbanks and Kenai Peninsula.  He stated              
that this would be a tax incentive, similar to the ethanol fuel                
incentive that parts of Alaska has had for a number of years.                  
Number 1204                                                                    
MR. ECKLUND added that paper would also work in this process.  He              
stated that if HB 63 became law, this legislation would mesh and               
wood ethanol would be the only one that would qualify for the                  
Number 1223                                                                    
REPRESENTATIVE COWDERY asked if Ketchikan, being a rain forest,                
would have the best quality of wood suited for the wood ethanol,               
rather than the hard wood of other areas of the state.                         
Number 1248                                                                    
MR. ECKLUND stated that someone will be here to answer that                    
question, but it is his understanding that hard woods are better               
for wood ethanol production.                                                   
Number 1312                                                                    
REPRESENTATIVE COWDERY asked, "Is the alcohol or whatever we're                
importing from Kansas or wherever, is it the same product or is it             
a different product.  Do we -- or do you know?"                                
Number 1328                                                                    
MR. ECKLUND replied that it is ethanol.                                        
Number 1436                                                                    
STEVE GATTO, Representative, BCI, stated that the company is based             
in Boston and is involved in the technology that allows the                    
conversion of organic materials into ethanol.  The significance is             
they able to take grass, sawdust, wood waste, fish waste, corn                 
cobs, and other various agricultural wastes and then converts them             
into ethanol.  He stated that ethanol is utilized in a component of            
gasoline because the emissions are cleaner.  He stated that BCI is             
involved because they have a desire to build a plant.  He pointed              
out that their goal would be to take advantage of the abundant feed            
stocks that appear to be available, utilize those feed stocks,                 
convert them into alcohol and have an indigenous source of ethanol             
that could be blended and used in the various markets available in             
Number 1554                                                                    
MR. GATTO informed the committee that he toured the Ketchikan pulp             
mill to understand what the potential opportunities are to                     
revitalize that particular region and to utilize the existing                  
infrastructure to make it a producible asset again.  He stated that            
BCI needs to have a lot of information because the investment is               
staggering.  He explained that to begin the process of evaluation,             
just from an engineering prospective, costs over a million dollars.            
He asserted that there are a lot of uncertainties in Alaska with               
respect to the availability of materials.  He stated that the                  
Tongass Land Management Plan is due out and is creating pressure on            
the community of Ketchikan to revitalize and get back the jobs that            
were lost as a result of the mill closure.  He stated that BCI has             
the opportunity to get involved in the process but direction is                
needed as well as the understanding of exactly what the                        
availability is of the feed stocks.                                            
Number 1706                                                                    
MR. GATTO asserted that BCI's interest is real.  He stated that                
Alaska has an outstanding market opportunity to utilize the                    
products that BCI makes.  He said BCI makes a product called                   
gypsum, which has no radioactivity.  Ketchikan has a plant that                
would have the potential to use that product as it is currently                
being imported.                                                                
Mr. GATTO explained that an opportunity is created by taking waste             
materials that currently exist and then utilizing the existing pulp            
mill.  The waste product could be wood, fish waste, card board,                
paper sludge, or mixed waste paper.  He stated that the net effect             
is an indigenous source of ethanol, that allows the blending of the            
product on a statewide basis.                                                  
Number 1817                                                                    
MR. GATTO stated that job creation, economic development, rural                
development and environmental opportunities to clean up areas would            
be the effect.  He stated that the areas effected by beetlekill                
need to be cleaned up, as it has a pent up supply of material that             
nobody can do anything with and as a result is causing damage.  He             
continued that Ketchikan would be the starting point of this                   
opportunity because there is the pre-existing infrastructure.  He              
stated that BCI's interest and desire is to work with the people of            
Ketchikan and the state of Alaska.  He continued the BCI would like            
to understand all the elements that are necessary to bring to bear             
the feed stock at this location and to analyze the reusability of              
the existing mill.                                                             
Number 1935                                                                    
MR. GATTO continued that the key element is to make sure the 8 cent            
a gallon credit stays.  He said, "The reason is simple.  You folks             
are reeling right now because the federal government stepped in and            
said, `we're going to reduce the cut,' and that effects your timber            
industry which effects all of Alaska.  The effect of getting rid of            
this credit does the exact same thing."  He stated that it would               
prevent taking advantage of a vibrant opportunity.                             
