SENATE BILL NO. 48 "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." 2:58:24 PM RENA MILLER, SPECIAL ASSISTANT, OFFICE OF THE COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES, (DNR) addressed the fiscal notes. 2:59:53 PM CHRISTY COLLES, DIRECTOR, DIVISION OF MINING, LAND AND WATER, DEPARTMENT OF NATURAL RESOURCES (via teleconference), introduced herself. She spoke to the fiscal note related to the leases portion of the bill. 3:01:27 PM ASHLEE ADOKO, EXECUTIVE DIRECTOR, OFFICE OF PROJECT MANAGEMENT AND PERMITTING, DEPARTMENT OF NATURAL RESOURCES (via teleconference), spoke to the fiscal note. 3:03:02 PM HELGE ENG, STATE FORESTER, DIVISION OF FORESTRY AND FIRE PROTECTION, DEPARTMENT OF NATURAL RESOURCES (via teleconference), spoke to the fiscal note. 3:05:12 PM Senator Bishop wondered whether the there could be a shift to defining it as DGF funds after the revenue began. Ms. Miller replied in the affirmative. Senator Merrick noted the two bills related to carbon. She wondered which bill was more of a priority for the administration. Ms. Miller replied that the Department of Natural Resources (DNR) would like both bills to have potential to generate revenue. 3:07:11 PM AT EASE 3:07:59 PM RECONVENED 3:08:04 PM Ms. Miller discussed the Sectional Analysis: Section 1: Amends AS 36.30.850(b) to exempt the Department of Natural Resources (DNR) from following the state procurement code when contracting with third parties for purposes related to the carbon offset program established in Section 6. Requires notice by DNR if the department elects to use the procurement code. Section 2: Amends AS 37.05.146(c) to allow revenue from carbon offset credit sales to be treated as designated program receipts. This revenue would be deposited into a new Carbon Offset Revenue Fund established in Section 6. Section 3: Conforming to Section 4. Amends AS 38.05.075(a) to exempt state land leases for carbon management purposes from a requirement to award leases to the highest bidder at public auction or by sealed bid and related terms when competitive interest has been demonstrated, as Section 4 establishes procedures specific to the carbon management purpose leases. Section 4: Adds a new section to AS 38.05 authorizing DNR to lease state land to third parties for carbon management purposes. Proposed AS 38.05.081(b): Provides an application process for a state land lease for carbon management purposes. Proposed AS 38.05.081(c): Sets a process for deciding between applications for the same land; an aggrieved applicant may appeal within 20 days of a decision. Proposed AS 38.05.081(d): Caps land leases for carbon management purposes at 55 years and requires the lease include performance conditions. Requires DNR to terminate a lease if the land is not being used for the approved purpose or if the lessee fails to meet lease requirements after a reasonable opportunity to come into compliance. Proposed AS 38.05.081(e): Specifies a lessee does not receive a preference right to purchase the leased land. Proposed AS 38.05.081(f): Requires lease compensation be designed to maximize returns to the state and be a form of compensation set out in AS 38.05.073(m). Requires separate accounting of lease revenue and allows the Legislature to appropriate the lease revenue to fund the department's leasing program. Proposed AS 38.05.081(g): Applies standard provisions relating to sublease, assignment, renewal and extension to leases for carbon management purposes. Proposed AS 38.05.081(h): Requires DNR to make a best interest finding, which includes public notice of a preliminary decision for public comment, before issuing a state land lease for carbon management purposes. A finding must include the reasonably foreseeable effects a project may have on the state or local economy and the anticipated revenue to the state. Proposed AS 38.05.081(i): Requires state land leased for carbon management purposes to remain accessible by the public, to the extent possible, for generally allowed uses such as hunting and fishing. Proposed AS 38.05.081(j): Requires an annual, public report to the Legislature on detailed information about the carbon management purpose leasing program. Proposed AS 38.05.081(k): Defines "carbon management" to include greenhouse gas mitigation measures and non-geologic carbon sequestration projects. Section 5: Conforming to Section 4, amends AS 38.05.102 such that at the end of a carbon management lease if the state moves to sell or long-term lease those same lands, the carbon management purpose lessee is not granted a preferential right. Section 6: Adds a new article within AS 38.95 establishing the carbon offset program at DNR through enactment of AS 38.95.400 - 38.95.499. Defines a process for DNR to undertake carbon offset projects and creates a fund to receive project revenues. Proposed AS 38.95.400: Establishes the carbon offset program and allows DNR to contract with third parties to carry out the new program. Caps commissions in contracts to no more than 30 percent of the revenue generated by the carbon offset project the contract relates to. Explicitly disclaims application of the carbon offset program to activities of private landowners. Proposed AS 38.95.410: Requires DNR to adopt criteria to evaluate carbon offset projects on state lands; makes land generally available for carbon offset projects; and ensures projects are not undertaken on legislatively designated lands without legislative approval or unless allowed by law. Requires a written finding that a project is in the best interests of the state before a project is undertaken; caps project terms at 55 years; and requires land used for a project to remain open to the public for access, hunting and fishing and other generally allowed uses. Proposed AS 38.95.420: Allows DNR to enroll projects with a registry and requires DNR to maintain certain project records. Proposed AS 38.95.430: Creates the carbon offset revenue fund to receive revenue from the sale of carbon offsets. Funds could be used for purposes of the carbon offset program and to pay program administrative costs. Appropriations to the fund do not lapse. Proposed AS 38.95.440: Requires legislative approval to execute contracts that exceed $10 million in costs. Provides the Legislature 45 days if already in session, or 45 days once in session if not already in session, to act. Proposed AS 38.05.450: Requires an annual, public report to the Legislature on specific, detailed information about the Carbon Offset Program, including the entities engaged in a project, revenues, and project status. Proposed AS 38.95.499: Defines 16 terms related to the new program. Section 7: Adds a new subsection to AS 41.15.300 making land within the Haines State Forest Resource Management Area eligible for a carbon offset project. Section 8: Conforming to Section 7. Amends AS 41.15.315(d) allowing Haines State Forest Resource Management Area lands to be managed for a carbon offset project. Section 9: Conforming to Section 7. Adds a new subsection to AS 41.15.315 enabling amendments to the Haines State Forest Resource Management Area management plan to allow for carbon offset projects. A plan must identify land appropriate for a carbon offset project and a project must be consistent with the management plan. Section 10: Adds a new subsection to AS 41.17.200 authorizing lands within the State Forest system to be used for carbon offset projects. Section 11: Conforming to Section 10. Amends AS 41.17.220 so State Forest lands are managed under the sustained yield principle, AS 41.17, a forest management plan, and, as applicable, a carbon offset project. Section 12: Conforming to Section 10. Amends AS 41.17.230(a) to include carbon offset projects among the forest uses a forest management plan must consider and permit when compatible with the primary purpose of State Forests. Section 13: Conforming to Section 10. Adds a new subsection to AS 41.17.230 enabling amendments to State Forest management plans to allow for a carbon offset project. Requires plans to identify land appropriate for a carbon offset project and requires a project be consistent with the plan. Section 14: Disallows oil and gas production tax lease expenditures for capital costs incurred for a carbon management purpose lease or a state carbon offset project. Section 15: Sets an immediate effective date for the bill. 3:11:36 PM JOHN BOYLE, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES, thanked the committee for hearing the bill. He stated that carbon bills were important at DNR. SB 48 was HEARD and HELD in committee for further consideration.