Alaska Legislature passes carbon-storage bill with additional energy provisions

Shorebirds forage on July 17, 2019, along the edge of Cook Inlet by the Tony Knowles Coastal Trail in Anchorage. The Alaska Legislature has passed a bill that will enable carbon storage in reservoirs deep below Cook Inlet. The carbon-storage bill include numerous other provisions aimed at improving energy supplies and deliverability in Cook Inlet and elsewhere. (Photo by Yereth Rosen/Alaska Beacon)

The Alaska Legislature has passed a bill that combines carbon storage, new regulation of natural gas storage, state financing for new Cook Inlet natural gas development and an expansion of the state’s geothermal energy program.

The vehicle for the wide range of energy provisions was a measure, House Bill 50, that sets up a regulatory and commercial framework for Alaska to stash carbon gases that would otherwise be streaming into the atmosphere and reinforcing the greenhouse layer that is heating the planet.

“This bill is about bringing new revenue and new opportunities to Alaska,” said Sen. Bert Stedman, R-Sitka, who co-chairs the powerful finance committee and was one of the Senate leaders who shepherded the bill as it grew into wider-ranging energy legislation.

The bill started as one in a pair introduced last year by Gov. Mike Dunleavy that focus on the state’s opportunity to earn money through carbon sequestration or storage. The first bill, which passed last year and became dubbed the “tree bill,” authorized a system for the state to sell carbon credits for preserved land within state-owned forests.

The carbon-sequestration bill, which became known as the “hole bill” because it concerns injection of carbon gas deep underground, turned out to be more complex.

The bill that the Legislature passed sets up a process for carbon-storage leases and regulation of what is known as “pore space,” the underground cavities in which the gas could be reinjected. It sets fiscal terms, including details that bar companies from using their costs of carbon sequestration to offset state oil and gas production taxes, as well as a requirement for 50% of the revenue from carbon-storage leasing to go to the Alaska Permanent Fund. And it addresses long-term monitoring of facilities used for carbon storage.

Global energy trends are driving the sequestration business, Stedman said in his comments. Energy users are demanding that energy producers reduce their carbon footprint, and sequestration is a prime way to do that.

“It’s an expanding industry and the companies are beginning to commit billions of dollars to invest in that subject,” he said.

Through carbon capture, Stedman said, Alaska could turn its old Cook Inlet oil and gas fields, as well as its still-producing North Slope fields, into storage sites of international significance.

“We have what is potentially the largest basin for carbon storage on the American Pacific Coast. That opens possible opportunities from across the Pacific Rim, and foreign countries like Japan are now studying how to handle their carbon sequestration,” he said. Those countries lack reservoir space, he said. “They’re too small. Alaska, with Cook Inlet, is sitting in a prime location,” he said.

And Stedman marveled at the technology being developed to manage captured carbon gas. He spoke of flatware used at a conference he attended last year, all of which was formed out of carbon dioxide. “It’s not your grandma’s silverware,” he said.

Other energy provisions attached

The bill’s section on regulating natural gas storage in Cook Inlet incorporates the contents of a separate bill, Senate Bill 220.

It’s a common practice for lawmakers to combine loosely related bills at the end of a session in order to get them passed before the deadline expires.

“This is a huge piece for Cook Inlet,” Senate Majority Leader Cathy Giessel, R-Anchorage, the sponsor of that separate bill, said in floor comments. “As we are seeking to increase natural gas production in Cook Inlet, we have to have a place to store the gas. During the summer we don’t use as much. We need a place to store it.”

Having the Regulatory Commission of Alaska oversee the prices charged for that storage, she said, is key to consumer protection and fairness.

The commission already regulates one natural gas storage facility on the Kenai Peninsula, a commercial site called Cook Inlet Natural Gas Storage Alaska that started operating in 2012. The provisions in the just-passed bill authorize the commission to regulate any other Cook Inlet natural gas storage operations.  

The bill’s section on reserves-based lending incorporates the substance of yet another measure, House Bill 388, that authorizes the state to lend money for development of Cook Inlet oil or gas projects, with the hydrocarbon reserves to be used as collateral. The lending would be through the Alaska Industrial Development and Export Authority, the state-owned development bank; the bill directs AIDEA to create a special Cook Inlet revolving fund for the projects.

The project eyed by legislators as the likeliest beneficiary of reserve-based lending is the Cosmopolitan Unit just offshore from Anchor Point on the Kenai Peninsula. The unit is owned by BlueCrest Energy, a small Texas-based firm that, legislators say, lacks the financial wherewithal to properly develop known natural gas reserves.

Without mentioning Cosmopolitan by name, Sen. Bill Wielechowski, D-Anchorage, referred to it as a reason for including reserve-based lending in the wider-ranging bill.

“That provision alone could unlock over 300 billion cubic feet of gas in one field, we think, which solves our problem in Cook inlet for the next decade,” he said in floor comments.

The geothermal section in the bill incorporates legislation originally introduced by Dunleavy, House Bill 74 and Senate Bill 69, that redefines geothermal energy and expands that size of the tracts that may be leased for development. The new definition lowers the temperature threshold from 120 degrees Celsius to 80 degrees Celsius and allows leased geothermal projects to cover 100,000 acres, an increase from the current 51,200-acre limit.

Wide, but not unanimous, support

The bill won final passage when the House concurred on Wednesday the last day of the session, with the Senate changes.

The bill, in its final form, had wide support. It passed the Senate by a 18-2 vote on Tuesday, and the House concurrence was by a 37-3 margin.

But there were detractors.

Although she voted for the bill, Sen. Shelley Hughes, R-Palmer, scoffed at the idea of carbon storage as a climate solution and even at the global scientific consensus about how much carbon dioxide contributes to climate change.

“I think that there are a lot of questions and a lot of science that is surfacing on whether there truly is the impact of carbon on the climate that has been proposed,” she said. As for carbon capture, “we’re talking about an invisible commodity, a whole system, based on that and one day we may find the bubble pops,” she said. “I actually do think, right now, it is a scam. I do think it is. And yet, if people are foolish enough to pay us to store carbon, I’m not going to turn them down.”

Sen. Mike Shower, R-Wasilla, cast a vote in opposition, as did Sen. Rob Myers, R-Fairbanks.

Shower said entering the carbon capture business exposes Alaska to interference by potentially nefarious forces.

“I do have concerns about where this goes, how this is tied to the bankers and financiers and others when you look at carbon credits and things that are kind of the whole game, if you will, the whole playing field,” he said.

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