Number 2008                                                                    
MR. GATTO stated that it would be a $30 million to $40 million                 
investment for a 10 million gallon a year plant.  He stated that               
the it would be a benefit to the people who would be employed by               
the plant.  The current configuration of an 8 cent a gallon credit,            
is vital to the industry and can create a tremendous infrastructure            
opportunity for development both in Southeast Alaska and other                 
areas of the state.                                                            
Number 2054                                                                    
REPRESENTATIVE COWDERY asked, "The conversion cost versus gasoline             
cost, in other words, after your up and running costs what do you              
anticipate that -- I am trying to relate to that to the cost of                
Number 2128                                                                    
MR. GATTO replied that he could not speak with certainty about the             
cost of gasoline in Alaska.  He stated that he would relate it to              
the cost of gasoline in Massachusetts, where the wholesale gasoline            
pretax is about 75 cents, per gallon for regular unleaded 84 octane            
gas.  He stated that he heard testimony in the House Finance                   
Standing Committee about blending the 84 octane gasoline and                   
requiring ethanol in the 10 percent blend to have a cost of about              
$1.35 a gallon.  He stated that the federal credit of 5.4 cents a              
gallon coupled with the 8 cent a gallon credit, that the state                 
provides, would be sufficient enough to cover the transportation               
costs to get ethanol to Alaska.  Mr. Gatto said, "In terms of the              
cost of landing a product outside the state of Alaska the                      
manufactured cost leaving that area where it is made is about $1.20            
a gallon."                                                                     
Number 2223                                                                    
MR. GATTO stated that ethanol is a petroleum product, however, its             
raw material base has nothing to do with the petroleum markets.  He            
stated that the volatility and the problems that can happen within             
a specific environment could effect the end product.  For example,             
18 months ago grain prices were at there highest, corn was up to $5            
a bushel therefore, the ethanol price would have to go up as well.             
He stated that typically the consumer is the one who would pay.                
Number 2350                                                                    
MR. GATTO stated that the significance of BCI's technology is that             
BCI is utilizing materials that are wastes.  He continued that in              
most cases people pay BCI to get rid of the wastes.  For example,              
when Ketchikan pulp mill was in operation they generated sludge,               
BCI would provide the environmental benefit to take that material              
out and turn it into ethanol at 78 cents per gallon.  He stated                
that is compared to the import price of $1.20 per gallon plus                  
transportation fees to get the product to Alaska.  He reiterated               
that the 8 cent credit is imperative to maintain the current                   
industry and infrastructure to allow BCI to come forward.  He                  
asserted that ethanol will be blended in Alaska, it is just a                  
matter of what is the better way.                                              
Number 2515                                                                    
REPRESENTATIVE COWDERY asked if automobiles could run on the                   
Number 2525                                                                    
MR. GATTO replied that a lot of people would say yes.  He stated               
that in Brazil it is being done.  He stated that the real question             
is, "Are there any issues in Alaska that may alter that?"  There is            
a major push in car manufactures to create vehicles called E-85                
cars.  These cars run on 85 percent ethanol and 15 percent                     
gasoline.  He stated that these cars have proven to be acceptable              
and cost the same as all gasoline vehicles.                                    
Number 2625                                                                    
MR. GATTO asserted that there is an opportunity to take advantage              
of an existing market presence that has been created by the federal            
government and, at the same time, have a better, cleaner burning               
fuel.  He stated that the opportunity is to make the process                   
indigenous which would create jobs.                                            
Number 2733                                                                    
REPRESENTATIVE HUDSON asked where the market would be for the 10               
million gallons that could be produced in Ketchikan.                           
Number 2751                                                                    
MR. GATTO replied that it is a based on the assumption that the                
Tongass Land Management Plan comes in at a level that is indicative            
of BCI's ability to be there.  He stated that would be at 300                  
million board feet, not at 80 million board feet which would impact            
BCI's ability to garner waste from that region.  He stated that                
BCI's process provides an opportunity to generate roughly 85 to 100            
gallons per ton of bone dry material.  He said, "The Tongass Forest            
at 100 percent value of 300 million board feet, the amount of waste            
material that is generated in the corollary could be tremendous in             
terms of the alcohol production potential."  He stated that the                
export potential is huge, there is a company in Seattle and                    
Portland called TOSCO Corporation which blends ethanol, most of                
their product coming from the mid-west.  He reiterated the export              
opportunity for Alaska.  He stated that the market opportunity in              
the state for ethanol is quantified by the total gasoline pool.  He            
said, "If the total gasoline pool is 116 million gallons and you               
can only blend 10 percent, well then you understand, the credit can            
only be so much in order to achieve the gain.  So it is                        
quantifiable."  Mr. Gatto stated that if the Tongass Land                      
Management Plan is favorable it would provide export opportunities.            
