Alaska is one of the oldest oil-producing regions in the United States. Just recently, the public was reminded of that when the Biden administration approved a new, sizeable oil project in the state.
At the same time, Alaska is, like other states, eager for a part in the transition to lower-carbon forms of energy. More specifically, Alaska wants a piece of the carbon offset action.
This week, Governor Mike Dunleavy is convening a conference on sustainable energy where the issue will be discussed as well as the path of Alaska to making the most of its carbon offset resources.
The legislative part of the matter was settled with a new bill that Dunleavy signed into law earlier this week, and now the time seems to have come for the actual work.
"This bill is going to allow us now to have conversations worldwide with individuals involved in the carbon market. Just like oil, just like gas, just like our timber, this is a commodity that can be monetized now," Dunleavy said at the signing of the bill, as quoted by the AP.
According to supporters of the bill, it would allow Alaska to have the best of both worlds: oil production and carbon offset sales. According to critics, the chances of success of the plan are uncertain because it's unclear if anyone would be interested in buying Alaskan carbon offsets. Related: European Natural Gas Prices Drop To The Lowest Level Since 2021
"There's kind of a field of dreams quality to this issue. 'If you plant the trees and create credits, will anyone buy them?'" one such critic, environmental and climate politics scholar Barry Rabe, told the AP.
"What's just not clear is what that market would look like and whether or not purchasers ... will find that an attractive investment. That's the leap of faith," Rabe said.
In truth, the carbon offset market is a growth one. Shell recently projected that voluntary carbon offsets buying could expand fivefold by 2030, with transaction volumes reaching the level of 2019 air travel emissions.
In 2021, that market was worth about $2 billion, but this is set to grow to between $10 billion and $40 billion by 2030. The volume of carbon dioxide involved in these transactions is set to rise from 500 million tons currently to up to 1.5 billion tons, the supermajor, which co-authored the report with Boston Consulting Group, also said.
In that sense, then, Alaska's foray into carbon offsets might not be such a leap of faith. Indeed, nature can be seen as a commodity on par with oil, coal, and gas, and monetized just like them.
As for how lucrative this market could be, look no further than Zimbabwe, where the government just this month said it would take 50% of all revenues generated by carbon offset projects in the country. Another 30% will go to foreign investors, and 20% will be reserved for local communities.
"We are determined to make sure that climate finance resources, meant to empower the country, accrue to the most deserving. We do not want instances of climate washing," Zimbabwe's environment and climate minister Mangaliso Ndlovu said, as quoted by Reuters.
A carbon offset market would also help improve Alaska's reputation, according to some, such as Republican state Senator Shelley Hughes. While initially skeptical of the idea, Hughes has supported it as a means of drawing in more investments.
"I think that in order to get capital investment into our state, we are going to have to be perceived in a way that is trying to work through all of this," Sen. Hughes said, as quoted by the AP.
If the idea works, it will work as follows: the state of Alaska will sell carbon offset credits to companies that want to reduce their carbon footprint. The offsets will go towards projects such as forest protection and improvement. A fifth of the revenues from these sales would be set aside in a fund for low-carbon energy development.
There is no reason for the idea not to work, despite skepticism. With the IRA and with increasingly stricter emission regulations, a lot of companies will be interested in buying carbon offsets for lack of any other means of reducing their carbon footprints.
The Alaska Department of Natural Resources has already identified three forests that are suitable for use as carbon sequestration locations. The state's authorities have also considered allowing third parties to set up carbon offset projects on Alaskan land as an additional source of revenue.
"I find it very plausible that Alaska could make money with a forest carbon offset program," Freya Chay from carbon offset nonprofit Carbon Plan told Alaska Public Media. "The real question for me is what does that program actually achieve? And what are the costs not to Alaska's budget, but to bigger systems that we care about?"
The genuine nature of the carbon sequestration projects financed by the sales of carbon offsets is a considerable cause for concern in that space, but it's not the biggest one.
The biggest problem for Alaska may be the growing competition in the carbon offset market, as many see the lucrative opportunities offered by this emerging but extremely promising market.
By Charles Kennedy for Oilprice.com
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