Legislature(2023 - 2024)ADAMS 519
04/18/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB49 | |
| HB50 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 49 | TELECONFERENCED | |
| += | HB 50 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 18, 2023
1:35 p.m.
1:35:39 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:35 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Neal Foster, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
John Crowther, Deputy Commissioner, Department of Natural
Resources; Ryan Fitzpatrick, Commercial Analyst, Division
of Oil and Gas, Department of Natural Resources.
PRESENT VIA TELECONFERENCE
Kurt Krapfl, Director of Forestry, American Carbon
Registry; Rena Miller, Special Assistant, Commissioner's
Office, Department of Natural Resources.
SUMMARY
HB 49 CARBON OFFSET PROGRAM ON STATE LAND
HB 49 was HEARD and HELD in committee for further
consideration.
HB 50 CARBON STORAGE
HB 50 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the meeting agenda.
HOUSE BILL NO. 49
"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."
1:36:52 PM
KURT KRAPFL, DIRECTOR OF FORESTRY, AMERICAN CARBON REGISTRY
(via teleconference), relayed that the American Carbon
Registry (ACR). He explained that ACR was a carbon offset
registry and issued credits that could be used in voluntary
and compliance carbon offset markets. He provided
information about his education and professional experience
in the carbon market. He shared that he had reviewed
projects throughout the U.S. and Canada and had helped in
developing ACR's carbon offset methodologies. He was also
responsible for ACR's portfolio management and strategic
direction.
1:38:37 PM
Mr. Krapfl provided a PowerPoint presentation titled "The
Role of Forest Carbon Credits in Alaska's Forest Management
and Carbon Reduction Strategies"(copy on file). He began on
slide 2 and detailed that ACR was a carbon offset registry
founded in 1996 as the first private and voluntary
greenhouse gas registry in the world. He elaborated that
ACR was a subsidiary of a larger nonprofit organization
called Winrock International. Winrock International was
based in Little Rock, Arkansas and did community
development and sustainability projects nationally and
worldwide. He explained that ACR operated in the compliance
and voluntary carbon markets. In 2012, ACR was approved as
a California Offset Project Registry under California's
Cap-and-Trade program and was one of only three registries
approved. In 2020, ACR was approved by the International
Civil Aviation Organization (ICAO) to supply offsets to the
airline industry. In 2023, ACR was approved by the
Washington State Offset Project Registry for its emerging
Cap-and-Trade program.
Mr. Krapfl continued to review slide 2 and reported that
the ACR team had over 250 years of collective market
experience:
o Forestry team consisting of six (3 PhD and 3 MS)
technical and policy experts
o 70+ Compliance forestry and >130 Voluntary
forestry projects registered
Mr. Krapfl detailed that ACR had over 200 projects that
spanned compliance and voluntary carbon markets in its
forestry portfolio alone.
1:40:55 PM
Mr. Krapfl turned to slide 3 and discussed the carbon
market. He explained that the point was that rapid
decarbonization provided monetary incentive for meeting
goals of the Paris Agreement targets. He detailed that
carbon offsets themselves were not a silver bullet to
addressing climate change. He explained that ACR believed
the first step was decarbonizing the economy and carbon
credits were to be used to offset residual emissions that
could not be directly out of the supply chain initially or
over time. In the past years, there had been a rapid
expansion in the voluntary carbon market (the carbon market
driven by corporate actions and environmental
consciousness).
Mr. Krapfl explained the voluntary carbon market included a
lot of net zero and climate neutral targets. Over 2,000
companies engaged in the voluntary carbon market to date,
and it had grown to a $2 billion industry. There were
projections that the market would grow exponentially in the
coming years. The compliance market included cap and trade
programs where emission sources were capped, and allowances
or offsets were issued to certain participating entities.
Mr. Krapfl detailed that the entities were then
incentivized to decarbonize. He explained that entities
that could decarbonize quickly were rewarded with the
ability to trade the offsets to other entities in areas
that were harder or took longer to decarbonize. He stated
that the voluntary carbon market had emerged as a very
important means of the efforts, especially in the U.S., to
meet the commitments under the Paris Agreement. He
highlighted the aviation industry under industry regulation
related to sustainable aviation and fuels.
Co-Chair Foster noted that Co-Chair Johnson had joined the
meeting.
1:44:11 PM
Mr. Krapfl addressed slide 4 titled "Nature-Based
Solutions." He highlighted examples of project types under
ACR's portfolio that he thought Alaska may be interested in
such as improved forest management, which involved
extending rotation lengths and committing to increase
carbon stocks compared to an alternate legal and plausible
baseline scenario. Other project types such as
afforestation/reforestation would be incredibly important
nature-based solutions to climate change. The projects
would involve planting trees on marginal or degraded lands
that would not be expected to regenerate to forest. The
projects were credited for forest carbon accrual and
included tree growth and biomass accrual. Avoided
conversion was a third project type that included avoided
conversion of forest to non-forest (e.g., agriculture,
mining, residential). The project type involved appraisal
to the highest and best use for the property compared to
its use in forestry and would involve putting a
conservation easement on a property to make sure
[development] did not happen. He noted that carbon credits
were unique and important in incentivizing climate action
and attaching monetary value to forest conservation,
ecosystem benefits, and amenity values. He explained that
in many other scenarios the only monetary value was the
timber.
1:46:42 PM
Mr. Krapfl turned to slide 5 titled "ACR land sector
portfolio." He relayed that there were 16 methodologies
across the ACR portfolio including [but not limited to]
three improved forest management (IFM) methodologies, the
U.S. forest methodology, the Canadian IFM methodology, an
IFM methodology for small non-industrial private forest
(NIPF) land, afforestation/reforestation, avoided
conversion of forestland, and two wetlands methodologies.
He stated that ACR incorporated numerous land ownership
classes including industrial, land trusts, municipal and
state lands, small landowners, and tribes. He noted there
was opportunity for a variety of different land ownership
classes in Alaska.
Mr. Krapfl continued reviewing slide 5. He relayed that ACR
had a multitude of projects and most of those enrolled in
its program in the land sector were improved forest
management, but there were other opportunities as well. He
highlighted that ACR's forest credits issued had taken off,
especially around 2015/2016 when the California Resources
Board started ramping up its enrollment. He reported that
ACR's credits issued continued to grow and growth was
expected to be exponential in the coming years.
Mr. Krapfl moved to slide 6 titled "Project Development
Process." The process was made up of four phases including
project feasibility, monitoring/reporting,
validation/verification, and credit issuance. He discussed
project feasibility considerations including eligibility
and costs, the commitment period (40 years under ACR), and
potential buyers. He relayed that the first step of the
monitoring/reporting phase was establishing and maintaining
a forest carbon inventory, which included detailed timber
cruising that led to quantifying forest carbon stocks and
reporting on a periodic basis to the American Carbon
Registry.
Mr. Krapfl moved to the third phase, which was independent
third-party validation and verification of carbon credit
claims. He explained that validation was confirmation of
eligibility for the program and verification was on a five-
year basis at minimum and could be done more frequently if
desired. He elaborated that every five years a site visit
field-based verification was required where trees were
measured. Desk-based verification could be done during the
interim if a party was looking for more frequent carbon
offset issuances. He highlighted the fourth phase, the
issuance of serialized carbon offset credits. The credits
were tracked and retired in ACR's secure registry platform.
