KNBA - KBC

To pay oil tax credits, Alaska eyes selling carbon offsets on state forests

Oct 8, 2021

The Dunleavy administration is eyeing a carbon credit program on state forestlands. It’s offered a tender to prospective consultants “to investigate the potential for a carbon offset credit program based on carbon sequestration on state lands,” according to a request for proposals that went up this month on a state website.

Alaska Native corporations have publicly vaunted windfalls worth tens of millions as some pivot from commercial logging to being paid to keep trees on their lands standing. Sealaska is one example: it and others went into partnership with oil giant BP in 2019. But Alaska’s Revenue Commissioner Lucinda Mahoney told CoastAlaska in an interview that’s not where the idea came from.

“What we are looking for is to establish a program that enables the state of Alaska to communicate to the public that responsible development and management of our lands exists,” she said this week. “And we expect that we especially want to communicate this to many of the banks on Wall Street that prohibit investment in the Alaska Arctic oil and gas projects.”

She’s referring to pressure by major lenders that have effectively ruled out investments in new Arctic fossil fuel projects over concerns about impacts on the environment, Indigenous peoples and climate change.

Efforts to turn Alaska’s oil patch green

Cook Inlet oil platforms are visible from shore near the Kenai Peninsula. The state of Alaska owes about $600 million in oil and gas tax credits to small producers and their creditors. (Photo by Rashah McChesney/Alaska’s Energy Desk)

But where do carbon credits come in? Mahoney says corporations have carbon bills to pay. That is they make pledges to offset their environmental impacts.. And they do this by purchasing credits listed by the state of Alaska on one of the global carbon registries.

Mahoney says the state could use the profits to pay off some of the $600 million it owes in tax credits to Alaska’s small oil and gas producers and their creditors.

“For example, if we owe a bank $100 million in tax certificates, the bank could then say, instead of the cash, I would prefer that I receive a carbon offset value, that is the equivalent — or maybe there’s a premium markup on it — of the tax certificate,” she said.

There is precedent for a state setting aside forestland for carbon credits, says Morgan Higman, a fellow with the Center for Strategic and International Studies in Washington, D.C. studying energy security and climate change. She pointed to Michigan’s state government which recently made a deal with its largest energy utility, DTE Energy, that sets aside 100,000 acres of state forestland in exchange for $10 million in carbon credits.

“My initial reaction is it could work,” she said of Alaska’s framework.

But in general she says there are broader questions of whether carbon credits accomplish their stated goal of mitigating carbon emissions and slowing climate change. “There’s a lot of concern about program integrity with these kind of things,” she said.

Two types of carbon offset markets

Those working on carbon offset credits in Alaska say there are basically two markets the state could tap into. Voluntary markets and regulatory markets.

Nathan Lowejski, forestry manager for Chugachmiut, a Native nonprofit that serves communities on the Kenai Peninsula and Prince William Sound, says voluntary markers are the type consumers often see.

“I know there’s some websites where if you buy an airplane ticket, you can go buy some carbon offsets to offset your carbon footprint from your flight,” he said.

But there’s also the lucrative regulatory market like California’s cap-and-trade program that requires polluters to purchase carbon offsets if they exceed a certain threshold of carbon production.

“The most simple way of looking at this is forest land owners can be paid by someone in California for an offset, and in return, they agree not to cut those trees for 100 years,” he said. “It’s not quite that simple. But that’s the simplest way of looking at it.”

From timber sales to long-term carbon offsets

Pivoting to carbon credits on Alaska’s state forests would be a departure from the government’s usual approach: timber sales. But the state’s holdings are small compared to the Tongass and Chugach national forests. There’s nearly 290,000 acres outside of Haines. There’s around 47,000 acres in Southeast and the largest would be the million-plus acres in the Tanana River Valley.

The Dunleavy administration is now shopping for a consultant to estimate the potential for carbon credits on state lands. The contract is worth up to $500,000 with the first report due by the end of the year. Mahoney, the revenue commissioner, confirmed the state gets around that much from its proceeds from logging on state land; carbon offsets could potentially offer more to state coffers than timber sales.

“It may be that we stopped doing that,” Mahoney said of commercial forestry, “we allow the trees to grow so that they can help continue to produce the carbon offset.”

What do Nestlé and NASCAR have in common?

It’s not clear what industry’s position would be on a policy that could restrict intensive logging on some state forestlands for a minimum of 30 to 40 years.

The Alaska Forest Association declined to comment. And nobody from the Resource Development Council offered any comments either. But conservationists, who have sometimes challenged state timber sales in court, welcomed the news.

“I see tremendous potential of carbon credits,” said forest ecologist John Schoen, a former habitat biologist with the Alaska Department of Fish and Game and now board chair with Audubon Alaska. He says Alaska’s old growth stands of trees are worth more in the long term, standing as carbon storage as the planet continues to heat up.

“This is one of the best natural opportunities to mitigate climate change that there is,” he added.

policy summary finalized this week and provided to CoastAlaska says the Dunleavy administration projects carbon credits could earn the state anywhere from $500,000 to $20 million in new revenue. It offered a “diverse, small list of entities and individuals who have purchased carbon offsets” including Amazon, Nestlé, NASCAR, Canadian Prime Minister Justin Trudeau, the country of Norway and the Dave Matthews Band.