SB 48 — An Act relating to the powers and duties of the Alaska Oil and Gas Conservation Commission; 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; authorizing the use of land and water within the Haines State Forest Resource Management Area for a carbon offset project; authorizing the undertaking of carbon offset projects on land in legislatively designated state forests; relating to oil and gas lease expenditures; and providing for an effective date.

An application for a lease of state land under this section, including supporting documentation submitted to the department for review, is a public record subject to AS 40.25.110 - 40.25.220.

(d)(e) A lease under this section may not exceed a period of 55 years.

IfThe duringlease themust termcontain ofterms theand leaseconditions thefor commissionerperformance, determinesincluding thatbenchmarks, theand landmust isrequire notthe beinglessee usedto formake theprogress carbontoward managementdevelopment purposeor approvedcontinual bymaintenance of the commissioner,leased land sufficient to meet the commissionercarbon maymanagement terminatepurpose of the lease.

(e)During Athe lesseeterm underof thisthe sectionlease, the commissioner shall terminate the lease if (1) the commissioner determines that the land is not entitledbeing toused afor preferencethe rightcarbon tomanagement purchasepurpose theapproved leasedby land.the commissioner;

(f)or Compensation(2) forthe alessee leasefails underto thismeet sectionthe shallrequirements beof designedthe tolease maximizean,dafter being given a reasonable opportunity by the returncommissioner to comply with the statelease, andthe becommissioner adetermines formthat ofthe compensationlessee providedhas understill ASfailed 38.05.073(m).to comply with the lease.

(g)(f) TheA provisionslessee ofunder ASthis 38.05.070section andis 38.05.095not concerningentitled subleasing,to assignment,a leasepreference renewals,right and lease extensions apply to leasingpurchase underthe thisleased section.land.

(h)(g) BeforeCompensation enteringfor into a lease of land under this section,section the(1) directorshall mustbe SB0048Adesigned -3-to SBmaximize 48 New Text Underlined [DELETED TEXT BRACKETED] 33-GS1372\A find under AS 38.05.035(e) that leasing the landreturn forto the proposedstate carbonand managementbe purposea isform inof thecompensation bestprovided interestsunder ofAS the38.05.073(m); state.

(i)(2) Inshall thisbe section,separately "carbonaccounted management"for meansunder aAS greenhouse37.05.142; gas mitigation measure or non-geologic carbon sequestration project.

and (3) may be used by the legislature to make appropriations to the department to carry out the purposes of this section.

(h) The provisions of AS 38.05.070 and 38.05.095 concerning subleasing, assignment, lease renewals, and lease extensions apply to leasing under this section.

(i) Before entering into a lease of land under this seche director must Enrolled SB 48 -4- (1) evaluate information received during a solicitation of competitive interest under (c) of this section;

and (2) find under AS 38.05.035(e) that leasing the land for the proposed carbon management purpose is in the best interests of the state;

the findings must include (A) reasonably foreseeable effects that a project may have on the state or local economy, including potential effects on mining, timber, and other resource development sectors;

(B) anticipated annual revenue that the lease will yield to the state;

(C) an assessment and consideration of the known mineral potential, including current claim status, within the project area;

(D) the proposed monetary consideration under the agreement, the value to the state, and the potential revenue to the state;

and (E) a summary of public comments received in response to the solicitation of competitive interest required under (c) of this section and the department's response to those comments.

(j) State land used for carbon management purposes must, to the extent practicable, remain open to (1) the public for access, hunting, fishing, and other generally allowed uses as determined by the department;

and (2) other resource development, including mining.

(k) Notwithstanding AS 38.05.300, state land used for carbon management purposes must remain open to mineral exploration and development.

A lease under this section does not constitute an exception to the requirements of AS 38.05.300(a).

(l) By February 1 of each year, the commissioner shall prepare a report on the lease agreements entered into under this section, transmit the report to the senate secretary and the chief clerk of the house of representatives, and notify the legislature that the report is available.

The report must contain the following information:

(1) the number of total leases entered into each fiscal year from the fiscal year ending June 30, 2024, until the present;

-5- Enrolled SB 48 (2) a complete list of lease information for each ongoing lease that includes (A) a general description of the location of the lease;

(B) the date the lease was executed;

(C) the identity of each person on the lease;

(D) a summary of the underlying carbon management purpose;

(E) the current status of the leased land with regard to the carbon management purpose;

(F) the amount of carbon offset credits generated and sold under the lease cumulatively and during the current fiscal year;

(G) a summary of the compensation agreed on for the lease and an explanation of how the amount was determined;

and (H) the identity of each individual having an ownership interest in an entity on the lease;

(3) a complete list of leases that expired or were terminated during the preceding or current fiscal year and the reason the lease expired or was terminated;

and (4) a description of the cumulative revenue received by the state from leases, the revenue received by the state from leases during the preceding fiscal year, and the anticipated revenue the state will receive from leases in the current fiscal year.

