03/17/2023 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB49 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 10 | TELECONFERENCED | |
| += | HB 49 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 17, 2023
1:01 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative George Rauscher, Vice Chair
Representative Josiah Patkotak
Representative Kevin McCabe
Representative Dan Saddler
Representative Stanley Wright
Representative Jennie Armstrong
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
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."
- MOVED CSHB 49(RES) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 49
SHORT TITLE: CARBON OFFSET PROGRAM ON STATE LAND
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/27/23 (H) READ THE FIRST TIME - REFERRALS
01/27/23 (H) RES, FIN
02/20/23 (H) RES AT 1:00 PM BARNES 124
02/20/23 (H) <Bill Hearing Canceled>
02/22/23 (H) RES AT 1:00 PM BARNES 124
02/22/23 (H) <Bill Hearing Canceled>
02/24/23 (H) RES AT 1:00 PM BARNES 124
02/24/23 (H) <Bill Hearing Canceled>
02/27/23 (H) RES AT 1:00 PM BARNES 124
02/27/23 (H) Scheduled but Not Heard
03/01/23 (H) RES AT 1:00 PM BARNES 124
03/01/23 (H) Heard & Held
03/01/23 (H) MINUTE(RES)
03/08/23 (H) RES AT 1:00 PM BARNES 124
03/08/23 (H) Heard & Held
03/08/23 (H) MINUTE(RES)
03/10/23 (H) RES AT 1:00 PM BARNES 124
03/10/23 (H) Heard & Held
03/10/23 (H) MINUTE(RES)
03/13/23 (H) RES AT 1:00 PM BARNES 124
03/13/23 (H) Heard & Held
03/13/23 (H) MINUTE(RES)
03/15/23 (H) RES AT 1:00 PM BARNES 124
03/15/23 (H) Heard & Held
03/15/23 (H) MINUTE(RES)
03/17/23 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
RENA MILLER, Special Assistant to the Commissioner
Office of the Commissioner
Department of Natural Resources
Juneau, Alaska
POSITION STATEMENT: On behalf of the sponsor, House Rules by
Request of the governor, addressed CSHB 49, Version S.
JOSHUA STRAUSS, Senior Vice President
Anew Climate
Houston, Texas
POSITION STATEMENT: Gave a PowerPoint presentation, titled
"Forest Carbon Hypothetical Project."
CHRISTOPHER ORMAN, Assistant Attorney General
Natural Resources Section
Civil Division (Juneau)
Department of Law
Juneau, Alaska,
POSITION STATEMENT: Answered questions during the hearing on
CSHB 49, Version S.
ALEXEI PAINTER, Director
Legislative Finance Division
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on
CSHB 49, Version S.
ED KING, Staff
Representative Tom McKay
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of the sponsor, House Rules by
Request of the governor, of which Representative McKay serves as
chair, answered questions on CSHB 49, Version S.
ACTION NARRATIVE
1:01:52 PM
CHAIR TOM MCKAY called the House Resources Standing Committee
meeting to order at 1:01 p.m. Representatives Saddler, Wright,
Rauscher, Mears, Armstrong, Dibert, and McCabe were present at
the call to order. Representative Patkotak arrived as the
meeting was in progress.
HB 49-CARBON OFFSET PROGRAM ON STATE LAND
1:02:49 PM
CHAIR MCKAY announced that the only order of business would be
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." [Before the committee, adopted as a working
document on 3/8/23, was the proposed committee substitute (CS)
for HB 49, Version 33-GH1372\S, Dunmire, 3/3/23, ("Version S").]
CHAIR MCKAY stated that the hearing would begin with an
explanation of a hypothetical project presented by staff from
the Department of Natural Resources (DNR) and Anew Climate.
1:03:53 PM
RENA MILLER, Special Assistant to the Commissioner, Office of
the Commissioner, Department of Natural Resources (DNR),
deferred to staff from Anew Climate to lead the PowerPoint
presentation, which reviews a hypothetical carbon capture
project.
1:04:42 PM
JOSHUA STRAUSS, Senior Vice President, Anew Climate, presented a
PowerPoint presentation, titled "Forest Carbon Hypothetical
Project" [hard copy included in the committee packet]. He
highlighted his experience in forestry and in environmental
economics, and he shared that he is the head of Anew Climate's
team working on carbon-offset development. He stated that his
team had worked on the report by Anew Climate previously
presented to the committee. This report analyzed the potential
for carbon capture as an asset on DNR land, particularly in
consideration of forest carbon. He continued that the
hypothetical project in the presentation is based on this
report. He began the presentation by showing a map on slide 2
of the area chosen for the hypothetical forestry project. He
explained that Anew Climate worked extensively with DNR to
choose the project area of 43,000 acres near Haines. He stated
the following factors had been considered: existing
infrastructure, animal species within the project area, market
demand for timber, and access to timber facilities.
MR. STRAUSS continued to slide 3, which featured a table
depicting the breakdown in revenue from the hypothetical
project. Using the American Carbon Registry's (ACR) improved
forest management program, he predicted that a project of this
size would generate about 800,000 forest carbon credits. He
added that the protocols used have been successful in similar
projects in Michigan. He characterized the scenario on slide 3
as a "conservative approach," as it would keep the areas of
management consistent with the harvest levels seen in the area
over the past decade. He explained that the proposed management
strategy for the project will be compared with a hypothetical
baseline that depicts a possible management alternative. He
stated that the "project pathway" would maintain modest harvest
levels while the alternative baseline scenario would have a
short-term revenue focus with higher harvest levels. He
emphasized that both pathways are consistent with the current
rules and regulations for DNR land.
