HB 50-CARBON STORAGE  1:37:46 PM CHAIR MCKAY announced that the first order of business would be HOUSE BILL NO. 50 "An Act relating to the geologic storage of carbon dioxide; and providing for an effective date." 1:38:15 PM The committee took an at-ease from 1:38 p.m. to 1:42 p.m. 1:42:43 PM REPRESENTATIVE RAUSCHER moved to adopt the proposed committee substitute (CS) for HB 50, Version 33-GH1567\S, Dunmire, 2/28/23, as the working document. CHAIR MCKAY objected for the purpose of discussion. 1:43:52 PM ED KING, Staff, Representative Tom McKay, Alaska State Legislature, presented an explanation of changes in Version S from the written explanation of changes [hard copy in the committee packet], which read as follow [original punctuation provided]: Change 1: Title was expanded by legal services Change 2: Sections 4 and 5 were added as conforming changes (page 2, lines 16-20) Change 3: Clarifying language was added to the closure trust fund statute (beginning page 2, line 24) i. Ensure the fund was not susceptible to the CBR sweep. ii. Condense the fund to a single account iii. Make technical drafting changes Change 4: References to rental payments were removed from sections 11 13 to conform with oil and gas procedures. (page 4, lines 15, 20, 22, and 29) Change 5: Legal services redrafted the change to 38.05.184 as a new subsection rather than amending (b) and made some technical drafting changes. (page 5, line 29) Change 6: The proposed carbon storage policy statements in DNR and AOGCC statutes were deleted. (page 6, lines 12-14) Change 7: The minimum lease payments were replaced with a requirement for DNR to establish market rates in regulation. (page 6, lines 12-14) 1:46:59 PM REPRESENTATIVE MEARS, referencing change 7, asked why [the references to minimum requirements for acreage, rental fees, and injection charges] were removed. MR. KING explained that Version S directed the department to establish market rates in regulation. However, he said the language was still imperfect and could be "tightened up" in the amendment process. 1:47:48 PM JOHN CROWTHER, Deputy Commissioner, Office of the Commissioner, Department of Natural Resources (DNR), on behalf of the House Rules Standing Committee, sponsor by request of the governor, spoke to the overall policy intent of the change. He explained that as the market for carbon capture, utilization and storage (CCUS) projects rapidly developed, it was hard to identify set floors that allowed projects to proceed while capturing the best value for the state over the life of the project. Consequently, the department wanted flexibility in statute to allow subsequent regulation of public process to further define those terms as the market matures. 1:49:06 PM REPRESENTATIVE SADDLER asked Mr. Crowther to define "commercial terms" and "economic terms." MR. CROWTHER gave examples of annual lease rentals and lease injection charges. He said he did not know which terms would be used yet; however, a variety were used across existing agreements and would evolve with the market. He reiterated his belief that a fixed single option would be limiting. REPRESENTATIVE SADDLER sought to confirm that "commercial terms" were between the injector and some other entity. MR. CROWTHER said at a conceptual level, the projects would benefit from federal incentives and if there were changes to increase federal incentives, the state may want to participate in those. 1:51:16 PM REPRESENTATIVE ARMSTRONG noticed that the $20 per acre minimum was still included on page 6, line 30. She asked whether the intent was to delete that language. MR. KING confirmed that the language in question had been identified as an area to be amended. He resumed the explanation of changes, which read as follows [original punctuation provided]: Change 8: The license to lease terms were consolidated in AS 38.05.715 and removed from AS 38.05.705. (version A page 6, lines 14-17 to version S page 10, lines 14-16) Change 9: The license renewal process was limited to the time required for the lease conversion determination to be completed. (page 7, lines 10-11) Change 10: The concurrent carbon storage leasing section was changed to a transition from EOR to storage process, which i. Clarifies that oil and gas operators need to obtain a storage permit before engaging in activities outside the scope of their production lease ii. Requires lessees to assign DR&R between the production and storage leases iii. Aligns the EOR to storage processes among the agencies (page 10, line 23 through page 11, line 15) Change 11: Amends the definitions by i. Adding a definition for "unit agreement" (11:24) ii. Deleting the definition of "carbon dioxide" (A11:29) iii. Combining the definitions of "geologic storage" and "carbon storage" (A12:5) iv. Removing the phrase "perpetual or short-term" from "carbon storage" (A12:6 and A28:21) v. Deleting the unused terms "pore space," "reservoir," and "supercritical fluid" from the DNR statutes (A12:6-11) vi. Adding a definition of "carbon storage capacity of a storage reservoir" (28:10-13) vii. Adding a definition of "enhanced oil or gas recovery" (28:25-27) 1:55:53 PM REPRESENTATIVE SADDLER sought to verify that "enhanced oil or gas recovery" was not included in Alaska Oil and Gas Conservation Commission (AOGCC) statutes, but "pore space" and "reservoir" were. MR. KING confirmed that Representative Saddler was correct. He resumed the explanation of changes, which read as follows [original punctuation provided]: Change 12: Clarified that means "metric ton" (23:27 and 25:26) Change 13: Aligned the accounting and expenditure process of the new storage facility administrative fund with existing procedures (beginning page 23, line 26) Change 14: Added DNR as an agency in charge of requiring DR&R (page 25, line 13) Change 15: Added a new bill section to exempt the use of 45Q credits against state corporate income tax liability Change 16: Several technical drafting changes were made throughout the bill 1:57:17 PM REPRESENTATIVE MCCABE asked whether change 15 satisfied a previously proposed amendment pertaining to 45Q credits. REPRESENTATIVE ARMSTRONG answered in the affirmative. MR. KING noted that there may be a need for further clarity on the reference to tax credits. In addition, he highlighted numerous small technical conforming changes in Version S, which he characterized as non-substantive. CHAIR MCKAY asked whether DNR had confirmed the changes in Version S. 1:58:59 PM MR. CROWTHER confirmed that the administration supported Version S. CHAIR MCKAY sought further questions from committee members on Version S. 1:59:50 PM REPRESENTATIVE SADDLER asked whether there was persuasive evidence for condensing the fund into a single account. MR. KING said the change was made by Legislative Legal Services. He shared his understanding that the dedicated funds clause within the Alaska State Constitution put a damper on the intent of having two accounts. REPRESENTATIVE SADDLER asked for verification that there was no problem with intermingling the money and having the same fund draw for operations and long-term liability. MR. KING acknowledged that there was a separate administrative fund that AOGCC put fees into. The closure trust, however, was specifically for expenses that occur post closure when the state takes title. He foresaw no interference or accounting difficulties. 2:01:54 PM CHAIR MCKAY removed his objection to the motion to adopt the proposed committee substitute (CS) for HB 50, Version 33- GH1567\S, Dunmire, 2/28/23, as a working document. There being no further objection, Version S was before the committee. 2:02:20 PM CHAIR MCKAY announced that HB 50 would be held over.