(m) In this section, "carbon management" means a greenhouse gas mitigation measure or nongeologic carbon sequestration project.

5.6.

Except for a lease under AS 38.05.081, if [IF] land within a leasehold created under AS 38.05.070 - 38.05.105 is offered for sale or long-term lease at the termination of the existing leasehold, the director may, upon a finding that it is in the best interest of the state, allow thea [THE] holder in good standing of thatthe existing [THAT] leasehold to purchase or lease the land for its appraised fair market value at the time of the sale or long-term lease.

6.7.

AS 38.05.945(a) is amended to read:

(a) This section establishes the requirements for notice given by the Enrolled SB 48 -6- department for the following actions:

(1) classification or reclassification of state land under AS 38.05.300 and the closing of land to mineral leasing or entry under AS 38.05.185;

(2) zoning of land under applicable law;

(3) issuance of a (A) preliminary written finding under AS 38.05.035(e)(5)(A) regarding the sale, lease, or disposal of an interest in state land or resources for oil and gas, or for gas only, subject to AS 38.05.180(b);

(B) written finding for the sale, lease, or disposal of an interest in state land or resources under AS 38.05.035(e)(6), except a lease sale described in AS 38.05.035(e)(6)(F) for which the director must provide opportunity for public comment under the provisions of that subparagraph;

(4) a competitive disposal of an interest in state land or resources after final decision under AS 38.05.035(e);

(5) a preliminary finding under AS 38.05.035(e) concerning sites for aquatic farms and related hatcheries;

(6) a decision under AS 38.05.132 - 38.05.134 regarding the sale, lease, or disposal of an interest in state land or resources;

(7) an exchange of state land under AS 38.50;

(8) solicitation of competitive interest under AS 38.05.081(c).

* Sec.

8.

(a) A carbon offset program is established in the department to undertake carbon offset projects on state land.

(c) TheNothing commissionerin AS 38.95.400 - 38.95.499 may enterbe intoconstrued contractsto withprevent thirda partiesprivate landowner from participating in a registry or exchange or to carryimpose outadditional thelegal purposesrequirements ofon ASa 38.95.400private -landowner 38.95.499.undertaking the landowner's own carbon offset project.

(d) Nothing in AS 38.95.400 - 38.95.499 shall be construed as preventing a private landowner from participating in a registry or exchange, or be construed as the state instituting additional legal requirements on a private landowner undertaking their own carbon offset projects.

best interest -7- Enrolled SB 48 finding.

The evaluation criteria shallmust include, if applicable, (1) consideration of a project's baseline and predicted additionality;

(2) whether registry protocols,protocols including validation and verification requirements, are consistent with applicable state law;

and(4) SBan 48assessment -4-and SB0048Aconsideration Newof Textthe Underlinedknown [DELETEDmineral TEXTpotential, BRACKETED]including 33-GS1372\Acurrent (4)claim reasonablystatus, foreseeablewithin effectsthe that a project mayarea; have on the state or local economy.

(b)(5) Exceptreasonably asforeseeable otherwiseeffects providedthat ina statuteproject ormay regulationhave adoptedon by the commissioner, state landor shalllocal beeconomy, availableincluding forpotential carboneffects offseton projects.mining, timber, and other resource development sectors;

(6) consideration of the effect of the project on the state's timber industry;

and (7) the proposed monetary consideration under the project, the value to the state, and the potential revenue to the state.

(b) Except as otherwise provided in statute or regulation, state land shall be available for carbon offset projects.

In this subsection, "legislatively withdrawn land" means land set aside by the legislature under AS 16.20.010 - 16.20.170,16.20.162, 16.20.300 - 16.20.360, AS 41.21.11041.21, -or 41.21.990, and AS 41.23.01041.23. - 41.23.630.

(d) A carbon offset project may be undertaken on state land if the director, with the consent of the commissioner, determinesmakes thea projectwritten isfinding inthat the project will best serve the interests of the state under AS 38.05.035(e).

(f) State land used for a carbon offset project mustmust, to the extent practicable, remain open to (1) the public for access, hunting, fishing, and other generally allowed uses as determined by the department.department;

and (2) other resource development, including mining.

(g) Notwithstanding AS 38.05.300, state land used for a carbon offset project Enrolled SB 48 -8- must remain open to mineral exploration and development.