1:08:59 PM
MR. STRAUSS reported that his team estimated $20 million in
carbon credits for the hypothetical project during the first 10
years and around $60 million over the 40-year life of the
project. He stated that two types of credits available make up
the total amount of revenue for a project, conservation credits
and removal credits. He stated that conservation credits are
the units of carbon dioxide equivalent to what accumulates when
less timber is harvested than the maximum available. By
avoiding heavier harvest levels in the case of the Haines
project, this would generate about 41 thousand conservation
credits per year for the first few years of the project. He
explained that new tree growth within the project area would add
an additional 50 thousand removal credits a year for the entire
life of the project. He emphasized that removal credits are
based on the annual new growth and conservation credits are
based on the amount of timber that could have been harvested but
was not because the project was in place. Because there is the
assumption that once the stock of harvestable trees is brought
down to a certain level, it will continue at this same level for
the remainder of the project, the conservation credits are only
available in the first years of the project. He pointed out
that each offset type is associated with a different price
level. He continued that, based on current market prices for
conservation and removal credits, the state could expect to make
about $15 and $25 per credit respectively. He explained that
removal credits have a higher price because buyers often pay a
premium for new growth.
MR. STRAUSS, explaining the project expense column on the table,
detailed the different costs needed by the project. These costs
include doing a carbon inventory, verifying the project through
a third-party audit, and paying ACR to allow the credits to be
sold and transferred. He stated that Anew Climate would cover
all upfront expenses for any public entity project it manages,
and any reimbursements would happen only after the project's
success. He explained that this model has been successful
because it allows public entities to pursue these types of
projects with minimal risk.
1:13:12 PM
REPRESENTATIVE MCCABE asked how removal credits work.
MR. STRAUSS clarified that removal credits refer to the amount
of carbon being removed from the atmosphere as new tree growth
occurs. He explained that forestry scientists can quantify how
much carbon dioxide is being taken out of the air and stored
within the trees as new wood material by studying the
accumulation of new growth.
REPRESENTATIVE MCCABE questioned whether it would be in the best
interest of the state to remove some older growth trees, as they
absorb less carbon. He reasoned that this would make way for
younger trees, which provide more carbon credits.
MR. STRAUSS replied that this is a misconception. He explained
that while younger trees can have higher absorption rates in
some cases, the total mass of the older trees will compensate
for slower growth rates, and the older trees often store more
carbon than younger trees annually. He emphasized that older
trees have extreme value to carbon storage. He said timber
harvest can be tailored to encourage new growth with long-term
land management by concentrating on maximizing carbon offset,
but he reminded the committee that these processes take time.
He reiterated that the scenario presented with the hypothetical
Haines project is a conservative approach, focusing on
maintaining the current stock, while encouraging the greatest
near-term growth. He stated that this is opposed to taking
drastic harvesting action, which could foster future growth, but
this also risks short-term carbon loss.
REPRESENTATIVE MCCABE asked for details on how forests can be
managed to foster the greatest amount of growth.
MR. STRAUSS stated that because the needs of each forest can
vary dramatically, it is difficult to speak in general about
forest management strategies. However, he explained that in the
case of the hypothetical Haines project, a "light touch"
management approach is proposed, and this would remove
commercial timber at rates comparable to the rates in the last
ten years, which had a commitment to maintaining the stock and
increasing growth. He stated that the numbers in the table
reflect this. He stated that the variables of how many credits
are earned versus how much wood is harvested could be
manipulated as desired to achieve different results. He
explained that the programs do not have hard mandates on how to
manage the land within the project area, but the "golden rule"
is not to harvest more timber than what has grown in any given
year.
1:18:37 PM
REPRESENTATIVE SADDLER asked for a brief definition of
conservation credits.
MR. STRAUSS described conservation credits as "avoided loss" and
explained that all carbon projects compare the harvesting plan
for the project with an alternative plan, which could be
implemented based on the resource at hand and the market value
of the material. He stated that his organization looks at the
various DNR constraints for harvest on a piece of land and
calculates how much could be harvested if the focus was to
prioritize the near-term financial gain, instead of carbon
sequestration. He reported that the alternative, aggressive
harvesting plan is considered the baseline, and this baseline is
compared against a harvesting plan that prioritizes carbon
sequestration. He stated that in carbon sequestration projects,
DNR would make revenue based on the carbon credits, as well as
on the timber harvests. He continued that this would result in
a wider gap in stock amounts between the project plan and the
baseline. He explained that any carbon lost through harvest in
the baseline scenario, but maintained in the project plan, would
be considered conservation credits.
REPRESENTATIVE SADDLER requested a simplified definition of
conservation credits.
MR. STRAUSS directed the committee to the last slide of his
presentation to explain conservation credits through an example
of a real carbon project. He said that the graph on slide 8
depicts how many carbon credits a project would receive annually
if it followed the baseline pathway versus the growth pathway.
1:22:58 PM
CHAIR MCKAY sought the clarification that the conservation
credits would come from not logging portions of the project
area.