1:51:22 PM
Mr. Krapfl relayed that the next section of the
presentation would address tenets of the carbon market
needed for demonstrating quality. He advanced to slide 7
titled "Additionality." The first consideration was what
would happen in the absence of the project and whether the
project was causing real climate benefits. He detailed that
ACR used a three-pronged additionality test that considered
regulatory surplus, common practice (e.g., typical
harvesting rates on nearby properties, and what had been
done historically), and implementation barriers (the
forestry analysis typically financial, but could be
technological or institutional). He elaborated on
implementation barriers and explained there was a high
value of timber and in order to sequester carbon it was
necessary incentivize a change in forest management.
1:53:43 PM
Mr. Krapfl turned to slide 8 titled "IFM project example."
He believed the State of Alaska would primarily be most
interested in the IFM project type and he would review the
crediting for the particular project type. The slide showed
a graph of an IFM project example. He pointed to the
initial carbon stocks where the yellow line [reflecting the
project] and the red line [reflecting the baseline] merged
at time zero, which represented the carbon stocks at the
initial forest inventory. He explained that the red line
was a counterfactual scenario of what could happen in the
absence of a project driven by regulatory requirements,
accessibility, operability, distance to mills, and mill
capacity. He noted there were many considerations in the
development of the baseline scenario. He relayed that the
baseline was also driven by net present value using an
appropriate discount rate by ownership type. For state
lands the net present value discount rate would be 5
percent. The project line shown in yellow reflected how the
forests were being managed. He explained that ACR's program
required a participating entity to continually grow its
forest carbon stocks above their previously issued levels.
Participants also had to re-measure their forests and
verify the carbon stocks at least once every five years.
Representative Josephson looked at slide 8 and noted his
question pertained to additionality. He remarked there was
a bill on the House floor the following day, which would
move from 5-year timber sales to 10-year to 20-year sales
and would liberalize some forest practices for certain
trees deemed salvage trees at the discretion of the
commissioner. He reasoned that if contracts were made
pursuant to the bill, presumably the contract could not be
undone. He asked if Mr. Krapfl had experienced a situation
where two different concepts in a state were working in
opposing directions. He asked how to meld two concepts that
were currently dynamic and in flux.
Mr. Krapfl answered that he did not know about the
particular bill Representative Josephson was referring to.
He stated that if the bill salvaged timber, ACR always
considered legal restraints in its baseline and if other
legal constraints came into effect during the recording
period, the baseline would need to be updated. It was
possible the baseline may need to be updated if
contradicting legal requirements came into place during the
recording period or before.
1:58:19 PM
Mr. Krapfl advanced to slide 9 titled "Permanence." He
explained that permanence was the concept that the carbon
stored, because of the project's activity, needed a
contractual and legally binding term guaranteeing the
carbon would not be released back into the atmosphere. The
ACR required a 40-year commitment to retain and increase
carbon stocks, which coincided with climate targets for
decarbonizing by midcentury and for nature-based solutions
to climate change aligned with Paris Agreement targets. He
explained that during that time it was necessary to
continually monitor, report, and verify to ensure
permanence.
Mr. Krapfl detailed that any nature-based solution such as
forest would have the possibility for the release of carbon
due to natural or landowner disturbances. There were
separate, specific ways to treat risk mitigation. He
expounded that ACR required a percentage to be contributed
into a shared buffer pool for every issuance of carbon
offsets due to nature-based solutions. He explained that
the buffer pool acted as an insurance mechanism. He
furthered that unintentional reversals could include
wildfire, flood, wind events, and insect/disease, which
were all out of control of the project component and ACR
would not expect the participant to be liable for the
losses. He detailed that because all projects contributed
and not all projects were expected to use the buffer, ACR
felt it had a robust risk mitigation mechanism to handle
unintentional reversals. If a substantial number of stocks
were lost, ACR would cover the loss with funds from the
buffer pool. He explained a scenario involving an
intentional reversal. For example, if a project harvested
more than annual growth such that the carbon stocks
decreased below previously issued levels, they would be
covered by the project proponent out of pocket.
Representative Stapp stated his understanding that the
biggest benefit for Alaska would be forestry maintenance,
something that was not currently done in many of Alaska's
forests. He referenced risk mitigation, buffer
contributions, and mitigation of the long-term catastrophic
effects on carbon offsets posed by wildfires. He asked if
it was true that practicing good forest management reduced
the potential risk and liability to losses. He asked if ACR
would consider it good or bad practice.
Mr. Krapfl replied that ACR did consider it good forest
practice. He explained that ACR had a tool that was based
on project location that considered fuels management, flood
risk, flammability of the forest, etcetera. He explained
that a participant's contribution was based on their
project attributes. For example, certain things like fuels
management could reduce a participant's contribution. The
program incentivized good practices.
2:03:38 PM
Mr. Krapfl turned to slide 10 titled "Quantification." He
explained that each of ACR's methodologies had specific
ways of quantifying the carbon in forests. The quantified
carbon benefit is the carbon stock difference between the
project and baseline scenarios. He noted there were some
reductions required for sound carbon accounting. He
detailed that the gross number of credits or ERTs [emission
reduction tons] required a deduction for physical
uncertainty where warranted. He explained that ACR required
that forest inventory had a statistical accuracy and
precision level of plus or minus 10 percent of the 90
percent confidence interval. He elaborated it was driven by
the number of forest carbon plots put out on the land and
the size of the land. A project with more plots and a
uniform forest would have a low sample error and could
avoid the deduction; however, ACR required a deduction for
projects with higher statistical uncertainty.
Mr. Krapfl addressed the concept of carbon leakage and
explained that if a forest carbon project was reducing the
amount of harvest in a project area, there was the
possibility that neighbors or market forces may be driven
to increase more harvesting in their areas to compensate
for the reduction in wood products. He explained that a
decrease in the amount of wood products in the market was
likely to increase prices; therefore, it may incentivize
harvesting elsewhere. The ACR used a 30 percent crediting
deduction for leakage, based upon academic literature.
There was another option to directly quantify leakage
although it was an abstract concept that was difficult, but
possible, to do in the field.
Mr. Krapfl continued to discuss slide 10. He explained that
the buffer contribution was driven by a project's
attributes and typically ranged from 15 to 22 percent for
forestry projects (with an average of about 18 percent).
The credits went into the buffer and ACR did not make any
profits off of the buffer. The net ERTs or credits issued
to a project were calculated by subtracting the buffer
contribution from the gross ERTs.
2:07:38 PM
Representative Hannan asked what ERT stood for.
