HB 49-CARBON OFFSET PROGRAM ON STATE LAND  2:05:15 PM CHAIR MCKAY announced that the final 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." 2:06:32 PM The committee took a brief at-ease at 2:06 p.m. 2:07:08 PM JOHN BOYLE, Commissioner Designee, Department of Natural Resources (DNR), provided introductory remarks on HB 49, on behalf of the House Rules Standing Committee, sponsor by request of the governor. The legislation focused on the utilization of state land and submerged land for the purpose of carbon offsets, which would offer the state a new avenue to diversify its economy and revenues. He described the "tremendous" inventory of state lands as a competitive advantage for Alaska that may be very well suited for carbon offset projects. The administration was asking for a broad regulatory framework, he said, to enable DNR to engage with the market, understand where carbon offset opportunities exist, and generate additional state revenues. He shared his belief that carbon offset projects could incentivize forest management and timber harvesting and revitalize the forest industry as a whole in Alaska, while creating exciting career opportunities. He emphasized that the bill would not implement carbon taxes or cap-and-trade regimes on businesses operating within the state, adding that the land used for carbon projects would still be open for public access and public use. The projects could be managed in a way that was reflective of the state's ethos. He noted the thousands of miles of coastline and submerged lands in Alaska that were high quality areas for carbon offset projects, such as commercial kelp farms, that could provide further opportunities in the mariculture industry. He urged the state to stay nimble and flexible to respond to the ever-growing and evolving market. 2:15:25 PM JOSHUA STRAUSS, Senior Vice President, Anew Climate, gave a PowerPoint presentation, titled "Forest Carbon Informational Overview," [hard copy included in the committee packet]. He outlined the agenda for the presentation on slide 2. 2:17:09 PM MR. STRAUSS continued to slide 3, "About Anew," which read as follows [original punctuation provided]: •Oldest and largest carbon offset developer in North America (20+ years) •Voted Environmental Finance's Best Project Developer (North America) and Best Offset Developer (California) for seven years running • Dedicated forestry team: in in-house finance, marketing, and legal experts, plus 30 professional foresters with unparalleled forest carbon experience 2:18:14 PM MR. STRAUSS narrated the map on slide 4, "Anew Forestry Project Map," which pictured some of the 110 forest carbon projects under Anew's management in the U.S. and Canada. Slide 5 listed Anew's notable public partnerships, including Alaska DNR, Michigan DNR, Ohio DNR, 8 Wisconsin counties, 3 Massachusetts townships, 2 Pennsylvania water authorities, and 1 public university. 2:19:44 PM MR. STRAUSS discussed forest carbon basics beginning on slide 7, "What are forest carbon offsets," which read as follows [original punctuation provided]: • Forests across the US sequester substantial amounts of CO2. • By maintaining or increasing forest stocking, forest landowners can generate units of CO2 emissions reductions ("Carbon Offsets"). • Companies wishing to combat climate change are willing to pay forest owners for these Carbon Offsets, thereby claiming credit for reducing CO2 emissions and mitigating some of the effects of climate change. 2:21:10 PM MR. STRAUSS proceeded to slide 8, "Forest Carbon Markets," which read as follows [original punctuation provided]: Voluntary Market Companies voluntarily choose to purchase offsets to reduce their emissions • Greater variation in pricing o $4 to $35 • Premium vale attributed to "charismatic" projects • Less certain demand Compliance Market Companies purchase offsets to help meet their legally mandated emissions targets (CS & Quebec) • More consistent pricing o $15 to $20 • Built-in demand through 2030 Additional Compliance Programs • Washington • CORSIA (international aviation) • Canada (Federal and Provincial) • Oregon 2:24:37 PM REPRESENTATIVE RAUSCHER asked whether anything federal was on the horizon. MR. STRAUSS said nothing was currently on the horizon for a federal program. REPRESENTATIVE RAUSCHER sought to confirm that any compliance program would need to come through the state legislature. MR. STRAUSS answered yes, a compliance program would be at the state level. He reiterated that there was no federal oversight on the horizon. 2:27:09 PM REPRESENTATIVE MEARS asked whether, in terms of voluntary compliance, a company looking to purchase carbon credits might consider the preservation of habitat for wolverine and lynx in Alaska a charismatic project worth investing in. MR. STRAUSS answered yes, habitat preservation might increase the credit value. He indicated that environmental conservation in addition to emission reduction may be appealing. 2:28:12 PM REPRESENTATIVE SADDLER suggested that saving the planet may not have the same market value in twenty years. He asked how much of the carbon market was voluntary versus compliance. MR. STRAUSS acknowledged that there was no regulatory mandate for the voluntary market. Nonetheless, many companies have publicly committed to becoming carbon neutral by 2030 through offset programs, for example. He added that although pricing was variable, measures were being taken to add quantification to various components of a carbon project. By enrolling in one now, he said, it wouldn't preclude the ability to better quantify positive impacts of the project as other methodologies get "fleshed out." 2:31:22 PM REPRESENTATIVE SADDLER clarified that if Alaska could derive benefit from charismatic projects, he was supportive of "pocketing that money." CHAIR MCKAY asked whether there were federal tax credits for voluntarily purchasing offsets. MR. STRAUSS said no, there was not a direct path to federal tax credits for these activities. CHAIR MCKAY pointed out that HB 49 only addressed the voluntary market. 