A carbon offset project under AS 38.95.400 - 38.95.499 does not constitute an exception to the requirements of AS 38.05.300(a).

DepartmentThe records must include, for each carbon offset project, (1) the project term;

and (4) project administration and technical documentationdocumentation, associatedincluding withdocumentation therelated valuationto of baseline, valuation of additionality, project validation,implementation, monitoring, and projectreporting. verification.

SB0048A -5- SB 48 New Text Underlined [DELETED TEXT BRACKETED] 33-GS1372\A Sec.

Carbon offset revenuerevenue. fund.

(a)Twenty Revenuepercent of the revenue generated from the carbon offset program shall be deposited ininto the carbonrenewable offsetenergy revenuegrant fund.fund (AS 42.45.045).

The carbonremaining offset80 revenuepercent fundof isthe establishedrevenue outsidefrom the generalcarbon fundoffset program shall be separately accounted for theunder purposeAS of37.05.142 providingand fundingmay forbe theappropriated carbonby offsetthe program.legislature.

The carbon offset revenue fund consists of money appropriated to the fund by the legislature, including program receipts from the sale of verified carbon offset credits.

Appropriations to the fund do not lapse.

(b) The commissioner may spend money appropriated to the fund for the purposes of the carbon offset program and to pay the costs of administering the program.

38.95.440.

Contracts.

(a) Subject to AS 36.30, the department may enter into a contract to carry out the purposes of AS 38.95.400 - 38.95.499.

(b) In evaluating a proposal for a contract, including competing proposals, the department shall consider (1) the criteria included in the request for proposals;

(2) the proposal's cost to the state;

(3) the revenue the carbon offset project associated with the proposal is expected to generate;

and (4) the anticipated terms, including monetary terms, of a contract under -9- Enrolled SB 48 the proposal.

(c) The department may not accept a proposed commission contract that involves a commission that exceeds 30 percent of the revenue generated by the carbon offset project.

Sec.

38.95.450.

Annual report.

By February 1 of each year, the commissioner shall prepare a report on the carbon offset program established in AS 38.95.400 - 38.95.499, transmit the report to the senate secretary and the chief clerk of the house of representatives, and notify the legislature that the report is available.

The report must contain the following information:

(1) a list of all carbon offset projects that are generating or eligible to generate carbon offset credits, or that are in development, that includes (A) a general description of each project location;

(B) the date a contract for a project was executed and the duration of the project;

(C) the identity of each person who contracted with the state for a project;

(D) a summary of each carbon offset project;

(E) the status of each carbon offset project;

(F) the amount of carbon offset credits generated and sold cumulatively and anticipated during the current fiscal year for each carbon offset project;

(G) for a project that is in development but is not yet generating carbon offset credits, the anticipated timeline for when the project is expected to generate credits;

(H) a summary of the monetary compensation agreed on for a contract or project and an explanation of how the amount was determined;

and (I) the identity of each individual having an ownership interest in an entity that has contracted with the state for a project;

(2) a complete list of projects that expired or were terminad during the preceding or current fiscal year and the reason the project expired or was terminated;

Enrolled SB 48 -10- (3) a description of revenue generated by program receipts from the carbon offset program during the preceding fiscal year, cumulatively over the life of the program, and the anticipated revenue that will be generated in program receipts in the current fiscal year;

and (4) a list of all other individuals or entities with an ongoing contract with the state under AS 38.95.400 - 38.95.499 that includes, for each contract, the term length of the contract, the compensation agreed on under the contract, and a summary of the service or product provided under the contract.

Sec.

(2) "baseline" means the anticipated amount of carbon sequestration that would occur if the present situation is maintained in the absence of a carbon offset project;

(3) "carbon offset credit" means a transferrable instrument issued by a registry for a validated and verified project that represents an emission reduction of one metric ton of carbon dioxide or other greenhouse gases;

(4) "carbon offset project" meansincludes aseaweed greenhousefarming, gasafforestation, mitigationreforestation, measureand onsimilar state land thatand increasesresource themanagement land'smeasures carbonthat stock,mitigate includinggreenhouse seaweedgases farming,by afforestation,maintaining reforestation,or andincreasing similarthe landcarbon andstock resourceon managementstate measures;land;

(8) "greenhouse gas" meansincludes acarbon gasdioxide, thatmethane, trapsnitrous andoxide, emitshydrofluorocarbons, radiantperfluorocarbons, energysulfur inhexafluoride, theand earth'sother atmosphere,gases includingthat carbontrap dioxide,and methane,emit nitrousradiant oxide,energy hydrofluorocarbons,in perfluorocarbons,the andearth's sulfuratmosphere; hexafluoride;

