HB 49-CARBON OFFSET PROGRAM ON STATE LAND  2:06:14 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." 2:06:44 PM RENA MILLER, Special Assistant, Office of the Commissioner, Department of Natural Resources (DNR), provided an overview of HB 49 via PowerPoint [hard copy included in the committee packet], on behalf of the House Rules Standing Committee, sponsor by request of the governor. She explained that HB 49 would provide opportunities to generate revenue. She shared her belief that the bill would provide a framework for the state to start taking advantage of revenue generating opportunities from Alaska's natural resources in a way that works with other resource development and supports existing land use by the public. She offered an outline of the presentation on slide 2, explaining that the department was looking for ways to store atmospheric emissions in living matter. Greenhouse gases were reduced by taking actions in a project that increases carbon storage capacity, she said, adding that the department was looking at maintaining and increasing the amount of carbon in the landscape over time. She noted that one metric ton of carbon removed from the atmosphere and stored equates to one credit, which becomes a commodity that the state can sell on a voluntary market. She explained that the credits had real value to many corporations that were looking to reduce their emissions or meet net zero goals. She shared her belief that carbon offset projects offered a new way to use natural resources and generate revenue. 2:09:41 PM REPRESENTATIVE MCCABE attempted to clarify Ms. Miller's reference to "net zero goals," emphasizing that those goals were company specific and not set by the governor. MS. MILLER confirmed that nothing in the bill would institute any requirements on companies to reduce their emissions. She added that emission reduction was happening on a voluntary basis in the private economy external to any state regulations. 2:11:27 PM MS. MILLER continued to slide 3, which offered a simplified depiction of carbon management. Slide 4 was a visual summation of the anticipated growth in the marketplace, demonstrating the existing projects that were generating credits and revenue. She highlighted the significant growth in the voluntary market, which was valued at $2 billion in 2021 four times the value in 2020. The forecasted growth was pictured on the right side of the slide with a potential of five times the amount of growth by 2030. She referenced a report by Shell and the Boston Consulting Group (BCG), which identified real verifiable offsets as the highest priority of those purchasing credits. REPRESENTATIVE MCCABE expressed concern about bad actors taking advantage of carbon offset programs. He pointed out that Alaska had verifiable assets, like land and trees, to offset the carbon emissions. MS. MILLER agreed that there have been bad actors in the voluntary emission reduction space. She explained that the state would work through a registry of entities often nonprofits - with standardized rules, protocols, and processes for monitoring emission reduction projects. 2:16:40 PM REPRESENTATIVE MCCABE sought to confirm that these entities were turning towards Alaska because the state had a reputation of "doing things the right way" when it comes to resource development and monetization. MS. MILLER agreed that Alaska had a solid track record. She resumed the presentation on slide 5 by discussing Alaska's potential for carbon markets due to the sheer amount of land in the state, including three state forests, millions of acres of submerged land, and uplands. She said the land base, the sheer scale, and the resources on the land were a potential positive for Alaska. She pointed out that Alaska Native corporations had had some success in carbon offset projects in the compliance markets and the voluntary marketplaces. She discussed the potential benefits of land management techniques that make for successful carbon projects. CHAIR MCKAY asked whether tundra lands were suitable for carbon storage. MS. MILLER said, "potentially," adding that carbon offset projects were not limited to forests. Once the framework was in place, she said registries could be consulted to develop protocols for tundra projects. REPRESENTATIVE WRIGHT inquired about kelp farming. MS. MILLER directed the question to Ms. Colles. 2:21:38 PM CHRISTY COLLES, Director, Division of Mining Land and Water, Department of Natural Resources (DNR), reported that there were about 60-70 [aquatic] farms in Alaska, half of which were growing kelp for consumptive purposes. One [aquatic farm] application, she said, was considering partial sequestration. REPRESENTATIVE WRIGHT asked how long the mariculture industry had existed in Alaska. MS. COLLES stated that the program was established in the late 1990s and took off in the 2000s. Beginning in 2015, the department started seeing numerous applications for aquatic farms. She noted that Alaska was one of the fastest states in adjudicating mariculture applications. 2:23:00 PM REPRESENTATIVE MCCABE said he wanted to explore the word, "charisma." MS. MILLER stated that added value to a credit was driven by the values of the marketplace via charisma. She continued the presentation on slide 6, which listed the following benefits of carbon markets: adds a new, revenue-generating tool to the state's lands management toolkit; compatible with other land uses; likely economic/value-added benefits. 2:26:08 PM REPRESENTATIVE ARMSTRONG asked whether the rate of logging would increase, decrease, or maintain as a result of carbon offset. MS. MILLER shared her belief that carbon offset was compatible with continued timber harvest. The amount it would change would depend on a specific project, she said. She directed attention to slide 7, which featured a graph of global carbon capture by the International Energy Agency. She emphasized that carbon management was not an "either/or," indicating that production and use of Alaska's other resources, such as natural gas, would continue within the construct. She continued to slide 8, titled "Next steps," which read as follows [original punctuation provided]: • Charge the Department of Natural Resources (DNR) with exploring opportunities for new projects that align with Alaska's resource, land interests and responsibilities • Enable carbon offset projects on state land and shorelines REPRESENTATIVE SADDLER asked to what degree the state was considering "the entire universe of opportunities," as opposed to a clear path forward as to what the authorization for the bill would mean to Alaska. MS. MILLER specified the necessary steps to move forward after creating the framework set forth in HB 49. She explained that forest offset credits were in demand and represented a large component of the market; consequently, it would make for a reasonable initial step. She explained that the department would like to field interest with the framework and solicit additional interests while determining what projects would maximize value and be in the best interest of the state. REPRESENTATIVE SADDLER asked what the passage of HB 49 would give Alaska that it didn't already have. MS. MILLER said it would send a signal that Alaska was ready to engage in the carbon offset world. She noted that state legislation related to carbon capture, utilization and storage (CCUS) and offsets was mentioned in a national carbon-related newsletter. 