MR. STRAUSS confirmed that the carbon conservation credits are
awarded based on logging less than the baseline scenario. He
used the graph to illustrate that the baseline loses carbon
stocks over time, while maintaining carbon stocks allows the
project to gain more credits by avoiding this loss.
CHAIR MCKAY shared his understanding that in the graph on slide
8, the gray area above the horizontal line represents no
logging, while the blue shaded area below the line represents if
logging were to occur.
MR. STRAUSS restated that the black line is the carbon project
scenario, while the blue line is the alternative, unused
baseline. He explained that the blue wedges represent the
annual amount of conservation credits earned by not logging as
much as the baseline plan and the black wedges represent the
amount of removal credits earned through the annual new growth
of timber within the project area.
CHAIR MCKAY sought confirmation that the project would gain
conservation credits by limiting logging and removal credits by
thinning out dead trees [to promote forest growth]. He
questioned whether this would allow the project to earn both
types of credits.
MR. STRAUSS confirmed that the project would get both credits.
He added that the more growth there is, the more removal credits
would be granted. He expressed caution that any thinning of a
forest to promote growth must be done very carefully.
1:25:28 PM
REPRESENTATIVE MCCABE hypothesized that loggers and other people
in the forestry management field would need to focus less on
actual forest management and become more knowledgeable about how
to find the "sweet spot" between harvest and credit
accumulation.
MR. STRAUSS expressed agreement and opined that the issue would
be more than just a balance between removal and conservation
credits, as it would also involve understanding the interplay of
timber value and carbon value. He clarified that he is not
promoting the closure of any working forests, as 90 percent of
the projects he works on are in forested areas with active
commercial logging operations. He reiterated that starting
carbon sequestration projects would require a commitment from
logging operations to maintain the timber stock to at least the
same level as it was when the project started and add on carbon
[through new tree growth] annually. He compared this type of
management to other plans that have shown large dips in carbon
stock levels because the plan prioritized timber harvests. He
reiterated the idea of a balance between the two types of carbon
credits and the market value of carbon versus timber.
REPRESENTATIVE MCCABE pointed out the millions of acres of
inaccessible forests in Alaska that are not being managed. He
questioned whether it would be possible for the state to lease
these lands to logging companies for carbon credits by simply
leaving the lands in their natural state.
MR. STRAUSS replied that land use in this manner would not be
acceptable to ACR for carbon credits. He explained that ACR
will only grant credits for areas where it is possible for the
timber to be harvested in an alternative way. He said that if
there were no differences between the baseline management
strategy of what could take place and the proposed carbon
sequestration strategy, there would be no credits gained. He
explained that the intent of the credits is to reward projects
for choosing a harvest management plan that increases carbon
storage.
1:28:48 PM
CHAIR MCKAY opined that there is a misconception within the
legislature concerning the eligibility for carbon credit
projects in inaccessible forests in Alaska. He requested
clarification on this assumption.
MR. STRAUSS confirmed that not every acre of forested land in
Alaska would be available for carbon credits. He posited that
within the vast amount of lands that DNR controls, there could
be many carbon credit projects; however, he emphasized that
infrastructure and a market for the timber and carbon resources
must be established to qualify for credits. He suggested that a
case could be made for developing projects in remote areas;
however, the more complicated and costly the hypothetical
project is, the less likely the project is to generate
meaningful carbon credits. Because of this, he said, remote
forests are generally not available for carbon credits.
CHAIR MCKAY questioned why inaccessible forests are not able to
garner carbon credits, as they are absorbing and storing carbon
dioxide (CO2).
MR. STRAUSS responded that credits are only issued when an
action on the land either increases the land's CO2 uptake or
reduces the carbon loss in the area. He stated that if an
entity decides to decrease timber harvests in a location to
increase carbon accumulation, then carbon could be credited. He
explained that in the situation where carbon is going to
accumulate on a given piece of land without any additional
action, ACR or any other accounting system would not offer
credits as an incentive for mitigating carbon emissions because
no action had taken place.
1:32:38 PM
MS. MILLER clarified that "accessible" for ACR means land
currently accessible by road and land reasonably accessible in
the future. She reiterated that land could become accessible if
an economically viable harvest supports the creation of road
access.
CHAIR MCKAY restated that there has been the perception that all
forests were eligible for carbon credits and thanked the
testifiers for the clarification.
REPRESENTATIVE SADDLER shared his understanding that the intent
behind forestry carbon credits would be to incentivize leaving a
tree standing, as cutting a tree down would contribute to carbon
emissions. He expressed the understanding that a potential risk
for these trees to be cut down must exist in order for a forest
to have carbon value for ACR. He questioned the degree of risk
that a potential project would need to demonstrate to qualify
for carbon credits. He expressed interest in further
investigating exactly where this line would be.
1:34:45 PM
REPRESENTATIVE MCCABE summarized the discussion by stating that
carbon credits act as a way to pay entities not to cut down
trees that were otherwise planned to be cut. He posited that
the forests in the Denali National Park and Preserve could not
be used as an offset because they will never be at risk of
harvest, while a forest outside of Talkeetna with the
possibility of future road access would qualify for carbon
credits, and he sought confirmation of this assertion.