Mr. Krapfl replied that ERT stood for emission reduction
tons, which was one metric ton of carbon. He turned to
slide 11 titled "3rd Party Verification." He relayed that
third-party verification was a key step for any reputable
crediting program. He explained that third-party verifiers
had to be approved by the international standards
organization. Site visit verifications were conducted at
least every five years where trees were measured and
compared to the project developer's measurements to ensure
measurements were done correctly. Full quantification
checks were conducted, which entailed checking tree level
calculations that went into quantifying the amount of
carbon in the forest. He elaborated that the third party
did its own independent full quantification and compared it
to the project developer. The third party conducted a
materiality check. He explained that the difference between
the project developer's calculation and the verifier's
calculation could not have a difference of more than 5
percent. The third party also fixed all of the correctable
errors. He noted that typically the differences were only
related to rounding.
Mr. Krapfl continued to address slide 11. He relayed that
successful verification was followed by an ACR review,
which led to serialized offset credit issuance (the
registry tracked credits from issuance through retirement).
2:10:09 PM
Mr. Krapfl discussed the role of registries on slide 12. To
safeguard the environmental and financial integrity of the
carbon market. He detailed that registries set the rules
for what constituted high quality carbon offsets.
Additionally, registries reviewed projects to ensure they
complied with requirements and developed scientific
methodologies to quantify the amount of forest carbon
sequestered based on the project actions. Each of the
methodologies had a public comment period where anyone
could participate in the scientific process. He relayed
that ACR received many comments and responded to each of
the comments and revised methodology as needed. The work
was followed by a blind scientific peer review process that
was at the same level of publishing as a high quality
academic journal. He elaborated there were typically three
or four experts in the academic and industry space that
weighed in and ACR did not know who the individuals were
during or after the process. The process was administered
independently of the authors and all of the issues needed
to be closed out before any of ACR's methodologies could be
published.
Mr. Krapfl reiterated that registries had a safeguarding
and quality assurance role. He detailed that ACR had secure
registry software that issued credits that could be tracked
throughout their life. He relayed that ACR was a legally
registered nonprofit under the Internal Revenue Service
(IRS). The registry had a nominal annual fee for each
project listed under its program and there was a 17 cent
per ton activation and retirement fee. He shared that
critics had suggested in the past that if a registry was
charging on a per ton basis, it may have incentive to over
credit. He underscored that was not the case. He explained
that ACR did not charge fees when credits were issued; it
charged fees when credits were activated and used for
transfer retirement to meet compliance or a climate
obligation. The registry was not incentivized and did not
earn any revenue on credits if they were not considered the
highest integrity and they were not used. He explained that
it mitigated many of the concerns and it aligned with ACR's
effort of ensuring quality of every credit and delivering
real climate impact.
2:14:06 PM
Co-Chair Johnson stated she was trying to wrap her head
around ACR's clients and where the money came from. She
detailed her understanding that ACR was trying to make a
match between people offsetting carbon and people producing
carbon through a third-party verified system. She asked who
would be setting up the system where there was an actual
monetary value. She wondered if clients were governments,
countries, banks, and venture capitalists.
Mr. Krapfl asked for verification that Co-Chair Johnson was
wondering who would use the credits.
Co-Chair Johnson stated there had to be an entity with
money that would provide money to a project that was carbon
neutral and that wanted to ensure the project was verified
through a registry. She wondered who the entities were that
wanted people to use a registry versus something less
reliable. She wondered if the entities were venture
capitalists, states, other countries.
Mr. Krapfl replied that ACR's reputation had been built by
over 30 years in the carbon market. He detailed that ACR
was one of the three carbon offset registries chosen to
work in the California Cap-and-Trade program and similarly
in the Washington State program and the International Civil
Aviation Organization program. He explained it was a very
comprehensive assessment of program requirements in order
to get approved. There were few emerging evaluation
networks currently being established including the
Integrity Council for the Voluntary Carbon Markets that
addressed what constituted a high quality carbon offset and
what program requirements were necessary across the board
to ensure high integrity. He explained there were only a
handful of carbon registries, including ACR, that met the
requirements. He believed Co-Chair Johnson's question was
in regard to standardization and what represented a high
quality carbon offset. He referenced ACR's track record and
principals of permanence and additionality, free of
leakage, and requiring field verification, which were all
necessary in order to meet the level of integrity.
2:19:32 PM
Co-Chair Johnson clarified that she was trying to get a
sense of who or what entity was registered as carbon
neutral and put the information on a bank loan application
or request for venture capital funding. She assumed the
entities were applying for money somehow and the registry
was there to verify the integrity of the carbon and
offsets. She asked who the entities were. She reiterated
her previous question.
Mr. Krapfl replied that the end users were all of the above
mentioned by Co-Chair Johnson including banks, regulated
entities under a compliance system, technology companies,
etcetera. He elaborated that many of the largest companies
in the U.S. had climate obligations they used the credits
for. There were a variety of people involved including
landowners, project developers, independent third-party
verifiers, and registry. He relayed that ACR did not get
involved in any project development; it merely set the
requirements and ensured projects met them. He explained
that in the voluntary carbon market people could trust that
credits had gone through the process because of ACR's
accolades and due to its rigorous processes.
2:22:16 PM
Co-Chair Johnson remarked that ACR had been involved with
carbon credits for quite some time. She asked if ACR had
originated from a United Nations climate accord or climate
goals established by a state. She wondered how the market
originated and about the registries providing quality
assurance. She wondered what it was measured against.
Mr. Krapfl replied that up until the Paris Agreement there
had not been any regulated caps for industry and their
carbon obligations in the U.S. other than California and
the State of Washington that were establishing cap-and-
trade programs, much of the commitments were voluntary and
driven by consumer demand and industry wanting to do what
it could to help with climate mitigation. He elaborated
that a regulated state like California had very specific
criteria that carbon offset registries needed to meet. He
noted that meeting the criteria was not easy and required a
lot of certification and insurance. He stated it was the
bar that needed to be met in regulated spaces.
2:24:38 PM
Representative Galvin noted the meeting agenda had listed
the Alaskan Carbon Registry, which she assumed was a typo
and was meant to be the American Carbon Registry. She
considered ARC compared to Anew. She appreciated the
committee had learned about the history of what the model
looked like and was meant to do. She was trying to
articulate the difference between the two presentations the
committee had heard [by ARC and Anew]. She wondered if the
two organizations were offering the same services or if the
registry was an entirely different piece with a shared
model, which explained the reason for similar messages. She
looked at slide 12 and asked for a sense of the business
plan. She wondered about the cost of each of the components
and the revenue.
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, replied that the Department of Natural Resources
(DNR) was working to present some information about the
costs of project development and associated revenues in
addition to how it interrelated to the fiscal notes
attached to the bill. He would follow up with the
information. The department viewed ACR as a third-party
verifier of projects, while Anew was a project developer.
The state and Anew would work together to propose a project
and register it through a protocol maintained by an entity
like ACR. He expounded that buyers would see that the
credits were registered on a respected and known registry,
which would have a degree of certainty about their terms
and quality.
2:28:35 PM
Representative Galvin looked at slide 12 and stated her
understanding the committee was currently hearing from a
registry and in a previous meeting on the bill there had
been a presentation from a potential project developer.
Mr. Crowther nodded in agreement.
Representative Galvin asked for clarification on the name
of the organization currently presenting. She wondered if
the reference to the Alaskan Carbon Registry had been
accidental or intentional.