(9) "project term" means the lengthduration of timethe requiredcommitment made by athe registrydepartment for a carbon offset projectproject, toending yieldwhen carbonthe offsetstate credits;has no continuing obligation related to the project;

(10) "registry" means an organization or program that brokecarbonregisters SBand 48-11- -6-Enrolled SB0048ASB New48 Textissues Underlinedcarbon [DELETED TEXT BRACKETED] 33-GS1372\A offset credits and develops standardized protocols for (A) registering, validating, and verifying carbon offset projects;

and(11) (B)"shoreland" issuingmeans carbonland offsetbelonging creditsto forthe validatedstate that is covered by nontidal water and verifiedis carbonnavigable offsetunder projects;the laws of the United States up to ordinary high water mark as modified by accretion, erosion, or reliction;

(11)(12) "state land" means all land, including shoreland, tideland, and submerged land, or resources belonging to or acquired by the state;

in(13) this paragraph, (A) "submerged land" means land that is covered by tidal water between the line of mean low water and seaward to a distance of three geographical miles or furtherfarther as may be properly claimed by the state;

(B)(14) "tideland" means land that is periodically covered by tidal water between the elevation of mean high water and mean low water;water.

(C) "shoreland" means land covered by nontidal water that is navigable under the laws of the United States up to ordinary highwater mark as modified by accretion, erosion, or reliction;

(12) "validate" or "validation" means a registry's initial approval of a project plan prior to verification of the project;

(13) "verify" or "verification" means a third party's review of a validated project to confirm the project's greenhouse gas net emission reduction or removals for the issuance of carbon offset credits by the registry that has validated the project.

7.9.

8.10.

The commissioner may manage the land SB0048A -7- SB 48 New Text Underlined [DELETED TEXT BRACKETED] 33-GS1372\A and water described in AS 41.15.305(a) for purposes consistent with AS 38.95.400 - 38.95.499.

9.11.

10.12.

(c) A carbon offset project under AS 38.95.400 - 38.95.499 may be Enrolled SB 48 -12- undertaken on land identified in AS 41.17.200 - 41.17.230.

11.13.

and (4) if applicable, a carbon offset project undertaken by the department under AS 38.95.400 - 38.95.499.

12.14.

To the extent they are found to be compatible with the primary purpose of state forests under AS 41.17.200, the forest management plan must consider and permit uses of forest land for nontimberother [NONTIMBER] purposes, including a carbon offset project under AS 38.95.400 - 38.95.499, recreation, tourism, mining, mineral exploration, mineral leasing, material extraction, consumptive and nonconsumptive SB 48 -8- SB0048A New Text Underlined [DELETED TEXT BRACKETED] 33-GS1372\A uses of wildlife and fish, grazing and other agricultural activities, and other traditional uses.

13.15.

(g) A carbon offset project undertaken under AS 38.95.400 - 38.95.499 within a state forest must be consistent with the applicable forest management plan, and the -13- Enrolled SB 48 applicable forest management plan must identify the land appropriate for the carbon offset project.

14.16.

TheAS uncodified43.55.165(e) law of the State of Alaska is amended by adding a new section to read:

TRANSITION:(e) For purposes of this section, lease expenditures do not include (1) depreciation, depletion, or amortization;

REGULATIONS.(2) oil or gas royalty payments, production payments, lease profit shares, or other payments or distributions of a share of oil or gas production, profit, or revenue, except that a producer's lease expenditures applicable to oil and gas produced from a lease issued under AS 38.05.180(f)(3)(B), (D), or (E) include the share of net profit paid to the state under that lease;

The(3) Departmenttaxes ofbased Naturalon Resourcesor maymeasured adoptby regulationsnet toincome; implement this Act.

The(4) regulationsinterest takeor effectother underfinancing AScharges 44.62or (Administrativecosts Procedure Act), but not before the effective date of theraising lawequity implementedor bydebt thecapital; regulations.