MR. STRAUSS affirmed that carbon credits deal with how timber-
harvesting levels affect the amount of carbon within a
landscape. He addressed Representative Saddler's question about
what the risk must be to meet the threshold for credits. He
stated that ACR has well established methods to determine
whether an area could qualify for credits, and a third-party
verification body generates harvest-threat assessment. He
stated that an entity must be able to show the third-party
verification body that harvesting timber in a particular
location would be financially attractive. He explained these
verification bodies would be staffed by qualified foresters,
trained in reviewing carbon offset projects.
1:38:38 PM
CHAIR MCKAY gave the example of a timber sale in a thousand-acre
forest. He expressed the understanding that these thousand
acres would be eligible for carbon credits. He then proposed a
hypothetical about a similar thousand acres of forest being cut
because of "beetle kill" and forest fire prevention. He
questioned whether offset credits could be garnered in this
situation.
MR. STRAUSS replied that fire prevention measures would not
qualify the land for credits under ACR's program. He reiterated
that ACR's forest management projects must fall under the
specific guidelines of balancing the harvest of viable wood
products and the carbon stock of the area. He added that Anew
Climate does work on projects in states that use other methods.
He explained that these methods use fire prevention to generate
carbon credits by forecasting the fire risk of leaving dead
trees in an area. Although these programs are not currently
available in Alaska, he opined that this could work for some of
the forested lands in the state. Furthermore, he observed that
the proposed legislation does not narrowly define how credits
can be accumulated. He stated that his focus has been on DNR's
most current, common protocols.
1:41:12 PM
REPRESENTATIVE MCCABE, citing the high cost of firefighting in
Alaska, expressed interest in pursuing carbon credits through
forest fire prevention, as this could benefit the state.
Returning to the question of the harvest risk threshold, he
asked the extent of a viable timber market that a project would
have to exhibit. He further inquired about who would be
responsible for the project.
MR. STRAUSS replied that the first step in establishing the risk
threshold of a forest harvest would be to create a case for the
verifier board to review. The case should contain facts about
the proposed project area, such as the land's history of
harvest, the current infrastructure, and the cost of building
the infrastructure. To determine whether the project would be
financially viable, these factors would be compared to the value
of the wood material in the area. Once a case has been built,
he reiterated that the verifier would decide whether it is an
acceptable plan for receiving credits. Addressing the second
question, he continued that carbon project developers, such as
Anew Climate, typically research and design projects, handle the
verification process, and sell the carbon credits. He
emphasized that the design and management of these projects is
generally not the responsibility of the landowner, especially
when the land is part of the public domain.
1:44:31 PM
REPRESENTATIVE SADDLER shared his understanding of the third-
party verification process. He posited that the calculation
process is complicated. He questioned the details on how
companies would consider the project's net cost and the
financial benefit of carbon credits.
MR. STRAUSS responded that the calculations only take into
consideration the possible profit and financial viability of
harvesting the wood material, without looking at the potential
carbon credits. He explained that the underlying question is
whether the value of the wood itself justifies the cost of
bringing the timber to market. He stated that the logistics of
removing the timber, the market's ability to absorb the timber,
and the net cost of removing the timber are all factors in the
analyst's risk evaluation.
REPRESENTATIVE SADDLER opined that if the timber available
within an area is low quality "trash lumber," with no market, it
would not have value for carbon sequestration.
MR. STRAUSS responded in the affirmative.
1:46:55 PM
MR. STRAUSS concluded his presentation by describing the
"Development Timeline" graphic on slide 4. He explained the
steps required from the initial conception of a project to the
first realization of revenue. He stated that this graphic
depicted the necessary steps before a sale can occur over an 18-
month schedule, which he described as a very efficient timeline.
He reported that the development stage can take up to 24 months,
depending on factors, such as weather conditions. He reported
that the project must first establish an account with ACR, and
this would officially start the monitoring and comparing of
activity in the area to the baseline scenario. Once the data is
collected, he stated that a carbon model would be created to
predict how the forest is likely to mature in both the baseline
scenario and the proposed carbon project.
MR. STRAUSS stated that all information collected by the project
manager will then be organized into documentation required by
ACR, and this would be submitted to the third-party verification
body. He reported that the verification process could take up
to eight months, culminating in the verifier conducting a site
visit to confirm the data reported is correct. Once the
verifier decides to approve the project, he explained that all
documentation would go to ACR. He described ACR as a nonprofit
organization that manages the platform where carbon credits can
be traded, sold, and retired. This ensures that the credits are
carefully tracked, and he emphasized that ACR also approves the
rules quantifying carbon credits. He explained that ACR is the
ultimate judge of what will be creditable, as it would audit the
verifier's work before issuing any credits. He reported that
there are many voluntary buyers interested in reducing carbon
emissions through credit purchases, such as tech, entertainment,
and energy sectors. He emphasized that these buyers are acting
voluntarily and are not mandated to buy the credits or otherwise
reduce emissions. He also argued against the idea that carbon
credits are a way for companies to "pay to pollute." He
explained that after the 18-month development period, and the
credits have been issued, companies could start the verification
process over again. He reported that verification is only
required to occur every five years; however, new credits for
sale can only be issued through verification, so it would
benefit the carbon revenue of the project to reverify annually.
1:53:40 PM
CHAIR MCKAY expressed the understanding that the inventory
fieldwork and site audit are the two steps that would need to
take place in the field.