Mr. Crowther replied that they were currently hearing from
the American Carbon Registry; there was not an Alaskan
Carbon Registry. He thought it may be a typo.
Representative Coulombe had a question about the value of
carbon credits. She looked at slide 4 showing solutions
including improved forest management,
afforestation/reforestation, and avoided conversion. She
asked if the three items listed on the slide were all equal
in value. For example, she wondered if focusing on credits
related to improved forest management would be just as
valuable as the other two.
Mr. Krapfl replied that the credits varied in price as set
by the market. He detailed there were two different types
of improved forest management credits including a
conservation credit aimed at avoiding deforestation, which
was related to the baseline, and a removals credit related
to growing the trees larger. He relayed that ACR viewed the
climate benefit as the same, but the two types were
distinguished in its registry for transparency. He
explained that generally the removal of credits received a
bit higher price than the avoided emissions. He elaborated
that some of the pricing was based on who was buying the
credit and what their interests were (e.g., if a credit fit
a purchaser's geography and whether the purchaser liked the
story behind a project). He detailed that avoided emissions
may be going for $10 to $20 per ton in the states
currently, whereas removal may be going for $20 to $30 per
ton.
Mr. Krapfl stated that reforestation projects were
generally a bit more difficult to bring to market because
of the time lag between planting a tree and its growth;
however, it was very important and something that buyers
recognized, which meant the credits were on the high end of
the removals crediting spectrum. He stated that avoided
conversion was an impactful project type (avoided
conversion of forest to non-forest) and resulted in many
avoided emissions and removals credits as well. He
communicated that the market determined the pricing and it
could vary widely.
2:33:10 PM
Representative Coulombe looked at slide 11 related to third
party verification. She listed the process including a site
visit every five years, a third-party qualification check,
and an ACR review. She asked how many times the site had to
be visited to receive and maintain the credit.
Mr. Krapfl replied that the site visit requirement was a
minimum of once every five years, which came out to eight
visits over the life of a project with a 40-year term. He
explained that desk-based verifications could be done more
frequently if desired. He detailed that the desk-based
verification was more of a modeling exercise, whereas
measuring the trees out in the field was a larger endeavor.
Representative Coulombe clarified her question. She asked
if ACR had to verify and do its own review independent of
the site visit occurring every five years.
Mr. Krapfl clarified that ACR was a standard setting body
and did not verify carbon claims. There were independent
third-party verifiers that conducted the verifications
according to ACR's program. He elaborated that ACR reviewed
project detail requirements and conducted high-level
quantification checks prior to issuing any credits. He
relayed that ACR tried to stay separate from individuals in
the field for impartiality.
2:36:09 PM
Co-Chair Foster discussed the meeting timeframe.
Representative Hannan directed a question to the
department. She noted that in a prior discussion on HB 50,
the department shared that it started to look at the
concept after industry had highlighted its interest in the
area. She asked where the impetus for HB 49 came from. She
asked if there were industry partners or people seeking
forestry carbon registry goals in Alaska.
Mr. Crowther answered that generally speaking there was an
increasing awareness and interest in the types of projects.
He relayed that Alaska Native Corporations (ANCs) had been
pursuing the projects. Additionally, there were projects in
forest management in the country and worldwide. The primary
impetus for the legislation was the increased awareness as
opposed to discreet projects being proposed. He added that
a variety of people had come to the state with a variety of
carbon management related interest in Alaska because of the
scope of its resources above and below ground. He noted
that the occurrence of the projects through ANCs was the
most discreet precipitating event for the state's
investigation of the topic.
Representative Ortiz looked at nature-based solutions on
slide 4. He pointed to the last statement on the slide:
"Provide important contributions to climate change." He
asked if there was a climate change measurement process
that took place and considered things like temperature
change. He clarified that he did not doubt it was
happening. He asked if it was actually possible to measure
providing important contributions to climate change.
Mr. Crowther explained the context of the phrase cited by
Representative Ortiz on slide 4. He clarified that the
projects were identified as carbon reduction in the
atmosphere. He stated that carbon dioxide in the atmosphere
was attributed to being a driver of climate change and
reducing or managing it was associated with contributing to
limiting climate change.
Representative Ortiz asked for verification there was a way
to measure how much carbon was being removed from the
atmosphere by using a baseline year and measuring five
years later.
2:39:36 PM
Mr. Crowther replied that the measurement done through the
projects was more associated with the amount of carbon in
the biomass as opposed to measurements of the atmosphere.
He noted it was very difficult to assess an incremental
change on a global scale. It was much more manageable to
measure whether a specific plot of land had more trees than
it did 5, 10, and 20 years ago; therefore, there was more
carbon dioxide sequestered in the area. The intent of the
program was incentivizing carbon in the landscape as
opposed to the atmosphere.
Representative Galvin asked if Mr. Krapfl played a role in
drafting the bill. She wondered about the financial returns
for the state.
Mr. Krapfl replied that he had no part in drafting the
bill. He explained that ACR issued credits, but the actual
returns for Alaska would be better directed to Anew or
someone similar.
Co-Chair Foster believed the intent of the next hearing on
the bill was to address feasibility questions and the
numbers.
Mr. Crowther replied the intent was to present more revenue
information at the next hearing on the bill.
Representative Galvin asked if she should wait to ask
questions pertaining to the wording of the bill.
Co-Chair Foster asked for the question on the bill.
Representative Galvin referenced language on page 2, line 4
of the bill: "When competitive interest has been
demonstrated or the commissioner determines that it is in
the state's best interest." She thought the two things
seemed to be the same thing and wondered about the word
"or."
2:42:57 PM
Mr. Crowther deferred to a colleague.
RENA MILLER, SPECIAL ASSISTANT, COMMISSIONER'S OFFICE,
DEPARTMENT OF NATURAL RESOURCES (via teleconference),
replied that the language referenced by Representative
Galvin was currently in statute. She explained that the
bill would amend the existing provision according to the
bold at the far right of line 2 on the same page.
Representative Galvin referenced statutes included in the
bill and observed there were a lot related to leases. She
assumed the language was relatively similar to oil and gas
leases. She asked if the language was representing the same
business model shown on slide 12 of the presentation. She
stated her understanding that there would be a land lease
where the project manager such as Anew would bid on land
and would then go through a carbon registry. Alternatively,
she wondered if the state would do "this." She was trying
to understand if the third party was needed and if it was
the reason there was leasing language in the bill.
Mr. Crowther believed the intent of the bill was to allow
flexibility for state-managed projects on state-managed
lands potentially with the support of third party
organizations like Anew or to let third party developers
pursue projects with a lease. He stated his understanding
that both of the kinds of projects would potentially
utilize third party registries like ACR to verify and
register credits created by the project.
Representative Galvin stated her understanding that it
would be left wide open depending upon the players coming
to the table (i.e., state entities or another group looking
for carbon offset projects). She observed that under the
legislation the [DNR] commissioner would determine whether
a project was in Alaska's best interest. She believed
carbon offset projects could be independently operated by
an entity other than the state and perhaps in parallel with
state projects.