Japan imports almost all of their petroleum needs.                             
Number 2944                                                                    
REPRESENTATIVE COWDERY stated that in addition to Japan; Korea and             
Taiwan have major pollution problems and would therefore have a                
potential market for the product.                                              
Number 3015                                                                    
MR. GATTO stated that he agreed.  He explained that there was a                
World Bank study that discussed that Indonesia and China will                  
consume as much petroleum as the United States does.  He reiterated            
that utilizing an indigenous renewable source of energy provides an            
opportunity to limit imports to the United States, in addition to              
being implicit in terms of air quality.  He stated that it will                
create significant air quality benefits as a result.  He stated                
that he understands that it appears that it is taxing the roles                
today but the net effect will be the offset of costs that otherwise            
will have to be deployed somewhere to meet those air quality                   
Number 3145                                                                    
REPRESENTATIVE COWDERY stated he supports this concept.                        
Number 3235                                                                    
ROBERT LOESCHER, Executive Vice President, Natural Resources                   
Division, Sealaska Corporation, read the following statement into              
the record:                                                                    
"I'm pleased to appear today to lend Sealaska's enthusiastic                   
support for HB 263.  As the state's general motor fuel tax                     
exemption for ethanol based fuel appears destined for repeal, HB
263 recognizes that there remain compelling public policy reasons              
for retaining a more targeted exemption for wood based ethanol.                
With this bill, the Alaska Legislature may help unlock one door to             
the revitalization of Alaska's timber industry.  As Alaska's                   
largest private timber owner, Sealaska supports that initiative.               
"With the loss of Southeast Alaska's two pulp mills, the market for            
the lower-end of Alaska's forest products has declined                         
considerably.  At the same time, timber owners in Southcentral and             
Interior Alaska face the challenge of marketing marginal timber                
infested by bark beetles.  On a statewide basis, then, Alaskans are            
challenged by the need to find and encourage a reliable long term              
market for a considerable portion of the state's timber inventory.             
"The use of lower-end wood products to manufacture ethanol is a                
potential answer to that challenge and ethanol manufacturing would             
aid our forest industry in a different way as well.  The already               
marginal economics of instate wood processing are driven even lower            
by the costly burden of disposing of sawdust and other wood wastes             
from saw mill operations.  Indeed, Sealaska has estimated that                 
opening a new sawmill in Southeast Alaska would carry with it the              
need to invest over $5 million in wood waste disposal facilities.              
Right now Mr. Chairman we have been at the benefit of Alaska                   
Department of Environmental Conservation and local municipalities              
who have been taking our wood waste and creating golf courses but              
we are going to run out of areas to create golf courses. And with              
the two current options for wood waste disposal, that is either                
incineration or land filling being disfavored by regulators, the               
problem of solid waste disposal becomes a legal, as well as                    
economic disincentive.                                                         
"Legislation that offers a targeted tax incentive to: (1) create a             
market for lower end forest products; and (2) turn costly solid                
waste into profitable feed stock, would represent a concrete,                  
creative and pro-active response to the ills that have befallen                
Alaska's forest products industry.                                             
"I cannot tell you, sitting here, that an exemption from an 8 cent             
per gallon tax will transform wood based ethanol production from a             
concept into reality.  The truth of the matter is that less than               
one-fifth of 1 percent of America's total ethanol production is                
currently attributable to wood.  We are dealing here with a                    
concept, an exciting possibility and not a reality.  But as Ms.                