MR. STRAUSS responded in the affirmative. In response to a
series of follow-up questions, he affirmed that fieldwork would
be best done during the summer months. He suggested that
following the "weather window" in Alaska is crucial. He
answered that, given Alaska's weather, if the project were on
schedule, credits could start selling on the 19th month of
project development. He added that other projects completed in
Alaska have been done on a similar schedule.
1:56:52 PM
REPRESENTATIVE SADDLER asked Ms. Miller whether there would be
spending limits for the operating fund created by carbon
projects. He questioned whether the money would have to be
spent in a specific way, such as only utilized for logging
roads.
MS. MILLER replied that page six of the proposed bill would
create a carbon-offset fund, and this fund would be available
for administrative program costs. She expressed the belief that
anything that is part of a project's scope and design could be
an eligible expense for the fund. In response to a follow-up
question, she stated that money from this fund could be used to
build logging roads to less accessible areas in order to raise
the harvest risk levels. She explained that determining the
risk level would happen when the baseline scenario is
established.
REPRESENTATIVE MEARS asked whether the management of the
project, by the state or through a third party, could be paid
for through the project general fund.
MS. MILLER shared the department's understanding that the
general fund could be used towards management of the project if
the intent of the management is to increase the carbon stock
within the project area.
1:59:17 PM
CHAIR MCKAY directed the committee's attention to a memo from
DNR, which was written to answer questions from Representative
Armstrong regarding forest acreage. He asked whether
Representative Armstrong was fully satisfied with the answers
provided.
REPRESENTATIVE ARMSTRONG responded that the memo was sufficient
to answer her questions, as it explained that the projected
amount of revenue to be made by the state might have been
initially misrepresented. She expressed the understanding that
because there is not very much logging in Alaska, there would be
less acres available to "save" from being harvested. She
posited that this makes Alaska less attractive for carbon
projects. She mentioned that other states have seen instances
of over-crediting in these projects, which can cause backlash.
She opined that the idea of "carbon credits" could be "a scam."
She explained that the acreage data in the DNR memo showed that
Alaska does not harvest very many acres of timber annually;
therefore, she posited that promising to harvest even less to
make more money on the carbon credits does not "add up."
2:01:05 PM
CHAIR MCKAY thanked Representative Armstrong for her perspective
on this complex issue and asked Ms. Miller what would happen in
the case that mining interrupted a carbon-offset project.
MS. MILLER, addressing the DNR memo on available acreage,
explained that the baseline scenario is not based solely on
historic harvest, and the data for timber acres sold would not
represent all potentially available acreage. She then spoke to
the question on the interaction of mining and carbon credits.
She stated that DNR believes most potential interactions could
be addressed in the initial project design phase. She reminded
the committee that during the planning phase the lands for the
project would be decided. She explained that the department is
very aware of the location of valuable mineral resources, and
she noted that these acres could be fenced off at the start of
the project and the same could be done for other uses, such as
an active hunting or trapping corridor. She proposed that a
required report on the best-interest findings would encourage
public feedback about land usage, helping to avoid these
conflicts.
MS. MILLER expressed the understanding that in a scenario where
a carbon project is underway, but a new mining interest is
discovered, the surface disturbance caused by a mine would be
small enough so that a large carbon project would absorb the
loss of carbon from the mine. She reiterated that for a project
to qualify for credits there must be more tree growth than loss
annually within the entire project. She suggested that there
would be potential for most projects to adjust for this loss.
She posited that, depending on the condition of the project, the
adjustment may require forgoing a year of issuing carbon
credits. She mentioned that a typical mining project disturbs
about 500 acres of aboveground land and the carbon projects are
anticipated to cover about 50,000 acres. She stated that if the
state needed to exit a project, a portion of the land could be
removed from the area, but the credits bought to date on the
land would have to be reimbursed by the state. In the case that
the entire project needed to be terminated, she confirmed that
the state could do so, but there would be financial
repercussions. She emphasized that the state's right to
terminate a project would be held within the project contract
made with ACR.
2:05:12 PM
REPRESENTATIVE SADDLER asked whether the money in a carbon
project's general fund could be used to pay back credits in the
case of a terminated project.
MS. MILLER posited that there would need to be a careful legal
examination of the terms set within the bill and deferred the
question to a lawyer.
REPRESENTATIVE SADDLER posited that if the general fund could be
used to refund credits, the fund would need to maintain a
healthy balance. He advised that the committee needs to
consider this.
2:06:47 PM
CHRISTOPHER ORMAN, Assistant Attorney General, Natural Resources
Section, Civil Division (Juneau), Department of Law, stated that
refunding credits for this purpose could be interpreted as an
appropriate use of the fund; however, he advised that this
possibility is potentially dangerous. He explained that the
language in the proposed bill would allow the fund to be used
for the purposes of providing for and developing carbon offset
programs. He posited that using these funds to terminate a
program may be a "stretch" of its appropriate use. He opined
that the best legal move would be to "play it safe" and ask for
a specific and separate appropriation for any related costs for
project termination. He emphasized that the fund would be for
supporting projects that are actively producing carbon credits.
2:09:00 PM
REPRESENTATIVE SADDLER posited that it would be beneficial for
lawyers from different departments to discuss this and confer
with the House Finance Standing Committee.
CHAIR MCKAY requested additional input from the Legislative
Finance Division.