Mr. Crowther believed Representative Galvin's understanding
was correct; however, there were certain areas of land that
were limited to state projects (e.g., state forest lands).
He noted that the discretion of the commissioner was
expressed through a best interest finding and a public
input process.
2:47:28 PM
Mr. Krapfl continued on slide 13 titled "California Cap &
Trade." He shared that the remaining slides included
portfolio metrics, some in relation to Alaska and some in
terms of state lands. Slide 13 showed metrics on the
California Cap-and-Trade program. He highlighted that
forestry played a large part in California's program with
the remainder in industrial solutions. Forest management
accounted for over 90 percent of the program. He
highlighted that ACR had the leading share in terms of
forestry issuance by registry in the California program.
Mr. Krapfl advanced to slide 14 titled "ACR Voluntary
Portfolio." The ACR voluntary portfolio was split between
forest carbon and a variety of other agricultural and land-
based projects such as wetlands and agriculture, and
industrial projects (e.g., destroying ozone and depleting
gases). Additionally, IFM was also a large part of ACR's
portfolio and was somewhat more evenly distributed between
Canadian IFM reforestation, wetlands, etcetera. He
highlighted that ACR's projects were distributed nationwide
including in Alaska. He detailed that about 4 percent of
its registered projects were in Alaska. Many of its
projects were located in the upper Midwest and along the
Gulf Coast.
2:49:56 PM
Mr. Krapfl turned to slide 15 titled "Other Relevant
Stats." He relayed that ACR currently had 12 state, county,
and municipal projects listed under its registry.
Additionally, ACR had 16 Alaskan projects and 27 tribal or
ANC projects. He detailed that 4 percent of ACR's projects
were registered in Alaska; however, over one-quarter of its
total issuance volumes currently come from Alaska. He
stated there was a big opportunity in Alaska based on its
resources.
Representative Josephson looked at nature-based solutions
on slide 4. He noted that Mr. Krapfl had talked about
conservation credits and secondarily about removal. He
asked if Mr. Krapfl meant the removal of carbon by growing
trees larger.
Mr. Krapfl replied that conservation credits were given for
avoiding emissions to the atmosphere associated with more
intensive harvesting that could be done in the baseline
scenario. He explained that removal of carbon from the
atmosphere entailed growing trees larger, accumulating more
biomass over time. He stated it was similar to reforesting
or planting trees, only it pertained to existing trees that
were accumulating more biomass.
Representative Josephson asked how timber harvesting fit
into slide 4. He observed that the emphasis on slide 4
included extending rotation lengths (leaving trees in the
ground longer), planting new trees, avoided conversion, and
conservation easements. He asked whether the state could do
the other things [listed on the slide] if it wanted to do
some harvesting.
Mr. Krapfl affirmatively. He explained that ACR's projects
did not restrict harvesting from occurring. He elaborated
that for IFM it would reduce the harvest levels and set the
threshold for the amount of timber that could be cut. He
expounded that it may incentivize and provide funds to do
different types of harvesting. For example, converting from
clearcuts to single tree selection. He explained that
forests could be managed and harvested differently than the
state would have done traditionally and the funds from the
carbon could help to do so.
2:53:40 PM
Representative Hannan looked at slide 14 showing that
Alaska was 4 percent of [ACR's] project distribution (the
number of projects nationwide). She turned to slide 15 that
showed Alaska accounted for 34 percent of the volume. She
surmised that the small number of projects reflected a
total carbon value of 34 percent. She assumed the volume
was measured on carbon value and not acreage or anything
else.
Mr. Krapfl replied that slide 14 was based on the number of
projects registered with ACR and slide 15 was issuance
volumes. The slides showed that 4 percent of ACR's projects
were producing a large number of credits.
Representative Hannan looked at other relevant statistics
on slide 15 including 16 Alaskan projects in addition to
[27] tribal/ANC projects and 12 state/county/municipal
projects. She assumed the only projects that were Alaska
specific were the 16 Alaskan projects. She asked if all 16
were either tribal or ANC projects.
Mr. Krapfl answered that there were a total of 16 Alaskan
projects, many of the 16 were tribal or ANC, but some were
privately owned. The remainder of the [27] tribal/ANC
projects were distributed through the continental U.S.
2:56:05 PM
Representative Tomaszewski looked at slide 6 related to
serialized carbon offsets that were tracked and retired in
ACR's secure registry platform. He asked for additional
detail on how the secure registry platform worked and how
carbon offsets were retired.
Mr. Krapfl answered that the registry platform was on a
publicly accessible website showing existing projects. The
website kept records of carbon claims. He explained that
ACR's standards and documents showed what information
needed to be publicly available and what needed to be
private. He characterized the platform as a clearinghouse
of information available for people to view. The website
included issuance volumes, project locations, and a variety
of other project attributes. He explained that ACR issued
credits on a per ton basis and each ton had its own serial
number. The serial number acted as a unique identifier to
enable the credit to be traded and tracked. He explained
that when someone used credit against their climate
commitments it was designated as retired to ensure it could
not be sold or used twice. He relayed that one unit of
carbon dioxide was used once for one climate mitigation
action.
Mr. Crowther thanked Co-Chair Foster and relayed that the
department looked forward to continuing work on the bill.
Mr. Krapfl thanked the committee for the invitation to
present.
Co-Chair Foster noted that the next bill hearing would
include a deeper dive into the fiscal notes and bill.
HB 49 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 50
"An Act relating to the geologic storage of carbon
dioxide; and providing for an effective date."
2:59:22 PM
Co-Chair Foster noted the committee had left off on slide
23 in the last hearing on the bill.
RYAN FITZPATRICK, COMMERCIAL ANALYST, DIVISION OF OIL AND
GAS, DEPARTMENT OF NATURAL RESOURCES, continued a
PowerPoint presentation titled "HB 50 Carbon Capture,
Utilization, and Storage," dated April 11, 2023 (copy on
file). He began on slide 24 titled "Funding Sources." He
provided an overview of the three funding mechanisms in the
bill, which all served different functions. The first was a
regulatory program charge for the Alaska Oil and Gas
Conservation Commission (AOGCC), which was similar to the
regulatory cost recovery fee for oil and gas leases. The
mechanism funded AOGCC operations for its work on Carbon
Capture, Utilization, and Storage (CCUS) projects. The
second was the leasing and licensing of state lands
Department of Natural Resources (DNR) charge, which
included lease rentals, carbon dioxide injection charges,
and revenue sharing agreements between CCUS operators and
DNR. He elaborated that the funds went to the state general
fund with a portion diverted to the Alaska Permanent Fund.
The leasing and licensing of state lands would be the
primary revenue driver for the state.
Mr. Fitzpatrick turned to slide 25 titled "Funding: Closure
Trust Fund" and addressed the last of the three charges,
the carbon storage closure trust fund. He explained that an
injection charge went into a long-term fund to cover
potential long-term liabilities for the state associated
with the management of the carbon dioxide after a site had
been closed and the state took title to the carbon dioxide.
He noted it was a separate charge from the money that went
to the general fund; the funding was kept in a separate
fund to pay for the long-term liabilities.
