Alaska carbon credits bill could have enough traction to pass Legislature

JUNEAU — Alaska Gov. Mike Dunleavy’s bill to raise revenue from carbon offsets on state land has advanced in the state Senate, with leadership signaling support that the measure could pass this year.

Senate Bill 48 creates a framework for allowing carbon offsets using state land and then selling carbon offset credits. Forests, tundra and even kelp farms could be used to raise new state revenue from carbon credits, but it remains unclear how much and by when.

The House has been more focused on Dunleavy’s other carbon monetization proposal, which would involve injecting carbon dioxide into empty underground reservoirs. Anchorage Republican Sen. Cathy Giessel said that with less than two weeks left in the legislative session, there is simply not enough time to vet that measure in the Senate.

Passing legislation to monetize carbon is one of Dunleavy’s priorities this session, multiple lawmakers said. During his annual address to the Legislature in January, the governor said a carbon management scheme could potentially net the state billions of dollars per year. But members of his administration have since presented more modest revenue projections.

Because of the uncertainty about project sizes and timelines, the Dunleavy administration said it cannot estimate how much revenue could be collected by carbon offsets. In a presentation to the House Finance Committee on Wednesday, administration officials presented several potential revenue scenarios from credits on state forested land, including one scenario that could raise roughly $260 million over the next 40 years — or $6.5 million per year.

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Rena Miller, special assistant to the Department of Natural Resources commissioner, said in an interview Thursday that the administration believes there is greater potential for revenue from carbon offsets with undisclosed third parties having shown a strong interest in working with the state.

If the Legislature passes the carbon offset bill this year, it still could be a long wait for new state revenue. Miller said it would likely take one or two years to develop regulations and evaluate potential projects, and then another 18 to 24 months to get carbon offset programs developed.

There is some precedent for carbon credit programs in Alaska forests. Several Alaska Native corporations are already engaged in a California cap-and-trade program, netting one — Sealaska Corp. — a reported $100 million between 2015 and 2020.

Companies that might participate may want to voluntarily offset their emissions, or they might be required to do so under regulated markets such as those in California or Europe. They could buy carbon offset credits from the state as it takes steps to protect or enhance its forests.

State forests would not be eligible for leasing to third parties, but the state could create its own programs to sell credits. Haines State Forest and Tanana State Forest were flagged in Wednesday’s presentation as options for carbon offsets because of the trees’ “tremendous ability to store carbon,” Miller said. But there are ideas for other potential projects.

At the start of the legislative session, lawmakers had planned to hire a consultant to study the governor’s carbon proposals before approving them, but that idea has been partly scrapped.

Rep. Ben Carpenter, R-Nikiski, said in a brief interview Thursday that there weren’t many options. A contract with GaffneyCline — the Legislature’s consultant on oil and gas issues — is set to end soon, and Carpenter wants to write a new contract for a firm that could also study carbon storage.

The House advanced both of the governor’s carbon bills to the finance committee in March, but the Senate had been more lukewarm on both proposals — particularly the plan to store carbon underground.

Under the carbon offset legislation, the state could enter into leases for a maximum of 55 years, which raised concerns that forested land could potentially be locked up for decades, preventing the possibility of other resource development, like logging or mining.

Giessel, chair of the Senate Resources Committee, was among the skeptics of the carbon offset proposal early in the session, but she said Thursday that she now feels “pretty satisfied” after hearing from Dunleavy administration officials. State land could still be used for some logging and also carbon leasing, she said, and the bill merely allows the administration to explore creating a framework for offset programs.

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“I realize it probably does give them the authority to go forward with some more steps, but that’s going to take a while,” she said, adding that “we can keep monitoring this.”

The Senate Resources Committee advanced the carbon offset legislation to the finance committee Wednesday, which scheduled its first hearing next week. There were several provisions added to the bill, which sought to add more transparency to the leasing process and more legislative oversight.

Following a proposal by Anchorage Democrat Bill Wielechowski, the Senate Resources Committee amended the bill to require legislative approval for any carbon offset contract worth more than $10 million. An amendment from Anchorage Democratic Sen. Matt Claman capped the commission that third parties could make from leasing contracts with the state. Another amendment required annual lease reports to the Legislature.

The carbon offset bill exempts the state from the state procurement code, which means administration officials could issue contracts to a single company without competitive bidding. Miller, with the natural resources department, said that exemption was needed because the procurement code was geared toward expenditures and not revenue.

Wielechowski said he would continue working with members of the Dunleavy administration to devise a more competitive leasing process.

Miller said that the administration believes that competition is good, and that officials would work with Wielechowski and other lawmakers to improve the bill.