2:09:35 PM
ALEXEI PAINTER, Director, Legislative Finance Division,
Legislative Affairs Agency, expressed the opinion that the way
the fund is structured it would be dedicated for a specific
purpose, as there is money flowing into and out of the fund
without appropriation.
2:10:20 PM
CHAIR MCKAY announced that the committee would now discuss the
changes made to the attached fiscal notes.
MS. MILLER explained that the department has prepared three
revised fiscal notes for Version S. She reported that one major
revision was to move $425,000 in capital outlay from the
Division of Mining Land and Water (DMLW) to the Office of
Project Management and Permitting (OPMP). She explained that
the intent is to house the state's carbon program under OPMP,
while DMLW would remain responsible for leasing state land for
carbon management under a different capital program. She stated
that the revised fiscal notes also include an additional three-
year permanent position in the Department of Forestry. She
continued that, in alignment with the current best practices,
there were minor adjustments to the "costs per employee" line.
She explained that the fiscal analysis was cleaned up, and now
it is clear which activities the fund would pay for. She added
that the potential fire suppression costs were deemed unlikely
to cause a fiscal impact.
2:12:32 PM
MS. MILLER, in response to Representative Saddler, affirmed that
the 3/16/23 fiscal notes would be the most current.
REPRESENTATIVE RAUSCHER expressed the understanding that Version
S would not only create the terms for any future carbon offset
projects, but it would also establish a state-run carbon offset
program, with or without any carbon contracts in process.
MS. MILLER stated that Version S would initiate a program and
establish a framework for the department to use in the
consideration of potential projects. She emphasized the
importance of having a framework to allow for guidelines on the
review of carbon projects, as this would allow for a documented
best interest finding. She said that the framework would
include how best to meet the state's reporting requirements.
REPRESENTATIVE RAUSCHER questioned whether the program would
continue to exist if it is later determined that carbon offset
projects are not profitable for the state.
MS. MILLER confirmed that the program would be written into
statute; therefore, it would still exist. She stated that if
the state no longer wanted to bear the cost associated with the
program, the legislature would be able to make financial
adjustments to the program.
2:15:53 PM
REPRESENTATIVE PATKOTAK moved to adopt Amendment 1 to Version S,
labeled, 33GH1372\S.1, Dunmire, 3/15/23, which read as follows:
Page 8, line 22, following "(4)":
Insert "if applicable,"
CHAIR MCKAY objected for the purpose of discussion. He
explained that the amendment would be adding the phrase "if
applicable" to a section of the language on page 8.
REPRESENTATIVE SADDLER asked for DNR's position on Amendment 1.
MS. MILLER responded that the department supports the
clarification of language.
CHAIR MCKAY added that it would clarify that all state forests
would not be required to be available for carbon offset
projects. He removed his objection. There being no further
objection, Amendment 1 was adopted.
2:17:34 PM
REPRESENTATIVE PATKOTAK moved to adopt Amendment 2 to Version S,
as amended, labeled, 33GH1372\S.7, Dunmire, 3/16/23, which read
as follows:
Page 3, line 30, through page 4, line 1:
Delete all material and insert:
"(f) Compensation for a lease under this section
(1) shall be designed to maximize the
return to the state and be a form of compensation
provided under AS 38.05.073(m);
(2) shall be separately accounted for under
AS 37.05.142; and
(3) may be used by the legislature to make
appropriations to the department to carry out the
purposes of this section."
REPRESENTATIVE PATKOTAK objected for the purpose of discussion.
CHAIR MCKAY explained that Amendment 2 would require that the
management of leases be paid for by lease revenue. He asked for
DNR's position on Amendment 2.
MS. MILLER stated that the department supports the Amendment 2.
REPRESENTATIVE PATKOTAK removed his objection. There being no
further objection, Amendment 2 was adopted.
2:18:26 PM
REPRESENTATIVE PATKOTAK moved to adopt Amendment 3 to Version S,
as amended, labeled, 33GH1372\S.9, Dunmire, 3/16/23, which read
as follows:
Page 9, line 2:
Delete "nontimber"
Insert "other [NONTIMBER]"
REPRESENTATIVE PATKOTAK objected to Amendment 3 for the purpose
of discussion.
CHAIR MCKAY described Amendment 3 as a technical amendment that
corrects the terminology to account for the inclusion of carbon-
offset projects for timber purposes. He questioned DNR's
opinion of Amendment 3.
MS. MILLER reported that the department supports Amendment 3.
REPRESENTATIVE PATKOTAK removed his objection. There being no
further objection, Amendment 3 was adopted.
2:19:06 PM
REPRESENTATIVE PATKOTAK moved to adopt Amendment 4 to Version S,
as amended, labeled, 33GH1372\S.10, Dunmire, 3/16/23, which read
as follows:
Page 4, line 6, following "state.":
Insert "The findings must include
(1) reasonably foreseeable effects that a
project may have on the state or local economy; and
(2) anticipated annual revenue that the
lease will yield to the state.
(i) State land used for carbon management
purposes must, to the extent practicable, remain open
to the public for access, hunting, fishing, and other
generally allowed uses as determined by the
department."
Reletter the following subsection accordingly.
REPRESENTATIVE PATKOTAK objected for the purpose of discussion.
CHAIR MCKAY explained that Amendment 4 clarifies that the
requirements included in the leasing statutes would include
economic impacts, anticipated revenues, and public access. He
questioned DNR's opinion of Amendment 4.