3:02:17 PM
Mr. Fitzpatrick moved to hypothetical revenue opportunities
on slide 26. He underscored that DNR had developed the
hypothetical scenarios based on potential opportunities. He
clarified that the slides did not indicate the scenarios
would occur or occur in the manner shown. The intent was to
illustrate potential opportunities that Alaska may be able
to take advantage of. The first scenario was a regional
power facility sequestering approximately 250,000 tons of
carbon dioxide per year. The amount was equivalent to many
of the regional power facilities operating in Anchorage and
the Fairbanks area. The second scenario was a North Slope
emitting facility. There were currently several of the
types of facilities operating on the North Slope. He
explained that the scenario involved the retrofit of an
existing facility. The third scenario was a carbon dioxide
import and sequestration facility for carbon dioxide that
did not originate from within the state's borders and could
come into the state most likely through maritime transport
from the Asia Pacific region for sequestration in Alaska.
Mr. Fitzpatrick turned to slide 27 and provided caveats to
the hypothetical revenue opportunities. He stated that not
all carbon dioxide emissions were feasibly captured, but
technology continued to rapidly develop. Capital
expenditures required to retrofit existing facilities may
not be met by existing incentives. For example, the 45Q tax
credit only covered a certain amount of funding and some
capture and sequestration opportunities were more expensive
than the credits may support; therefore, not all
opportunities may come to fruition. He noted the slide also
included a bit more information about the assumptions that
went into the revenue analysis.
3:04:59 PM
Mr. Fitzpatrick turned to slide 28 and provided modeling
detail on the hypothetical revenue opportunities. The slide
showed a couple of different line items for each of the
three hypothetical scenarios [presented on slide 26]. The
first was the exploration license, which was the initial
phase of project development where a company applied to DNR
for an exploration license for a given amount of acreage.
The revenue in early years corresponded to the per acre
license fee. He elaborated that as the project developed
and shifted into a development lease after going through
the AOGCC permitting process. He explained that once the
permit was obtained, the license could be converted into a
lease (a longer-term guarantee). Typically, the acreage
associated with the project was down selected to the
acreage that would be included in the actual project. The
revenue decreased in those years because there was less
acreage under contract at that point. The majority of the
revenue in all three scenarios began at the point where the
project went into operation and carbon dioxide began to be
injected underground. He stated that for all three
scenarios there started to be injection fees, including per
ton injection fees and revenue sharing agreements. The
scenario on slide 28 modeled a $2.50 per ton injection
charge. He noted the slide showed the injection piece
associated with each of the project scenarios.
Mr. Fitzpatrick noted that the North Slope scenario [shown
on slide 28] included one additional revenue source. The
scenario showed a 50/50 split between sequestration and
enhanced oil recovery. He elaborated that some of the
technical experts at the Division of Oil and Gas came up
with a conservative estimate of what that volume of CO2
might be able to recover in terms of additional oil. The
modeling compared the volume of oil to current revenue
sources books in terms of the dollar value of oil to the
state.
3:08:03 PM
Representative Hannan stated when the committee had
previously heard the bill it had been told that a number of
partners had come to DNR to look at the opportunity. She
asked if the opportunity had included all three revenue
opportunity sectors. She wondered if half of the
opportunities were power facilities. She stated that the
only named corporations in the bill packets had been North
Slope operators; therefore, she presumed it was what
industry had come to the state with. She was curious
whether transporters of future carbon sequestration and/or
power facilities were the industry partners.
Mr. Crowther replied they could not speak for individual
companies on their decisions to undertake projects. He
highlighted Usebelli as a fuel provider to power providers
that was very interested in the projects. There was a power
facility affiliate also interested. From the North Slope
perspective, the current operators operating in Prudhoe Bay
were working to understand what the projects would look
like in addition to an Alaska liquid natural gas (LNG)
associated project under evaluation for North Slope
operators. There were countries and companies in the
international market assessing what general sequestration
capacities were in different jurisdictions. The department
had reached out related to what Alaska's geology was like,
what potential opportunities may look like, and what the
framework would look like. He relayed that the scenario
would require the development of technology for shipping
that was not currently present. He thought it was fair to
say that in a general sense and in an Alaska sense all
three of the categories were being looked at by companies
at some level.
3:10:26 PM
Mr. Crowther addressed the bill's fiscal notes. He began
with DNR's zero fiscal note and explained that the
department believed it could handle the program startup
with existing resources. Similarly, the Department of
Environmental Conservation did not have a fiscal note.
Additionally, the Department of Revenue did not have a
fiscal note because the state was still working to assess
the revenue potential based on how project economics
developed. He reviewed the AOGCC fiscal note and explained
that the funds would enable the pursuit of the Class VI
primacy DNR believed was necessary for the program.
Additionally, DNR believed the Environmental Protection
Agency (EPA) had grant funding that would be identified
hopefully as soon as the coming summer that could offset
any costs incurred by the state to pursue primacy.
Ultimately, the department did not expect the state would
have to pay any cost for project standup.
Representative Galvin thought it seemed like a nice pathway
for oil and gas to find a greener way toward development
and potentially a way for the state to get more revenue
from other parts of the world. She wondered how the
department came about the revenue component in terms of the
agreement between the state and oil and gas companies. For
example, a long-term oil and gas lease was typically around
12.5 percent of the price. She understood the topic under
the bill was a little trickier. She highlighted the aim of
maximizing the best for Alaska. She wondered if there was
space for the state to seek more revenue. She did not want
to chase anyone out of the state, but she thought there may
be an opportunity to negotiate the rates. She asked what
DNR had done to study the possibility.
3:13:15 PM
Mr. Crowther referred to slide 26 showing the assumptions
that went into the revenue including the per ton injection
and rental charges. He stated that DNR was seeing in the
market that the projects were very challenged by the cost
of carbon capture. He detailed that it was very expensive
to capture carbon dioxide. He explained that any other
project costs were challenging to fit within the 45Q tax
credit incentive. The legislation gave the [DNR]
commissioner the authority and responsibility to identify
different frameworks to best capture the value for the
state, whether it was a per ton injection charge, rental
fees, or other revenue sharing mechanisms. The department
viewed the legislation as allowing flexibility to seek out
the best deal for the state in different ways to recoup the
revenue. He reiterated that the projects were cost
challenged in some instances. He explained that it was
necessary to take into account that if the state made a lot
of revenue from a project that did not ultimately move
forward, the state ultimately would make no revenue. He
offered to follow up with additional information.
Representative Galvin looked forward to the follow up
information. She believed it was important for the
legislature to be evaluating. She appreciated the work that
went into the detail to be provided. She recognized that
globally, oil and gas companies were moving "more in this
direction" to be good stewards. She stated the companies
would make the choices because they were doing it in other
areas and it helped them to get the investments necessary
to continue their projects. She wanted to encourage the
companies to do so and to take on their fair share of the
burden. She understood there were costs associated with the
effort and she believed part of it was good business. She
looked forward to seeing the numbers down the line.
