SB 48-CARBON OFFSET PROGRAM ON STATE LAND  4:06:12 PM CO-CHAIR GIESSEL reconvened the meeting and announced the consideration of 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." She noted there was a committee substitute for the committee to consider. 4:06:34 PM CO-CHAIR BISHOP moved to adopt the committee substitute (CS) for SB 48, work order 33-GS1372\B, as the working document. 4:06:45 PM CO-CHAIR GIESSEL objected for an explanation of the changes. 4:06:52 PM JULIA O'CONNOR, Staff, Senator Cathy Giessel, Alaska State Legislature, Juneau, Alaska, presented the explanation of changes between version A and version B for SB 48. The Committee Substitute adopts the following changes: 1. Technical drafting changes were made throughout the bill to conform to the Legislative Drafting Manual. 2. The effective date was expanded to cover the entire bill (page 9, line 17). CO-CHAIR GIESSEL explained that the CS does not change the content of the governor's bill; it was redrafted to comport to Legislative Legal Services' drafting format. 4:07:42 PM CO-CHAIR GIESSEL removed her objection and the CS was adopted. 4:08:02 PM CO-CHAIR GIESSEL moved to adopt Amendment 1, work order 33- GS1372\B.10. 33-GS1372\B.10 Dunmire 4/27/23 AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR GIESSEL TO: CSSB 48(RES), Draft Version "B" Page 3, line 30, through page 4, line 1: Delete all material and insert: "(f) Compensation for a lease under this section (1) shall be designed to maximize the return to the state and be a form of compensation provided under AS 38.05.073(m); (2) shall be separately accounted for under AS 37.05.142; and (3) may be used by the legislature to make appropriations to the department to carry out the purposes of this section." Page 4, line 6, following "state.": Insert "The findings must include (1) reasonably foreseeable effects that a project may have on the state or local economy; and (2) anticipated annual revenue that the lease will yield to the state. (i) State land used for carbon management purposes must, to the extent practicable, remain open to the public for access, hunting, fishing, and other generally allowed uses as determined by the department." Reletter the following subsection accordingly. Page 8, line 22, following "(4)": Insert "if applicable," Page 9, line 2: Delete "nontimber" Insert "other [NONTIMBER]" 4:08:11 PM CO-CHAIR BISHOP objected for purposes of discussion. 4:08:17 PM CO-CHAIR GIESSEL explained that Amendment 1 combines four amendments the House Resources Committee added to the House companion bill. She deferred to Rena Miller to explain the amendment. 4:08:48 PM RENA MILLER, Special Assistant to the Commissioner, Department of Natural Resources (DNR), Anchorage, Alaska, reviewed Amendment 1 for SB 48 on behalf of the administration. She highlighted the following. Page 3, line 30 of version B - The Division of Mining Land and Water is given receipt authority for the carbon leasing program. The revenue generated from the leases will be used to supplant general funds to pay for the new position. Page 1, line 10 of the amendment - Two findings are added to the Best Interest Finding required for a leasing program under the carbon offset bill. Page 4, line [4] of version B- The findings must consider reasonably foreseeable effects that the project will have on the state and local economy and the anticipated revenue that the annual lease would provide to the state. State land under lease for carbon management purposes must, to the extent practicable, allow public access for general uses as determined by the department. 4:11:17 PM SENATOR KAWASAKI asked what the term "to the extent practicable" means in the current draft of the bill. MS. MILLER explained that there's a policy statement that the land will remain open to public access, but the phrase gives the division some leeway so the leasing activity can actually occur. 4:11:51 PM CO-CHAIR BISHOP commented that "to the extent practicable" is a favorite term in the department. 