MS. MILLER stated that the department has no comment on the
amendment.
REPRESENTATIVE PATKOTAK removed his objection. There being no
further objection, Amendment 4 was adopted.
2:19:49 PM
REPRESENTATIVE MEARS moved to adopt Amendment 5 to Version S, as
amended, labeled, 33GH1372\S.11, Dunmire, 3/15/23, which read as
follows:
Page 6, lines 7 - 10:
Delete "The carbon offset revenue fund consists
of money appropriated to the fund by the legislature
and program receipts from the sale of verified carbon
offset credits. Appropriations to the fund do not
lapse."
Page 6, lines 11 - 13:
Delete all material and insert:
"(b) The legislature may appropriate money in
the fund to implement AS 38.95.400 - 38.95.499.
(c) On June 30 of each year, the unobligated
amount in the carbon offset revenue fund in excess of
$10,000,000 lapses into the general fund."
REPRESENTATIVE PATKOTAK objected for the purpose of discussion.
REPRESENTATIVE MEARS explained that the carbon fund provided in
Version S would consist of funds from appropriations and program
receipts, while the fund withdrawal would be at the
commissioner's discretion. She expressed the need for a clearer
appropriation from the legislature and Amendment 5 would rectify
this issue.
2:20:33 PM
MS. MILLER reported that the department has no position on
Amendment 5. She expressed appreciation for the clarity added
into the funding language. She emphasized the department's
respect for the legislature's power as the appropriating body.
She stated that the $10 million [budget] written into the
amendment was an amenable starting point, and the department
would be prepared to justify any requests for an increase in
subsequent committees.
2:21:05 PM
REPRESENTATIVE SADDLER referred to the current language in
Version S, which states that the fund will consist of money
appropriated by the legislature. He pointed out that Amendment
5 would delete this, replacing the legislature's ability to
appropriate into and out of the fund. He questioned whether
this language is necessary.
REPRESENTATIVE MEARS expressed the understanding that more
explicit language would be necessary because there are also
program receipts coming into the fund. In response to a follow-
up question, she stated that $10 million was requested by DNR.
MS. MILLER responded to the question by stating that the
amendment had originally featured a different initial starting
point for the appropriation limit; however, the department asked
for it to be higher in consideration of some of the potential
project costs. She reiterated that the department may ask for
more money with justification in later committees.
REPRESENTATIVE SADDLER made it clear for the record that in a
situation where the fund accumulates more than $10 million this
amendment would allow the legislature to appropriate money back
into the general fund, and the amendment itself does not
appropriate $10 million.
REPRESENTATIVE MCABE referenced a previous committee hearing
where it was discussed whether the legislature would have access
to the fund for appropriations. He expressed the understanding
that the legislature would retain access to this fund, as it
would be a designated fund rather than a dedicated fund.
Because of this established access, he opined that Amendment 5
was superfluous.
2:24:43 PM
MR. PAINTER commented that the language is contradictory
concerning how the money is appropriated and who has access to
the fund. He explained that if the intent of the bill were only
to allow legislative appropriations to be spent without further
appropriation, this would create multiple specifications on how
the money could be spent within the same fund. He opined that
this could be confusing. He suggested that the problem could be
addressed by both allowing money to flow in, without
appropriation, and then requiring it to be appropriated out, or
the reverse. He stated that either way would work, and
Amendment 5 is one possible solution to the problem of
identifying when the money should be appropriated. He
reiterated that Version S, as currently written, is ambiguous in
this regard. He advised that some clarification would be
needed.
2:26:19 PM
REPRESENTATIVE ARMSTRONG notified the committee that Legislative
Legal Services sent a memo on this topic, and it advised that
the bill would allow money to flow into and out of a fund
without appropriation, and this is unconstitutional and would
need to be fixed.
REPRESENTATIVE MCCABE suggested that Legislative Legal Services
wrote both the memo and the proposed legislation, and he
questioned why there is a contradiction between the two.
REPRESENTATIVE ARMSTRONG replied that Legislative Legal Services
did not write the original version of the bill, as it came from
the governor's office. She stated that the memo referred to the
version of the bill before the committee substitute was adopted.
2:27:11 PM
REPRESENTATIVE SADDLER shared his understanding that there is a
need to clarify when fund appropriation could happen. He
referred to Mr. Painter's explanation that Amendment 5 would
provide a fix for this issue, as it would allow the legislature
to appropriate from the fund, and all other unobligated funds
would spill back into the state's general fund. He sought
confirmation that this is a correct summation of the amendment.
He further questioned the term "unobligated" as used in
Amendment 5.
REPRESENTATIVE MEARS deferred to Mr. Painter.
2:28:07 PM
MR. PAINTER defined "fund obligation" as a commitment to spend a
certain amount that has not been spent yet. He used the example
of an established multiyear contract with a set payment; the
amount needed to satisfy the contract would be the obligated
part of the fund, and this part would not be open for
appropriation. He added that the unobligated balance would be
any funds leftover, which do not have a legal commitment, and
the legislature could transfer this out of the fund.
2:29:03 PM
REPRESENTATIVE PATKOTAK removed his objection.
2:29:18 PM
The committee took an at-ease from 2:29 p.m. to 2:30 p.m.