3:15:34 PM
Representative Coulombe looked at the fiscal notes on slide
29, including $988 million to AOGCC [in FY 26 onward,
funded with receipts into the Carbon Storage Closure Trust
Fund]. She noticed that the fiscal notes for HB 49 had been
growing with time. She asked if the HB 50 fiscal notes were
final.
Mr. Crowther replied that the department did not anticipate
changes to the fiscal notes.
Mr. Fitzpatrick reviewed a sectional summary of the bill
beginning on slide 31. He relayed that Sections 16 and 33
of the bill contained the lion's share of the lifting in
terms of statutory enactments. He noted that many of the
bill sections contained conforming language.
• Section 1: Short title of bill: Carbon Capture,
Utilization, and Storage Act
• Section 2 (AOGCC): AS 31.05.027 Grants AOGCC
jurisdiction to regulate carbon storage unit
operations in the state like oil and gas (bill Sec.
16)
• Section 3 (AOGCC): AS 31.05.030(h) Authorizes AOGCC
to seek primary enforcement authority for permitting
and regulating Class VI injection wells for CO2 (Class
VI primacy discussed earlier in the presentation)
• Section 4 (AOGCC): AS 31.05.030(m) Conforming
changes to clarify authority in the Geothermal
Resources part of AS 41.06
• Section 5 (AOGCC): AS 37.05.146(c) Adds carbon
dioxide storage facility administrative fund to list
of separate funds with sources not from UGF
appropriations (bill Sec. 33, proposed AS 41.06.160)
• Section 6 (DNR/AOGCC): AS 37.14.850 Creates Carbon
Storage Closure Trust Fund to provide non-sweepable
fund account for post-closure operations of State
agencies. Fund source is an injection surcharge (bill
Sec. 33, proposed AS 41.06.175)
• Section 7 (DNR): AS 38.05.069(e) Adds carbon storage
(bill Sec. 16) to mineral estate disposal exemptions
for agricultural lands disposal
• Section 8 (DNR): AS 38.05.070(a) Adds exemption for
carbon storage leasing (bill Sec. 16) from generalized
state land leasing provisions in AS 38.05.070105
(when state lands are leased for purposes other than
extrication of natural resources)
• Section 9 (DNR): AS 38.05.130 Adds carbon storage to
provisions requiring lessees to pay damages to
landowners and post bond for that purpose; and
providing lessee access to the mineral estate if a
surface owner refuses to engage in a surface use
agreement; same statutory process that exists for
other mineral estate development of split estate
created by AS 38.05.125 (primarily for situations when
CCUS project developers entered onto surface lands not
otherwise owned by the state)
• Sections 1013 (DNR/DOG): AS 38.05.135(a)(e) Adds
carbon storage program (bill Sec. 16) to mineral
leasing statutes primarily providing for revenue
collection by adding reference to injection charges
(proposed Sec. 38.05.700(c))
• Section 14 (DNR): AS 38.05.140(a) Adds carbon
storage provision to exemptions for coal bed methane
under AS 38.05.180(gg) and unconventional gas under AS
38.05.180(ff) because carbon storage leasing might be
possible in unmineable coal seams
• Section 15 (DNR): AS 38.05.184 Adds carbon storage
leases to prohibition in the Kachemak Bay oil and gas
closure area (DNR tried to track allowances for CCUS
project development to where existing oil and gas
project development was allowed)
• Section 16 (DNR/DOG): Adds new sections to AS 38.05
Alaska Land Act as Article 15A Carbon Storage
Exploration Licenses; Leases (proposed AS 38.05.700
795); detailed summary after next slide
3:19:38 PM
Mr. Fitzpatrick briefly highlighted slide 32 showing a CCUS
theoretical timeline. He provided Section 16 detail on
slide 33. He relayed that the section addressed the DNR
carbon storage license and lease provisions. He explained
that the section enacted a number of new statutes:
AS 38.05.700
Provision for applicability carbon storage statutes
and authority for DNR to adopt regulations to
implement these statutes.
AS 38.05.705
Allows the commissioner to issue carbon storage
exploration licenses on state land and establishes
work commitment obligations, minimum economic terms,
bonding requirements, default provisions, and renewal
provisions.
• 5-year exploration license term
• Conversion of the license to a lease upon
fulfillment of work commitment, acquiring storage
facility permit from AOGCC, ability to meet
commercial terms
AS 38.05.710
Procedures for issuance of a carbon storage
exploration license. These are modeled after existing
procedures for oil and gas exploration licensing under
AS 38.05.133
• Identify land, minimum work commitment, economic
terms, 90 days for competing proposals
• Written finding - including competitive process
if competing proposals are submitted
• Subsection 715(h) provides a right of first
refusal opportunity for existing lessees under AS
38.05.135 181 (i.e., mineral lessees for coal,
oil and gas, geothermal, or other exploitable
minerals).
AS 38.05.715
Provision allowing conversion of an AS 38.05.705-710
carbon storage exploration licenses to a carbon
storage lease.
AS 38.05.720
An oil and gas lessee converting from enhanced oil
recovery to carbon storage must apply for a carbon
storage lease.
AS 38.05.725
Requirements for plans of development and operations,
and provision for unitization, as with oil and gas
leasing.
Mr. Fitzpatrick elaborated on AS 38.05.720. He explained
that when an oil and gas lessee reached a point where they
were no longer engaged in enhanced oil recovery and had
become more engaged in storage, the statute required the
lessee to apply for a storage lease from DNR and AOGCC.
Representative Galvin stated that at some point in the
development of a well there came a time when the
reinjection was no longer helping extract the oil. She
asked how it was measured. She wondered if the state got
involved or oil companies just reported that they had
switched over to a storage area.
Mr. Crowther responded that the nature of the injection
through the well could be measured by AOGCC and/or the
nature of production from the field could be measured by
DNR in the course of its lease management. There were a
number of variables to assess to set a reasonable industry
standard to indicate a well was no longer in operation and
transitioned to carbon [storage]. He stated at that time,
the statutory authority requiring a switch to a carbon
lease would be triggered.
Representative Galvin asked if the lease rate would be
different.
Mr. Crowther replied that DNR would require an operator to
obtain the right and compensate the state for the authority
to inject carbon.
Mr. Fitzpatrick concluded his review of Section 16 detail
on slide 33:
AS 38.05.730
Payments from carbon storage licenses and leases are
to be deposited in the general fund except for the
amount allocated to the Permanent Fund under art. IX,
sec. 15, of the Alaska Constitution.
AS 38.05.795
Definitions for specific terms used in the proposed
Article 15A Carbon Storage Exploration Licenses;
Leases
Mr. Fitzpatrick continued the sectional summary on slide
34.
