SB 49-CARBON STORAGE  4:21:00 PM CO-CHAIR GIESSEL reconvened the meeting and announced the consideration of SENATE BILL NO. 49 "An Act relating to the geologic storage of carbon dioxide; and providing for an effective date." She stated the intention to continue the 3/10/23 review of the sectional analysis for SB 49. 4:21:43 PM HALEY PAINE, Deputy Director, Division of Oil and Gas, Department of Natural Resources (DNR), Anchorage, Alaska, continued the sectional analysis for SB 49, starting with Section 14 on slide 22. Section 14 (DNR/DOG)  Adds new sections to AS 38.05 Alaska Land Act as Article 15A Carbon Storage Exploration Licenses; Leases (proposed AS 38.05.700795); detailed summary on next slide MS. PAINE directed attention to the theoretical timeline for a CCUS project on slide 23 that overlays the different components of the bill. It notes the points that a carbon storage exploration license and a carbon storage lease come into play. The yellow arrow highlights that Section 14 applies after the initial screening and at the start of the feasibility phase. Section 14 Detail:    AS 38.05.700  Policy statement that it is in the public interest to promote geologic storage of carbon dioxide AS 38.05.705 Provision for applicability carbon storage statutes and authority for DNR to adopt regulations to implement these statute AS 38.05.710 Allows the commissioner to issue carbon storage exploration licenses on state land and establishes work commitment obligations, minimum economic terms, bonding requirements, default provisions, renewal provisions, and the escalation of minimum economic terms. • 5-year exploration license term • Conversion of the license to a lease upon fulfillment of work commitment, acquiring storage facility permit from AOGCC, ability to meet commercial terms AS 38.05.715  Procedures for issuance of a carbon storage exploration license. These are modeled after existing procedures for oil and gas exploration licensing under AS 38.05.133. • Identify land, minimum work commitment, economic terms, 90 days for competing proposals • Written finding including competitive process if competing proposals are submitted • Subsection 715(h) provides a right-of-first- refusal opportunity for existing lessees under AS 38.05.135181 (i.e., mineral lessees for coal, oil and gas, geothermal, or other exploitable minerals). 4:26:30 PM CO-CHAIR BISHOP referenced section .710 and asked what the duration of the lease would be after the license is converted to a lease. MS. PAINE answered that the lease is good for as long as the carbon storage facility is in operation, from construction through post-closure activities. She added that it's similar to the oil and gas lease model; there's a primary term that allows exploration work, but to hold the lease after that the company has to be engaged in actual production. CO-CHAIR GIESSEL asked her to speak to subsection .710(h) which says dollar amounts shall change every five years. MS. PAINE explained that subsection (h) provides an opportunity to reevaluate the statutory minimums for per acre and per ton injection charges and increases them in line with the consumer price index. SENATOR CLAMAN questioned whether this wasn't an overly simple solution to price indexing. MS. PAINE offered her belief and hope that it would be as functionally simple as outlined. 4:27:37 PM JOHN CROWTHER, Deputy Commissioner, Department of Natural Resources, Anchorage, Alaska, added that, similar to other floor provisions in oil and gas leasing, it was conceivable that the department would pass regulation or negotiate leases that were higher than the statutory floor. 4:28:19 PM MS. PAINE continued to describe the provisions in Section 14. Section 14 - (DNR/DOG)    AS 38.05.720 Provision allowing conversion of an AS 38.05.715 carbon storage exploration license to a carbon storage lease. AS 38.05.725 An oil and gas lessee converting from enhanced oil recovery to carbon storage must apply for a carbon storage lease. AS 38.05.730 Requirements for plans of development and operations, and provision for unitization, as with oil and gas leasing. AS 38.05.735 Payments from carbon storage licenses and leases are to be deposited in the general fund except for the amount allocated to the Permanent Fund under art. IX, sec. 15, of the Alaska Constitution. AS 38.05.795 Definitions for specific terms used in the proposed Article 15A Carbon Storage Exploration Licenses; Leases 4:29:50 PM CO-CHAIR BISHOP referenced the payment provision in section .735 and asked what percentage will go to the Permanent Fund. MS. PAINE answered that for older leases 25 percent of mineral interests are allocated to the Permanent Fund and a newer generation of leases allocate 50 percent to the Permanent Fund. She deferred to the Department of Law to say where these leases would fall. CO-CHAIR BISHOP said he'd like that information and Co-Chair Giessel agreed. 