Alaska Pursues Carbon Offset Market while Embracing Oil

Alaska continues to push towards a clean energy market, even as the state continues to embrace new fossil fuel production, including the controversial Willow oil project on the petroleum-rich North Slope.

In an expected bill to be signed by Gov. Mike Dunleavy, the oil-reliant state will be allowed to cash in on the sale of so-called carbon credits to companies looking to offset their carbon emissions. Such projects could include credits for improving a forest’s health through thinning or by allowing trees to grow bigger, thereby increasing a forest’s potential to hold carbon.

The bill is deemed to be Alaska’s step towards the best of both worlds— continuing to permit oil drilling, mining, and timber activities while also stepping into the potentially lucrative market for sequestering carbon dioxide. However, this bill makes many wonder if the program will gain enough traction as Dunleavy and lawmakers have said the aim isn’t restricting emissions but generating a new revenue stream.

“There’s kind of a field of dreams quality to this issue. ‘If you plant the trees and create credits, will anyone buy them?’” said Barry Rabe, a political scientist who studies environmental and climate politics at the University of Michigan’s Gerald Ford School of Public Policy.

“What’s just not clear is what that market would look like and whether or not purchasers … will find that an attractive investment,” he said. “That’s the leap of faith.”

Currently, Alaska has no carbon emissions reduction goals or overarching climate plan, as it relies heavily on oil production. Alaska is also experiencing the impacts of the changing climate first-hand. These changes are causing coastal erosion that threatens Indigenous villages, unusual wildfires, and thinning sea ice.

The Willow project, developed by ConocoPhillips Alaska, is the latest to draw international attention to the state’s oil reserves. The project approved by the Biden administration earlier this year could produce up to 180,000 barrels of oil a day. At this time, it is being challenged in court by environmentalists who argue the U.S. should be moving away from new drilling in the face of climate change.

Just last week, one of the two proposed bills by Dunleavy was passed in order to generate a new form of income for the state, which has struggled with deficits for much of the last decade. The bill would allow the state to set up carbon sequestration projects on forestland and sell credits to companies seeking to offset their emissions, with 20% of the revenue from such sales going to a state fund that supports renewable energy projects.

Hearings with state lawmakers are also underway on legislation that would charge companies rent and fees for carbon dioxide storage deep underground in places like the Cook Inlet oil and gas basin. Dunleavy said the state could ultimately earn billions annually without raising taxes on industry or Alaska residents. Alaskans currently receive yearly checks from the state’s oil-wealth fund and pay no statewide sales or personal income taxes.

“The reason we landed on this is it doesn’t gore any ox, and more importantly, it’s in line with what Alaska does, and that’s resources,” Dunleavy said, underscoring the idea that the plan, as laid out, wouldn’t harm existing interests.

It remains unclear exactly how much money Alaska could reap from the proposals, and there are still many questions around ideas such as the potential for other states or countries to ship in carbon dioxide for underground storage. But Alaska officials continue to emphasize their desire to prepare a regulatory framework for future carbon storage.

Meanwhile, Dunleavy is expected to tour the newly passed credit offset plan at the Alaska Sustainable Energy Conference in Anchorage this week. The governor created the conference in part “to show the world what Alaska has to offer,” spokesperson Grant Robinson said.


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