GOP Gov. Dunleavy says his carbon storage bills could bring Alaska 'billions,' but many unknowns remain


Sean Maguire, Alex DeMarban, Anchorage Daily News, Alaska
Sat, January 28, 2023 at 9:59 PM MST·7 min read

Jan. 28—JUNEAU — Alaska Gov. Mike Dunleavy introduced two bills Friday that would allow the state of Alaska to raise revenue by starting carbon offset and sequestration programs.

One of the governor's bills would create a regulatory framework for geologic storage of carbon dioxide. The other would create a framework for allowing carbon offsets using state land and then selling carbon offset credits.

Carbon offset and capture programs can involve companies injecting carbon dioxide into empty underground reservoirs that may have once contained oil or natural gas, keeping those emissions out of the atmosphere where they contribute to climate change. It could also involve entities, such as the state, receiving compensation for allowing the use of those reservoirs, or for protecting forests or even establishing kelp farms, which also take in carbon emissions.

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.

But how much the state could bring in, and how early, is a huge unknown.

Dunleavy said in his State of the State address this week that, according to experts, Alaska "can realize revenue to the tune of billions of dollars, that's billions of dollars per year, by creating a carbon management system."

Just from Alaska's forest lands alone, Dunleavy said the state has "been told by some that we can generate as much as $30 billion or more over 20 years."

Experts who study carbon offsets say it's possible for the state to make millions each year, but much is still unknown, and will depend on the details of how the programs are carried out.

The governor's legislation says that state forests used for a carbon offset program "must remain open to the public" for hunting, fishing and other recreation opportunities.

Legislators have questions about the wisdom of the state signing decades-long carbon credit agreements. The Legislature wants to perform its own due diligence on the governor's ideas before it jumps on board, to see if the numbers pencil out.

"It sounds almost too good to be true," said Anchorage Democratic Sen. Bill Wielechowski.

'Real potential out there, if ...'

A Houston, Texas, consulting firm produced a report for the Alaska Department of Natural Resources last year that looks at a few opportunities from the state's forests.

Anew Climate considered projects located near roads that could be piloted by the state, by preserving some of the forest in three areas — in the Matanuska-Susitna region, the Haines area of Southeast Alaska and the Tanana Valley area in the Fairbanks region.

It indicated that the state could bring in about $8 million a year from the three areas, in the first decade.

The Dunleavy administration also has identified Cook Inlet basin as a prime location for geological sequestration of carbon in deep underground reservoirs, and said there are companies that have indicated an interest in a forest-based carbon offset program.

"In a nutshell, there's a tremendous amount of opportunity," said John Boyle, commissioner-designee of the Alaska Department of Natural Resources.

However, a fiscal note attached to the governor's carbon offset bill, extending through 2029, doesn't estimate potential revenue. That isn't possible, it says, because of market uncertainty and the unknown timelines of projects. The Department of Natural Resources said that credits could start being issued from 2025 or beyond, depending when the legislation passes and the projects are launched.

Selling forest-based carbon credits is simpler and expected to lead to new revenue more quickly, Boyle said, compared to carbon sequestration and the question of where the carbon dioxide comes from and how it is stored underground.

Nat Keohane, an economist with the Center for Climate and Energy Solutions, a group from Virginia that advocates for climate policy, said he could not comment on how much Alaska might make from its carbon capture and storage proposal. But he said Alaska has a tremendous opportunity to capitalize on the rapidly growing market for such programs.

"There's a real potential market out there, if you can show and verify that you are making real emissions reductions," he said.

Dominick DellaSala, chief scientist with Wild Heritage, a California-based forest conservation group, said the state has the potential to make tens of millions of dollars annually, or perhaps much, much more.

Dunleavy has said a carbon offset program can exist without negatively affecting current resource extraction industries, such as logging. But much of the money must come from preservation of forests, particularly old-growth forests, that would otherwise be logged.

The view that logging can continue and the state can generate vast sums by using forests as carbon offsets does not add up, DellaSala said.

"It's pie in the sky," he said.

Precedent with Native corporations

There is some precedent for a carbon offset program of Alaska's 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.

A lawsuit filed last year argued that revenue needs to be shared among other regional corporations, following the terms of the Alaska Native Claims Settlement Act. The case remains open in state court.

New federal tax incentives for storing carbon have been proclaimed as creating a new gold rush for investment. Some environmental and Indigenous groups have questioned the safety of underground carbon storage, and its touted effects in limiting climate change.

Jessica Oglesby, with Global CCS Institute, an Australia-based think tank that supports carbon capture and storage, said it makes sense that the state of Alaska is looking to enter the market.

[Biden administration reinstates road and logging restrictions in Alaska's Tongass National Forest]

"There have been several major U.S. policy developments in the past 12 months that have further boosted the financial viability of (the) projects, including the Infrastructure Investment and Jobs Act, which provided over $12 billion" for carbon capture and storage, among other opportunities, she said.

Due diligence

Sen. Cathy Giessel, R-Anchorage, co-chair of the Senate Resources Committee, said hearings will begin on the forestry offsets bill in mid-February, but she is circumspect about the governor's legislation. State land could potentially be locked up for decades, preventing the possibility for other resource development, like mining, she said.

Dunleavy's carbon offset bill is nine pages long, the sequestration bill runs to 30 pages — filled with complex provisions on classes of wells, permitting and licensing authorities.

"It's complicated," Giessel said.

The Legislature is planning to hire an independent consultant to carefully review Dunleavy's carbon storage proposals, which means it could be months — or even years — before the legislation passes.

"This needs to be thoroughly vetted," said Wielechowski. "We're committing our resources for decades, for generations, and we need to understand the ramifications of this."

The Legislature has hired GaffneyCline & Associates, an oil and gas consultancy firm, for such work in the past. That firm has already been employed by the Dunleavy administration to work on his bills, meaning to avoid a conflict, the Legislative Budget and Audit Committee is looking at potentially using another firm.

Nikiski Republican Rep. Ben Carpenter, who chairs that committee, said there is a procurement process that needs to be followed before a consultant can be hired.

He said Alaskans should not assume that plans to independently review the governor's proposals means the Legislature is not interested in carbon offsetting and sequestration as a new source of revenue.

"I wouldn't say that that's skepticism or putting cold water on anything," Carpenter said. "We just want to do due diligence — and that's what a consultant would help us with."

Wielechowski is somewhat cautious about Dunleavy's proposals after hearing in the past from Outside companies that pitch plans for tremendous sources of new state revenue — which have then not panned out.

In 2008, the Legislature approved spending $500 million to subsidize building a natural gas pipeline from the North Slope to bring in billions of dollars for the state. It still hasn't been built.