2:32:36 PM REPRESENTATIVE DIBERT asked how forest fires would be addressed in forested areas in the Interior. MR. STRAUSS said the department was keenly aware of the forest fire risk. He discussed the American Carbon Registry's (ACR) voluntary improved forest management protocol, which included a "buffer" otherwise defined as a pooled insurance mechanism for all credit-generating projects to cover catastrophic loss. 2:35:39 PM MR. STRAUSS resumed the presentation on slide 8 and discussed the compliance market. He continued to slide 9, which listed examples of credit buyers in the voluntary space, including Microsoft, Capital One, Nestle, Disney, Chevrolet, and etcetera. He added that almost every organization in the Fortune 500 were buying credits. He noted that state lands were not readily eligible for participation in the compliance programs based on their design. Mr. Strauss turned to slide 10, "Landowner Obligations," which outlined the monitoring obligations per year in both a voluntary and compliance setting. The ACR a voluntary program was a 40-year commitment, for example, whereas the compliance program would be well over 100 years. He outlined the four stages of a carbon offset project: verification, inventory, reporting, and the monitoring period. He reiterated that the commitment to a carbon forest program would not prevent the utilization of that land for recreation or for sub-surface minerals. 2:44:01 PM CHAIR MCKAY inquired about the 40-year monitoring period for voluntary programs and asked whether that would be a 40-year lease. In addition, he shared his understanding that Native corporations had participated in the California compliance cap- and-trade program. He asked whether those properties in Alaska were under lease for 100 years. MR. STRAUSS explained that the monitoring period is the length of time that the landowner is obligated to follow the rules of the program. For the voluntary space, the monitoring period is a 40-year flat commitment, during which time the volume of carbon stock must be maintained or increased with verification every 5 years; inventory updates every 10 years; and annual reports on harvesting. He contrasted that timeframe to the compliance space, which has a monitoring period of 100 years, a 6-year verification period, 12-year inventory, and annual reporting. CHAIR MCKAY asked for verification that the Native corporations that had sold credits in Alaska were under a compliance program. MR. STRAUSS indicated that some of them were under a compliance program. 2:48:33 PM MR. STRAUSS continued the presentation on slide 11, "Key Components of Offset Quality," which listed the following principles: Additionality, permanence, verification/monitoring, registration/serialization, leakage, reversal buffer. 2:53:20 PM MR. STRAUSS proceeded to slide 12, "Alaska DNR Pilot Projects," which read as follows [original punctuation provided]: • Three areas were selected as pilot projects due to their carbon stocking, accessibility, and timber marketability • Three projects could collectively generate ~10 million offsets over 40-year life st • >$80 million in revenue over 1 decade alone 2:55:28 PM REPRESENTATIVE SADDLER asked for the definition of "additionality." MR. STRAUSS defined additionality as the comparison of a project to an alternate, hypothetical scenario, otherwise referred to as a "baseline. In response to a request for clarification from Representative Saddler, he described the baseline scenario as, "what is likely or very plausible in the absence of a carbon project." 2:57:31 PM REPRESENTATIVE MEARS asked why state projects weren't eligible for the compliance market. In addition, she questioned the difference in market rates between the voluntary and compliance markets. CHAIR MCKAY clarified that HB 49 only covered the voluntary market. He asked Mr. Crowther whether that was accurate. 2:58:17 PM JOHN CROWTHER, Deputy Commissioner, Office of the Commissioner, Department of Natural Resources (DNR), shared his understanding that under current protocols for compliance markets, public lands in Alaska would not be eligible. For that reason, HB 49 targeted the voluntary market. REPRESENTATIVE MEARS asked whether there was a variance in credit value on the voluntary versus compliance market. MR. STRAUSS explained that compliance credits generally traded for around $18. However, he predicted that a forest credit from Alaska would trade at around $16 to $27. 2:59:25 PM MR. STRAUSS walked the committee through the project development process on slide 14, "Anew Services," which listed the following stages: project feasibility analysis, contracting and listing, inventory, modeling and documentation, verification, credit registration and issuance, and credit sale. CHAIR MCKAY gleaned that this process would be expensive. He asked how much it would cost and who would pay for it. 3:03:52 PM MR. STRAUSS conveyed that Anew, for example, covered all costs associated with project development, which was sometimes in the millions, and was only reimbursed upon successful sale of the credits. Consequently, he shared his belief that Anew's approach was appealing to landowners because they don't have to allocate public funds to start a project. He concluded the presentation on slide 15, "Development Timeline," which depicted the approximately 18-month timeline of events from starting a project to getting credits issued. 3:06:42 PM REPRESENTATIVE SADDLER asked for the definition of "offset." MR. STRAUSS likened "offset" to "credit" or one metric ton of emissions reduction. 3:08:17 PM CHAIR MCKAY announced that HB 49 would be held over.