Megan Smith of the National Biofuels Institute told the House                  
Resources Committee on February 20th, some of our nation's most                
respected biofuels experts including those at the U.S. Department              
of Energy's National Renewable Energy Lab, are sufficiently                    
encouraged by the prospect to have at least begun exploring this               
technology's feasibility.                                                      
"Like any exciting new technology, the promise of this one depends             
on the willingness of good people to devote the time and money                 
necessary to try, test and develop.  And that, in turn depends on              
the existence of a favorable economic climate, which is what HB 263            
would help create.                                                             
"And it would do so, I would add, at little cost.  If the                      
legislation fails its purpose, it would cost nothing, for no wood              
based ethanol plant would exist to claim its exemption.  And if it             
succeeds too well, spawning a healthy new industry that needs no               
further help, this legislature can take due credit for its birth,              
while future legislatures can amend the law to prevent excesses.               
"But succeed or fail, HB 263 would signal to all Alaskans that the             
Alaska Legislature has done what it could to aid a beleaguered                 
industry.  And that, I think, may ultimately prove both the finest             
virtue of this legislation."                                                   
Number 3717                                                                    
MR. LOESCHER stated that Sealaska Corporation supports HB 263.                 
Sealaska Corporation has been committed to looking at reinvestment             
in the timber industry.  He stated that the corporation owns 3                 
billion board feet of private timber and inventory and has been                
studying this technology for about a year.                                     
Number 3758                                                                    
ALLYN HAYES, Representative, Ketchikan Pulp Company, testified via             
teleconference from Ketchikan in support of HB 263.  He stated that            
Ketchikan Pulp Company is committed to a redevelopment plan and has            
been looking for smaller user tenants, an ethanol possibility would            
be a major user of some of the assets of Ketchikan Pulp Company.               
He stated that they have engaged redevelopment experts in the                  
Pacific Northwest, to look at the buildings that would be useable              
for smaller tenants.  He continued that one of the major buildings             
that would be the logical area for an ethanol plant, is scheduled              
for demolishing prior to the end of the year.  Mr. Hayes explained             
that time is an important factor because the Tongass Land                      
Management Plan will result in decisions as to what assets that                
should be kept.                                                                
Number 4133                                                                    
CHAIRMAN WILLIAMS asked if was at the end of the year that the                 
demolition would occur.                                                        
Number 4145                                                                    
MR. HAYES stated that the goal is to have the central pulp                     
preparations building down by the end of the year or at least by               
next spring because this facility needs to be heated in order to be            
Number 4231                                                                    
CHAIRMAN WILLIAMS asked what the legislature could do to help                  
Ketchikan Pulp Company.                                                        
Number 4239                                                                    
MR. HAYES replied that if an outside interest is interested in the             
Ketchikan Pulp Company it would lend itself to trigger the decision            
that would hold off the demolition of some areas.                              
Number 4350                                                                    
CHAIRMAN WILLIAMS indicated that Representative Gene Therriault was            
in attendance.                                                                 
Number 4353                                                                    
JACK PHELPS, Executive Director, Alaska Forest Association,                    
testified via teleconference from Ketchikan that it is a genuine               
possibility to not only recover some of the jobs lost, but also to             
address the problem of low-end wood and other waste materials,                 
particularly sawdust.  He stated that the state should not hinder              
any new investments in Southeast Alaska that would help alleviate              
the communities economic problems.  He stated that the incentive               
for the use of ethanol in the state is a factor for BCI to come to             
Alaska and the loss of that incentive may not destroy the viability            
of the project but it would remove one of the main attractions for             
doing it.  He stated that HB 263 would restore that incentive and              
it is important for this door to be kept open.  He stated that he              
encourages the committee to move HB 263 forward.                               
Number 4621                                                                    
REPRESENTATIVE HUDSON stated that at this point the committee does             
not have the committee substitute before them.  He stated he would             
like to move to adopt CSHB 263(TRA), Version B.                                
Number 4640                                                                    
CHAIRMAN WILLIAMS asked if there was an objection.  Hearing none,              
CSHB 263(TRA), Version B, was adopted.                                         
TAPE 97-26, SIDE B                                                             
Number 0017                                                                    
REPRESENTATIVE HUDSON moved and asked unanimous consent to pass                
CSHB 263(TRA) out of committee with individual recommendations and             
the attached fiscal note.                                                      
Number 0053                                                                    
CHAIRMAN WILLIAMS asked if there was an objection.  Hearing none,              
CSHB 263(TRA) was moved out of the House Transportation Standing               

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