2:31:02 PM MS. MILLER resumed the presentation on slide 9, titled "HB 49: Overview," which read as follows [original punctuation provided]: • Enables private parties to lease state land for carbon management projects • Establishes the Carbon Offset Program at DNR • Authorizes use of the 3 state forests for statesponsored carbon offset projects REPRESENTATIVE MCCABE asked whether a corporation that leased an acre of land in Alaska to offset carbon could exclude Alaskans from that land. MS. MILLER deferred to Ms. Colles. MS. COLLES said it depended on the type of authorization requested. She noted that the department would have the ability to write regulations, which could be an option to consider. The intent would be to avoid locking up the land in a typical lease with site control. 2:33:33 PM REPRESENTATIVE MCCABE stated that Alaskans were concerned with access to state land and would be upset by the idea of a foreign company fencing up the land and keeping them out. He said he wanted to ensure that carbon offset leases did not exclude Alaskans from the land. MS. MILLER said the department would be happy to work on additional safeguards. REPRESENTATIVE SADDLER asked Ms. Miller to list the names, locations, and sizes of the three state forests. Ms. Miller listed the Haines State Forest Resource Management Area, the Tanana Valley State Forest, which was over 2 million acres, and the Southeast State Forest at around 44,000 acres. 2:36:16 PM REPRESENTATIVE MEARS addressed the risk of lightning strikes that lead to wildfires in the interior, in addition to the risk of human activity and recreation. She surmised that the risk portfolio would be higher for Alaska's forests, as opposed to cutting them off from recreation. MS. MILLER acknowledged that wildfire poses a risk to carbon projects, describing carbon stored land that burns as a "reversal" because the carbon is released back into the atmosphere. She explained that carbon offset projects pay a percentage of their credits into the registry's risk buffer, which is essentially an insurance pool amongst similar projects within the protocol against "acts of god" and actions that are outside one's control. In addition, there were ways within the project design to incorporate tools to avoid catastrophic fires or reduces their power, such as fire breaks. REPRESENTATIVE MEARS believed that there was an opportunity to value out the forest by increasing management for fire mitigation. MS. MILLER agreed. REPRESENTATIVE MCCABE asked whether [the bill] would help Alaska bypass the roadless rule and manage the Tongass National Forest. MS. MILLER offered to follow up with the requested information. 2:41:08 PM MS. MILLER began the sectional analysis for HB 49 on slides 11- 12, which read as follows [original punctuation provided]: Section 1: Exempts carbon offset program contracts from procurement code Section 2: Directs program revenue into a new fund to pay for program costs Section 3: Conforms to Sec. 4 / waives typical lease award process Section 4: Sets new leasing process for carbon management purposes Section 5: Conforms to Sec. 4 / exempts carbon land lessee from lease preference statute MS. MILLER invited Ms. Colles to expound on Section 4. 2:43:47 PM MS. COLLES described many of the general leasing requirements that were included in the bill, such as no preference rights, renewable lease options at the end of the term, subleasing and lease assignment options, and extensions. CHAIR MCKAY sought clarity on subleasing. MS. COLLES confirmed that all subleasing was approved by the department. MS. MILLER resumed the sectional analysis on slide 13, which read as follows [original punctuation provided]: Section 6: Establishes the Carbon Offsets Program at DNR 13 • Affirms private landowner rights • Sets project evaluation criteria, including viability and state/local economic impacts • Requires best interest finding and public process • Allows DNR to register, sell offset credits • Protects existing access, use of state lands • Establishes new fund for project revenues, costs Sections 7-9: Enable DNR carbon offset projects within Haines State Forest Resource Management Area Sections 10-13: Enable DNR carbon offset projects within other state forests 2:51:03 PM REPRESENTATIVE MEARS asked for more insight on the "ins and outs" of the carbon offset revenue fund. MS. MILLER offered to follow up with the requested information. She continued the sectional analysis on slides 14-15, which read as follows [original punctuation provided]: Sections 7-9: Enable DNR carbon offset projects within Haines State Forest Resource Management Area Sections 10-13: Enable DNR carbon offset projects within other state forests Section 14: Authorizes DNR to adopt regulations implementing the bill Section 15: Sets immediate effective date for authority to adopt regulations 2:55:28 PM REPRESENTATIVE MCCABE moved to adopt the proposed committee substitute (CS) for HB 49, Version 33-GH1372\S, Dunmire, 3/3/23, as the work draft. CHAIR MCKAY objected for the purpose of discussion. ED KING, Staff, Representative Tom McKay, Alaska State Legislature, on behalf of Representative McKay, provided a summary of changes in the proposed CS for HB 49, Version S, which read as follows [original punctuation provided]: Change 1: Technical drafting changes were made throughout the bill Change 2: The effective date was expanded to cover the entire bill (Page 9, line 17) CHAIR MCKAY removed his objection. There being no further objection, Version S was before the committee. CHAIR MCKAY announced that hb 49 was held over.