4:30:40 PM MS. PAINE continued to slide 25, Sectional Summary: Secs. 15-31. Section 15 (DNR/DOG) Amends AS 38.35.020(a) to include carbon dioxide for pipeline transportation right-of-way (ROW) leasing purposes Section 16 (DNR/DOG) Amends AS 38.35.020(b) to allow the DNR commissioner to exempt pipelines from ROW leasing when transporting carbon dioxide for enhanced oil recovery or pressure support Section 17 (DNR/DOG) Conforming amendment to AS 38.35.122 to bring some carbon dioxide pipelines under the same title as "product" pipelines Section 1820 (DNR/DOG)  Amends AS 38.35.230 definition of "lease," "pipeline" or "pipeline facility," and "transportation" to include provisions for carbon dioxide Section 21 (DNR/DOG)  Amends AS 38.35.230 to add a definition for "carbon dioxide" cross referencing the definition used in AS 38.05.795 CO-CHAIR GIESSEL asked if these sections were provisional and whether it was more likely that the storage would be located where the carbon was produced. MR. CROWTHER responded that these sections conform carbon dioxide pipelines to the existing long and short-distance oil and gas pipeline regulatory system. DNR anticipates these carbon dioxide pipelines initially would be very short, but the provisions in these sections provide the authority to manage all the different pipeline scenarios. 4:32:51 PM CO-CHAIR BISHOP asked if AS 38.35.020(a) in Section 15 was for a new standalone pipeline. MS. PAINE said yes; the provision authorizes new rights-of-way leases for constructing a pipeline. CO-CHAIR BISHOP asked how it would work if the new pipeline was within an existing right-of-way for an in-use petroleum pipeline. MS. PAINE answered that DNR's rights-of-way are for non- exclusive access. 4:34:15 PM MS. PAINE continued to Sections 22-30 on slide 25 Sections 2230 (AOGCC) Conforming amendments separate AS 41.06 into two articles one for geothermal and one for carbon storage (AS 41.06.005060). 4:34:45 PM SENATOR WIELECHOWSKI questioned the reason for the new paragraph (b)(2) in Section 16 that exempts the construction or operation of a pipeline transporting carbon dioxide within a field for the purpose of an enhanced oil recovery project or field pressurization measures. MR. CROWTHER explained that AS 38.35.020(b) exempts those pipelines from the requirement to acquire a specific right-of- way lease, but it does not exempt the pipeline from the regulation associated with operations within a development site. MS. PAINE added that infield gathering lines within a unit currently are exempted from the requirement to obtain a right- of-way lease. SENATOR WIELECHOWSKI asked if this was limited to operations within a unit or field. MR. CROWTHER said he would follow up with specifics about the jurisdiction, but in practice most those operations have been in the context of an existing development or authorization. SENATOR WIELECHOWSKI said he was curious about whether this could affect private property rights. MR. CROWTHER clarified that the authorities under discussion are for the purpose of leasing out state lands for the purpose of siting infrastructure associated with a project. This does not authorize placing infrastructure on private lands, although there are processes for an operator to seek such an authorization and for adjudication. 4:37:44 PM MS. PAINE continued to Section 31 on slide 25. Section 31 (AOGCC)  Adds new sections to AS 41.06 as Article 2. Carbon Dioxide Injection and Storage beginning at AS 41.06.105. Detailed summary on slide after next. MS. PAINE directed attention to slide 26 that shows the same theoretical timeline for a CCUS project but with a yellow arrow that points to where the AOGCC carbon storage permit fits. That authority is detailed in section 31. 4:38:33 PM MS. PAINE advanced to slides 27-28, Section Detail: Section 31 (AOGCC). Section 31 Detail: AS 41.06.105 Contains a policy statement that it is in the public interest to inject carbon dioxide into oil and gas reservoirs in a manner protective of waters and reservoir integrity; recognizes that in the event cooperation of mineral interest holders in an area cannot be obtained, regulatory procedures that enable cooperative management are required AS 41.06.110 Provides AOGCC jurisdiction over carbon dioxide storage facilities to prevent waste, protect correlative rights, and ensure public health and safety; "waste" is defined in AS 41.06.210 AS 41.06.115 Concerns AOGCC's authority to carry out the purposes and intent of AS 41.06.105210 (a) contains an expansive statement of AOGCC's jurisdiction over persons and