4:12:04 PM SENATOR DUNBAR commented that it had been a challenge when the committee asked DNR a question only to receive the response that it's a Department of Revenue (DOR) question. He asked which department would determine the anticipated revenue to the state from the leases. His reading is that some oil companies could write down some of their oil production tax expenses. He asked if it was the net yield to the state. He also asked if the focus was on the lease and that the revenues lost elsewhere were being ignored. MS. MILLER replied that DNR will determine the lease revenue to the state. To the second question, she offered her understanding that an amendment was forthcoming to address lease expenditures to offset other tax liabilities. SENATOR DUNBAR said he'd repeat the question if and when the amendment is offered. MS. MILLER added that AS 43.55 is the oil and gas production tax, which is administered by the Department of Revenue (DOR). SENATOR DUNBAR commented that the short answer is that DNR will focus on administering the leases and the impacts to DOR won't be part of DNR's calculation. MS. MILLER said that's correct; the compensation received for a lease related to carbon management is under DNR's jurisdiction. All oil and gas production taxes an entity owes is under DOR's jurisdiction. 4:15:17 PM MS. MILLER continued to discuss Amendment 1. Page 8, line [22-23] of the bill - Adds a carbon offset project undertaken by DNR to Sec. 41.17.210 Management of state forests. The House Resources Committee felt this was important, so the amendment adds the term "if applicable,". Page 9, line 2 of the bill - The term "nontimber" is removed from Sec. 12. AS 41.17.230(a) relating to a forest management plan in recognition that a carbon offset project is timber related. 4:17:11 PM SENATOR CLAMAN referenced the four criteria under AS 41.17.220. Management of state forests. He asked how those four factors were weighted. MS. MILLER deferred the question to the state forester, Helge Eng. 4:17:53 PM HELGE ENG, Ph.D., State Forester and Director, Division of Forestry and Fire Protection, Department of Natural Resources (DNR), Anchorage, Alaska, said the four criteria are equal in priority. SENATOR CLAMAN commented that he found it interesting that the sustained yield principle is given equal weight as the other three factors. MS. MILLER clarified that they're given equal weight when undertaking management activities, but each criterion is based on the others to a certain degree. Sustained yield is discussed in the constitution, the statutes reflect what's in the constitution, and the management plan is formed under statute. SENATOR CLAMAN opined that if the constitution requires sustained yield, then that should be given the greatest weight if there's ever a conflict among the criteria. MS. MILLER said there's interaction between them but she believes that Chris Orman would confirm that in any situation the constitution is the overriding law of the land. CO-CHAIR GIESSEL asked Mr. Orman to respond to Senator Claman's question. 4:19:55 PM CHRISTOPHER ORMAN, Assistant Attorney General, Civil Division, Natural Resources Section, Department of Law, Juneau, Alaska, said yes, the sustained yield principle is a constitutional requirement, but this chapter, which is referring to the provisions in AS 41.17 pursuant to state forests, will be driven by the constitutional and statutory provisions. A forest management plan will be similarly driven. How a carbon project would be undertaken by DNR in that context, would also need to comply with those provisions. He continued that the sustained yield principle will carry a lot of weight in the analysis because it's part of provisions 2, 3, and 4. He agreed with Senator Claman that the sustained yield principle carries weight because it's addressed in the constitution. The way it's infused into the other provisions bolsters the weight of the sustained yield principle in that context. 4:22:03 PM SENATOR KAUFMAN asked Ms. Miller to go through the requirements to adequately survey to ensure a more valuable resource isn't trapped. MS. MILLER stated that mining has a primacy so DNR is not able to choose anything above that mineral estate. If there is a highly prospective mineral resource that could be of potential interest in the future, that area wouldn't be enrolled in a carbon offset project. The provision that provides the opportunity to allow for some surface disturbance accommodates something that might come up during the course of a 40 year commitment for a state project. The key is to ensure there's no dipping below the baseline stock of the carbon project and that more is always growing than is harvested or removed for some purpose. She noted that the larger the project the easier it becomes to accommodate the removal of carbon from the landscape, but there are also ways to do that within a smaller project without looking to DNR's mandate to develop all resources for that benefit. 4:25:54 PM CO-CHAIR BISHOP removed his objection. CO-CHAIR GIESSEL found no further objection and Amendment 1 was adopted. 4:26:31 PM CO-CHAIR GIESSEL held SB 48 in committee for future consideration.