(5) acquisition costs for a lease or property or exploration license;

(6) costs arising from fraud, wilful misconduct, gross negligence, violation of law, or failure to comply with an obligation under a lease, permit, or license issued by the state or federal government;

(7) fines or penalties imposed by law;

(8) costs of arbitration, litigation, or other dispute resolution activities that involve the state or concern the rights or obligations among owners of interests in, or rights to production from, one or more leases or properties or a unit;

(9) costs incurred in organizing a partnership, joint venture, or other business entity or arrangement;

(10) amounts paid to indemnify the state;

the exclusion provided by this paragraph does not apply to the costs of obtaining insurance or a surety bond from a third-party insurer or surety;

(11) surcharges levied under AS 43.55.201 or 43.55.300;

(12) an expenditure otherwise deductible under (b) of this section that is a result of an internal transfer, a transaction with an affiliate, or a transaction between related parties, or is otherwise not an arm's length transaction, unless the Enrolled SB 48 -14- producer establishes to the satisfaction of the department that the amount of the expenditure does not exceed the fair market value of the expenditure;

(13) an expenditure incurred to purchase an interest in any corporation, partnership, limited liability company, business trust, or any other business entity, whether or not the transaction is treated as an asset sale forfederal income tax purposes;

(14) a tax levied under AS 43.55.011 or 43.55.014;

(15) costs incurred for dismantlement, removal, surrender, or abandonment of a facility, pipeline, well pad, platform, or other structure, or for the restoration of a lease, field, unit, area, tract of land, body of water, or right-of-way in conjunction with dismantlement, removal, surrender, or abandonment;

a cost is not excluded under this paragraph if the dismantlement, removal, surrender, or abandonment for which the cost is incurred is undertaken for the purpose of replacing, renovating, or improving the facility, pipeline, well pad, platform, or other structure;

(16) costs incurred for containment, control, cleanup, or removal in connection with any unpermitted release of oil or a hazardous substance and any liability for damages imposed on the producer or explorer for that unpermitted release;

this paragraph does not apply to the cost of developing and maintaining an oil discharge prevention and contingency plan under AS 46.04.030;

(17) costs incurred to satisfy a work commitment under an exploration license under AS 38.05.132;

(18) that portion of expenditures, that would otherwise be qualified capital expenditures, as defined in AS 43.55.023, incurred during a calendar year that are less than the product of $0.30 multiplied by the total taxable production from each lease or property, in BTU equivalent barrels, during that calendar year, except that, when a portion of a calendar year is subject to this provision, the expenditures and volumes shall be prorated within that calendar year;

(19) costs incurred for repair, replacement, or deferred maintenance of a facility, a pipeline, a structure, or equipment, other than a well, that results in or is undertaken in response to a failure, problem, or event that results in an unscheduled interruption of, or reduction in the rate of, oil or gas production;

or costs incurred for -15- Enrolled SB 48 repair, replacement, or deferred maintenance of a facility, a pipeline, a structure, or equipment, other than a well, that is undertaken in response to, or is otherwise associated with, an unpermitted release of a hazardous substance or of gas;

however, costs under this paragraph that would otherwise constitute lease expenditures under (a) and (b) of this section may be treated as lease expenditures if the department determines that the repair or replacement is solely necessitated by an act of war, by an unanticipated grave natural disaster or other natural phenomenon of an exceptional, inevitable, and irresistible character, the effects of which could not have been prevented or avoided by the exercise of due care or foresight, or by an intentional or negligent act or omission of a third party, other than a party or its agents in privity of contract with, or employed by, the producer or an operator acting for the producer, but only if the producer or operator, as applicable, exercised due care in operating and maintaining the facility, pipeline, structure, or equipment, and took reasonable precautions against the act or omission of the third party and against the consequences of the act or omission;

in this paragraph, (A) "costs incurred for repair, replacement, or deferred maintenance of a facility, a pipeline, a structure, or equipment" includes costs to dismantle and remove the facility, pipeline, structure, or equipment that is being replaced;

(B) "hazardous substance" has the meaning given in AS 46.03.826;

(C) "replacement" includes renovation or improvement;

(20) costs incurred to construct, acquire, or operate a refinery or crude oil topping plant, regardless of whether the products of the refinery or topping plant are used in oil or gas exploration, development, or production operations;

however, if a producer owns a refinery or crude oil topping plant that is located on or near the premises of the producer's lease or property in the state and that processes the producer's oil produced from that lease or property into a product that the producer uses in the operation of the lease or property in drilling for or producing oil or gas, the producer's lease expenditures include the amount calculated by subtracting from the fair market value of the product used the prevailing value, as determined under Enrolled SB 48 -16- AS 43.55.020(f), of the oil that is processed;

(21) costs of lobbying, public relations, public relations advertising, or policy advocacy;

(22) costs incurred as part of a capital expenditure or other action taken for a carbon management purpose under AS 38.05.081 or a carbon offset project under AS 38.95.400 - 38.95.499.

15.17.

SectionThis 14 of this Act takes effect immediately under AS 01.10.070(c).

SB0048A-17- -9-Enrolled SB 48 New Text Underlined [DELETED TEXT BRACKETED]