property necessary to carry out the purposes and intent of AS 41.06.105210 the state's police power (b) allows AOGCC to suspend its statutes as to lands committed to federal units, provided the conservation of resources is provided for (c) contains a list of specific AOGCC regulatory authorities (d) wells drilled for carbon dioxide are subject to AOGCC's jurisdiction under AS 31.05 unless specifically covered by AS 41.06.105210 (e) AS 41.06.105210 do not limit DNR's authority over (1) carbon storage exploration licensing or leasing; or (2) approval and management of carbon storage units or operations that include state land AS 41.06.120 Provides that waste is prohibited in a carbon storage facility or reservoir 4:40:04 PM AS 41.06.125 Provides permit requirements for storage facilities AS 41.06.130 Creates a public hearing requirement for storage facility permits issued by AOGCC notice is given to property owners within ½ mile AS 41.06.135 Specifies the criteria for the AOGCC to approve a carbon storage facility permit AS 41.06.140 Allows AOGCC to include parameters, limitations, or restrictions in a permit and to protect and adjust rights and obligations of persons affected by geologic storage AS 41.06.145 Concerns amalgamation of property interests for storage facilities CO-CHAIR BISHOP requested additional explanation of the provision in section .145. MS. PAINE explained that if a property owner does not consent to a storage facility, AOGCC has the authority to amalgamate the subsurface property interests and allow the use of the storage facility as long as the nonconsenting owner is properly compensated. The oil and gas statutes have a similar provision. MS. PAINE continued to review the details of Section 31. AS 41.06.150 Creates specifications for recording a carbon storage facility certificate to put future property purchasers on notice AS 41.06.155 Creates statutory requirements for AOGCC to ensure environmental protection and reservoir integrity in storage facilities and reservoirs AS 41.06.160 Clarifies preservation of rights, including deconfliction of development of other minerals by drilling through or near a storage reservoir AS 41.06.165 Provides authority for AOGCC to collect fees and establishes the "carbon dioxide storage facility administrative fund" under the general fund AS 41.06.170 Specifies that storage operators hold title to injected carbon dioxide until a certificate is issued under AS 41.06.175, including liability for damage associated with injected carbon dioxide AS 41.06.175 Specifies the eight factor criteria for certificate of completion a transfer of title of CO2 4:43:45 PM SENATOR DUNBAR asked her to speak to 1) the state's liability if a storage facility is wrongly certified as complete and 2) what happens if the company has gone bankrupt. MS. PAINE answered that the state would have the ability to hold the company liable, just as it can today. If the company is no longer in business, the funds that are paid into the carbon storage trust fund over the life of the project would provide protection. SENATOR DUNBAR observed that the difference in the carbon storage context, is that the state has title to the CO2 that is both an asset and a liability. The liability is that the state has to make sure it doesn't leak. 4:46:32 PM MS. PAINE advanced to slide 29 and continued to review the details of Section 31 AS 41.06.180  Provides authority for AOGCC to collect a "carbon storage facility injection surcharge" for post-closure administration to be deposited in the "carbon storage closure trust fund" established in AS 37.14.850 (bill Sec. 4) AS 41.06.185  Provision for AOGCC to impose civil penalties for violations of its carbon storage statutes AS 41.06.190  Excludes AOGCC's carbon storage statues from enhanced oil recovery (EOR), except for when an EOR-related reservoir is converted to a storage reservoir AS 41.06.195  Authority for AOGCC to enter into agreements with other government entities and agencies for carbon storage purposes AS 41.06.200  Authority for AOGCC to determine amounts for injection and storage, including EOR; provides for fees and applicability for credits and other carbon management goals AS 41.06.210  Definitions for terms used in AOGCC's carbon storage statutes 4:48:01 PM SENATOR WIELECHOWSKI questioned the reasoning for using the term "carbon dioxide" in the definition of "carbon dioxide." MR. CROWTHER said a certain quality and composition of carbon dioxide is necessary for the safe administration of an injection and storage project, so the definition tries to indicate that it is a technical term that is used throughout the statute. SENATOR WIELECHOWSKI asked if the definition was standard within the industry. MR. CROWTHER answered that the program is modeled on the standard recognition that carbon dioxide must be of a suitable quality and purity to be safely managed in these storage facilities. He offered to follow up with how other states have defined the compound. SENATOR WIELECHOWSKI said he'd be curious to hear about other states, because the definition in the bill seemed very unusual. MR. CROWTHER restated that he would follow up with information from other states and DNR's thoughts on conforming the definition to the intent. 