2:30:31 PM
CHAIR MCKAY announced that, there being no further objection,
Amendment 5 was adopted.
2:30:50 PM
CHAIR MCKAY thanked the committee for the hard work on the
proposed legislation and expressed the hope that the bill would
be moved out of committee with bipartisan support.
2:31:55 PM
REPRESENTATIVE MCCABE pointed out past testimony from Verra. He
noted the organization's association with the World Economic
Forum. He questioned why past testimony from Verra had been
used when Alaska would be utilizing ACR, which is not affiliated
with the World Economic Forum.
2:33:10 PM
ED KING, Staff, Representative Tom McKay, Alaska State
Legislature, on behalf of the sponsor, House Rules by Request of
the governor, of which Representative McKay serves as chair,
affirmed that ACR is the registry most likely to be used by the
state in any carbon credit contracts, and this is why testimony
from ACR was not used in the previous meeting, as a conflict of
interest regarding the passage of the bill could exist. He
reported that he chose experts from Verra for extra reassurance
that the committee was receiving unbiased information. In
response to a follow-up question, he confirmed that Verra did
not receive any compensation for its previous presentation.
2:34:28 PM
REPRESENTATIVE ARMSTRONG pointed out that Anew Climate used a
project in Michigan as a comparison to understand further the
potential of Alaskan projects. She reported that Michigan was
able to sell 109 thousand acres of carbon credits to receive $13
million over the first decade of its project. She explained
that the Michigan Department of Natural Resources was able to
absorb the cost of the project without any additional employees.
This state was able to do a large sale of credits because it
harvested over 46 thousand acres of forest annually. She
compared this to the 2,145 acres that Alaska harvested last
year, which was the highest harvest in several years. She
reiterated her uncertainty that Alaska would be able to qualify
for a similarly large number of credits because of the small
amount of acreage used for timber harvest. She expressed the
hope that the data from this Michigan project would help members
better understand the possible future revenue from carbon
credits as the proposed legislation goes forward.
2:35:41 PM
REPRESENTATIVE MCCABE expressed the understanding that three
Native corporations in Alaska have been actively working on
carbon-offset projects since 2018, and they have seen a
beneficial amount of revenue, with no adverse effects being
reported. He asked Ms. Miller for any further information she
could provide.
MS. MILLER replied that she was unsure of the exact acreage, but
both SEA Alaska and Doyon Limited have established carbon offset
projects. She reiterated that Anew Climate alone has worked on
10 projects within the state. She added that the projects have
done well financially, targeting both the compliance and the
voluntary credit markets with great success.
REPRESENTATIVE ARMSTRONG questioned the harvest levels on the
Native lands.
MS. MILLER expressed uncertainty on the harvest levels on these
lands. She noted that there are marked differences between
Native land management and the state's land management. For
example, she said that the state is bound to sustain-yield
management while a private owner, like a corporation, would not
have this same management requirement. She added that some
corporations practice this method voluntarily, adding that a
private landowner has greater flexibility in bringing down the
initial baseline, which generates more credits. She emphasized
that these factors are very project specific.
2:38:03 PM
REPRESENTATIVE SADDLER opined that the idea of generating carbon
credits by not harvesting trees could be compared to the
practice of conservation easement; wherein, an organization may
pay a landowner to keep land free of development. He expressed
the understanding that forested lands used for carbon offset
could still be used for public use, such as firewood harvesting
and mechanized recreation. He expressed support for the bill,
as it would allow the state to earn additional revenue while
also helping the planet. He expressed interest in seeing these
projects operate successfully in the future.
2:39:18 PM
The committee took a brief at-ease.
2:40:21 PM
MS. MILLER, for the record, reported that one of the changes in
the revised fiscal notes was to continue to fund the new
positions through the general fund, for the life of the fiscal
note. She explained that doing this would provide extra time
for the carbon credits to be available in the new fund. She
stated that this differs from the original plan, as in the
original version funding from the general fund would have been
used for three to four years, and then the new fund would have
been used. In final comments on the proposed legislation, she
expressed the department's appreciation to the committee and
staff for the work on the bill.
2:41:43 PM
REPRESENTATIVE RAUSCHER stated for the record that his business
outside of the legislature works with timber and has a financial
interest in all projects that produce timber for income. He
shared this as a declaration of position before voting rather
than as a conflict of interest.
2:42:21 PM
REPRESENTATIVE RAUSCHER moved to report CSHB 49, Version 33-
GH1372\S, Dunmire, 3/3/23, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, CSHB 49(RES) was reported from the
House Resources Standing Committee.
2:43:15 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:43 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 49 - DNR memo in response to House Resources Committee questions.pdf |
HRES 3/17/2023 1:00:00 PM |
HB 49 |
| HB 49 - Hypothetical Project.pdf |
HRES 3/17/2023 1:00:00 PM |
HB 49 |
| HB 49 updated fiscal note (OPMP).pdf |
HRES 3/17/2023 1:00:00 PM |
HB 49 |
| HB 49 updated fiscal note (MLW).pdf |
HRES 3/17/2023 1:00:00 PM |
HB 49 |
| HB 49 updated fiscal note (Forestry).pdf |
HRES 3/17/2023 1:00:00 PM |
HB 49 |
| HB 49 HRES Amendments.pdf |
HRES 3/17/2023 1:00:00 PM |
HB 49 |