With Legislature set to convene, governor introduces plan for carbon management as potential revenue source

With the Legislature preparing to begin its 2023 session on Tuesday, Jan. 17, Gov. Mike Dunleavy has outlined a broad legislative proposal for carbon “sequestration”, or underground storage, on state lands as well as sales of carbon “offset” credits on undeveloped state lands, such as forests.

Fees would be charged under both programs which could provide a substantial source of new revenue to the state, the governor said in a briefing.

Under sequestration developers of fossil fuel projects, as an example, could extract carbon and inject it underground. This would otherwise be released to the atmosphere usually as carbon dioxide, a gas that is a significant contributor to climate change.

Carbon sequestration efforts are underway in many places. It is a young industry with some technical questions still unanswered, such as how to guarantee that carbon dioxide injected underground stays there and does not seep upward through rocks to the surface to reenter the atmosphere.

Carbon offset credits involves a landowner, in this case the state, agreeing to forego logging of forest lands, as an example, to ensure that trees can continue to absorb carbon dioxide from the air. This is now a maturing and fast-growing industry, where industries in many nations including in the U.S. paying landowners to forego development to compensate for pollution released in an industrial operation.

An example in Alaska is the purchase of third-party carbon credits by Santos, Ltd., which is developing a large North Slope oil project, so that the project becomes “carbon neutral,” released no new carbon, when the carbon credits are combined with elements of the projest itself designed to lower greenhouse gas emissions.

Being carbon neutral will help Santos raise financing for its Alaska project. Investors today are reluctant to put money into projects that will accelerate climate change, particularly in Arctic regions.

“These (carbon credit) markets are growing rapidly,” Dunleavy said in a Jan. 12 briefing. “Alaska Native regional corporations like Sealaska, Chugach Alaska Corp., and Ahtna Inc. have been participating in these markets for years. Since 2019, carbon offsets generated in Alaska have brought $370 million to our Alaska Native Corporations and (they) were the most prominent forestry participants in the California Air Resources Board’s regulated offset/credit market,” the governor said.

There are two kinds of carbon markets: “regulated” or “compliance” markets found in jurisdictions where activities are required to use offset credits, and “voluntary” markets, where companies use them to comply with corporate missions and commitments to limit net emissions.

The State is proposing legislation that would allow the Department of Natural Resources to provide types of carbon management, sequestration and sales of carbon credits. Here’s how these would work:

• Geologic sequestration – where concentrated carbon is compressed, injected and stored in deep underground geologic formations. This is typically referred to as carbon capture, utilization, and storage.

• Biologic sequestration – where the accumulation of carbon in trees, soils, kelps, or other natural processes can be promoted or encouraged. These projects could occur both on state lands and potentially in state waters offshore.

For geologic sequestration, the bill package would establish statutory authority, rules, and processes for leasing state subsurface lands for carbon capture and storage. It would create operating rules, regulatory oversight authority, and liability provisions for these projects whether located on State or other lands.

For biological sequestration, the bill package would establish the authority for DNR to develop and market carbon offsets and authorize DNR to lease State land for purposes that include carbon offset projects.

“We’re proposing a flexible framework broad enough to cover the growing possibilities and opportunities with carbon management,” said DNR

Commissioner John Boyle.

“This burnishes the State’s environmental, social and governance (ESG) credentials – and shows the market that we’re open for business,” Boyle said.

The bill package came together through a joint effort, led by the governor, with the Department of Environmental Conservation, the Alaska Oil and Gas Conservation Commission, and the University of Alaska.

“I’m asking lawmakers to take this legislation seriously as the cornerstone of a long-term fiscal solution that complements revenue from oil and gas and the Permanent Fund,” Dunleavy said.