4:50:42 PM SENATOR DUNBAR asked whether the bill, as currently drafted, could be used to inject and store any other kind of gas. MR. CROWTHER said there are efforts to manage other byproducts from industrial activities, but the only focus for geologic sequestration is carbon dioxide. SENATOR CLAMAN commented that these leases are the reverse of a typical oil and gas lease because those leases only last as long as it's economic to get the product out of the ground. For carbon storage, the company is obligated to manage the storage facility indefinitely. He asked what in the legislation addresses the lessee that decides to go home after 10 years. MS. PAINE responded that while there isn't an end date for the project, the model is able to predict how much CO2 a reservoir is able to take over a certain number of years. If the operator is able to demonstrate that the plume is no longer migrating and there's no danger of a leak 10 years after injection has ceased, AOGCC may grant a site closure certificate. There is no requirement to do so; 10 years is just the earliest in the post injection period that the operator could apply for a title transfer. SENATOR CLAMAN summarized that before a company goes home after it has injected CO2 to the capacity of the storage reservoir, it must apply and show AOGCC convincing evidence that the gas is fully contained and won't migrate. MS. PAINE agreed. SENATOR CLAMAN continued that if there were a problem after that, any corrective action would be the state's responsibility. MS. PAINE answered the state is ultimately responsible as the landowner, but the idea is that the regulatory and statutory requirements for inspections, monitoring, and the post closure trust fund would avoid that sort of problem. 4:55:17 PM SENATOR WIELECHOWSKI noted that the bill talks about carbon, carbon storage, and carbon dioxide; he asked if those terms are intended to be used interchangeably. MR. CROWTHER agreed that the terms were used interchangeably, and conveyed that the House version of the bill was amended to make the terminology consistent. 4:55:57 PM SENATOR DUNBAR asked if he had an explanation for the zero fiscal note from the Department of Revenue (DOR). MR. CROWTHER asked whether he was talking about revenues or expenses. SENATOR DUNBAR said he thought it was expenses. MR. CROWTHER said DNR and DOR believe the program can be managed with the existing staff. However, that could change in years to come, and if that happened a request would be forthcoming at that time. 4:57:21 PM SENATOR KAWASAKI asked about enhanced oil recovery wells, the difference between Class II and Class VI wells, and how that determination is made. MS. PAINE answered that, at present, an enhanced oil recovery well is dedicated to that purpose. But when that well is used for geologic storage, it has to be a Class VI well because the concentration of CO2 will be very different. The EPA currently is working on the rules that govern the transition from one well class to the other, but right now there is just the statement that when the safety and protections designed for the well are no longer applicable for Class II, it's necessary to transition to Class VI. SENATOR KAWASAKI noted that the language says the commission will adopt the regulations even though the federal government hasn't said what it will do on Class VI wells, so the AOGCC will have to take that up at some point. MS. PAINE agreed. 4:58:59 PM MS. PAINE continued to slide 30 to describe Sections 32-39. Sections 3235 (DNR/Parks)  Conforming amendments to parks and recreational facilities laws (AS 41.21) • Wood-Tichik excluded • Willow Creek permitted • Kenai River Management Area permitted • Alaska Chilkat Bald Eagle Preserve excluded Section 36 (DNR/DOG) Adds new subsection AS 44.37.020(d) for DNR to administer storage facilities and stored carbon after certificate of completion is issued under proposed AS 41.06.175 (bill Sec. 31) Section 3739 (DNR/AOGCC) General provisions for authority to adopt regulations, title change for chapter AS 41.06, and effective date of the legislation 5:00:12 PM CO-CHAIR GIESSEL noted that the committee would work with DNR to reschedule the individuals who had been invited to testify.