• 17 (DNR/DOG): AS 38.35.020(a) Amended to include
carbon dioxide for pipeline transportation right-of-
way (ROW) leasing purposes
• 18 (DNR/DOG): AS 38.35.020(b) Amended to allow the
DNR commissioner to exempt pipelines from ROW leasing
when transporting carbon dioxide for enhanced oil
recovery or pressure support within existing fields
(does not exempt pipelines from regulation, just a
ROW)
Mr. Fitzpatrick elaborated on Section 18 and explained it
was similar to the way the state treated oil and gas
pipelines: if they were transporting over long distances
the state issued a right-of-way lease and infield lines
were covered under unit regulations. He continued to review
the sections on slide 34:
• 19 (DNR/DOG): AS 38.35.122 Conforming amendment to
bring some carbon dioxide pipelines under the same
title as "product" pipelines
• 2023 (DNR/DOG): AS 38.35.230 Amends definitions of
"lease," "pipeline" or "pipeline facility,"
"transportation," and adds "carbon dioxide" to
accommodate carbon dioxide pipeline provisions
• 2432 (AOGCC): AS 41.06.005060 Conforming
amendments separates AS 41.06 into two articles one
for geothermal and one for carbon storage
• 33 (AOGCC): AS 41.06 Adds new sections as Article 2.
Carbon Dioxide Injection and Storage beginning at AS
41.06.105. Detailed summary on slide after next.
Mr. Fitzpatrick turned to slide 35 and noted that Section
33 was the next large scale section of the bill and
included AOGCC statutes. He pointed to the timeline on the
slide and highlighted the AOGCC carbon storage permitting
statutes. He reviewed Section 33 statutes in detail on
slide 36:
AS 41.06.105
Provides AOGCC jurisdiction over carbon dioxide
storage facilities to prevent waste, protect
correlative rights, and ensure public health and
safety; "waste" is defined in AS 41.06.210
3:26:21 PM
Mr. Fitzpatrick turned to slide 36 and continued to review
the sectional detail:
AS 41.06.110 Concerns AOGCC's authority to carry out
the purposes and intent of AS 41.06.105-210
AS 41.06.115
Provides that waste is prohibited in a carbon storage
facility or reservoir
AS 41.06.120
Provides permit requirements for storage facilities
AS 41.06.125
Creates a public hearing requirement for storage
facility permits issued by AOGCC - notice is given to
property owners within 1/2 mile
AS 41.06.130
Specifies the criteria for the AOGCC to approve a
carbon storage facility permit
AS 41.06.135
Allows AOGCC to include parameters, limitations, or
restrictions in a permit and to protect and adjust
rights and obligations of persons affected by geologic
storage
AS 41.06.140
Concerns amalgamation of property interests for
storage facilities
Mr. Fitzpatrick explained that AS 41.06.140 addressed units
that may have more than one property owner.
3:27:41 PM
Mr. Fitzpatrick moved to slide 37 and continued reviewing
bill sections:
AS 41.06.145
Creates specifications for recording a carbon storage
facility certificate to put future property purchasers
on notice (recorded in the DNR Recorder's Office)
AS 41.06.150
Creates statutory requirements for AOGCC to ensure
environmental protection and reservoir integrity in
storage facilities and reservoirs
AS 41.06.155
Clarifies preservation of rights, including
deconfliction of development of other minerals by
drilling through or near a storage reservoir (AOGCC
would be responsible for making sure that there was
not a conflicting development plan between CCUS that
the development of minerals occurring the same areas)
AS 41.06.160
Authority for AOGCC to collect fees and establishes
the "carbon dioxide storage facility administrative
fund" under the general fund (regulatory cost recovery
mechanism)
AS 41.06.165
Specifies that storage operators hold title to
injected carbon dioxide until a certificate is issued
under AS 41.06.175, including liability for damage
associated with injected carbon dioxide
AS 41.06.170
Specifies the eight factor criteria for certificate of
completion a transfer of title of CO2 (requirements to
close a carbon storage facility)
AS 41.06.175
AOGCC will collect a "carbon storage facility
injection surcharge" for post closure administration,
deposited in the "carbon storage closure trust fund"
established in AS 37.14.850 (bill Sec. 6) (the
surcharge funded the long-term liability account and
the amount was set by the AOGCC on a facility by
facility basis)
AS 41.06.180
AOGCC may impose civil penalties for violations of its
carbon storage statutes
AS 41.06.185
Excludes AOGCC's carbon storage statues from enhanced
oil recovery (EOR), except when an EOR related
reservoir is converted for storage
AS 41.06.190
Authority for AOGCC to enter into agreements with
other government entities and agencies for carbon
storage purposes
AS 41.06.195
AOGCC authority to determine injection and storage
amounts, and providing for fees
AS 41.06.210
Definitions for terms used in AOGCC's carbon storage
statutes
3:30:11 PM
Mr. Fitzpatrick reviewed the last sections on slide 38. He
explained that Sections 34 through 37 [were conforming
amendments] related to areas currently open to oil and gas
leasing that would be open to carbon storage leasing and
areas closed to oil and gas leasing would be closed to
carbon storage leasing. Section 38 was an amendment to the
existing Alaska corporate income tax statute that
prohibited the application of 45Q tax credits to the Alaska
corporate income tax. He explained that the 45Q was the
federal tax credit for CCUS. He detailed that because
Alaska adopted the federal income tax code by reference,
the bill section carved out the 45Q tax credit from the
Alaska corporate income tax code, so Alaska was not renting
the credit under its own state corporate income tax
structure.
Mr. Fitzpatrick relayed that Section 39 added a new
subsection to existing statute for DNR to administer
storage facilities and stored carbon after a certificate of
completion was issued (when the state took title of the
C02). Section 40 provided authority to the Department of
Environmental Conservation to adopt regulations for carbon
dioxide pipelines. Sections 41 through 43 were general
provisions for adopting regulations, title changes, and
effective dates.
Representative Tomaszewski highlighted AS 41.06.115 on
slide 36 related to the prohibition of waste. He looked at
the definition of waste on page 29 of the bill: "waste"
means, in addition to its ordinary meaning, physical 24
waste, and includes inefficient, excessive, or improper
operation of a storage facility 25 or well. He asked about
the ordinary meaning of waste. He asked for additional
details on what the waste could be and what the department
was anticipating.
Mr. Crowther deferred the question to an AOGCC colleague
online.
Co-Chair Foster noted the individuals were not online.
Mr. Crowther responded that the department would follow up
with the information.
Representative Galvin stated it was important work to think
about how to roll back impacts of a hydrocarbon dependent
world. She remarked it seemed like the work was just
getting started. She thanked the department. She thought
perhaps Alaska could be a proving ground or an opportunity
as an active depository was yet to be seen. She understood
the bill was a framework to determine whether there was
interest in commercially pursuing [carbon storage] on a
global scale. She appreciated the efforts and efforts made
to protect the state's interests. She would be watching
with optimism. She hoped they could make a dent in the
global challenge in addition to bringing in some revenue.
Mr. Crowther appreciated the committee's time. He looked
forward to providing more information to move the bill
forward.
HB 50 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the schedule for the following
day.
ADJOURNMENT
3:35:22 PM
The meeting was adjourned at 3:35 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 50 2023 04 17 DNR Response to HFIN Q April 11, 2023.pdf |
HFIN 4/18/2023 1:30:00 PM |
HB 50 |
| HB 49 ACR_AK HFIN Presentation 041822.pdf |
HFIN 4/18/2023 1:30:00 PM |
HB 49 |
| HFIN DNR HB 50 CCUS Presentation 041123.pdf |
HFIN 4/18/2023 1:30:00 PM |
HB 50 |