While Alaska is not yet ready to give up on oil and gas, it has faced years of difficulties in getting new projects off the ground, which is making the state government more open to alternative energy projects. Despite being slow to support the green transition, Alaska is slowing beginning to understand the need to diversify and is expected to do so through a carbon offput scheme, which could bring in new revenue.
Alaska’s economy has been faltering due to failures in its previously strong oil and gas industry. The state government and several oil companies have been fighting to get the go ahead on several exploration projects for years, having repeatedly faced hurdles. Finally, in May this year, the ConocoPhillips Willow project was granted federal approval, meaning that drilling on Alaska’s North Slope can go ahead. The area is thought to hold around 600 million barrels of oil, but it could take years for this oil to reach the market following project development. Despite optimism around recent project progress, several years of oil production slowing down have left Alaska in a slump.
Around 85 percent of Alaska’s state revenues come from oil production, making it more dependent on the fossil fuel than any other state. However, its oil industry has been steadily declining over the last decade, falling from the top U.S. spot for production to below Texas, New Mexico and North Dakota. Alaska’s oil production in 2020 stood at around 448,000 bpd, the lowest level since 1976, and by 2022, Alaska’s oil output was similar to that of Oklahoma. This has had a significant effect on its economy, which performed worse than any other state in 2022, contracting by 2.4 percent. This is also had a negative impact on other sectors in the state, including infrastructure and education, with Alaska also ranking near the bottom for its Cost of Doing Business.
For a long time, the Alaskan state government has been putting all its eggs in one basket, relying heavily on its oil industry to bring in the money. With backing from oil majors, the government always assumed that new exploration projects would be approved so long as the global demand for oil remained high. And while Willow has been approved, gaining approval for future projects could become harder, particularly due to President Biden’s push for a green transition. Despite mounting pressure to decarbonise and develop green energy projects, Alaska has long resisted, only now seeing the potential of going green.
Alaska’s Republican governor Mike Dunleavy has high hopes for the state’s carbon offset market. Earlier this year, Dunleavy signed the SB 48 legislation to launch the state’s carbon business. He stated, “Alaska was built on a promise that we would be north of the future. That we would be visionary.” Dunleavy added, “Just like oil, just like gas, just like our timber, this is a commodity that can be monetised now.”
The new legislation will allow Alaska to sell carbon offset credits to companies that emit carbon. These firms can purchase the credits instead of investing in decarbonisation technologies, with the funds going to the government to protest the state’s forests, to offset emissions. An increasing number of companies are expected to join the scheme as government rules on carbon emissions become stricter. Further, decarbonisation technologies, such as carbon capture and storage (CCS) are expected to have a limited effect on carbon-intensive industries.
John Boyle, Alaska’s Natural Resources Commissioner, explained “Across America, and in the rest of the world, you see a number of companies that have set very aggressive net zero (emission) targets for themselves.” “Ultimately, in order for a lot of these companies to be able to hit the targets that they’ve set for themselves, they’re going to need to look for other options for offsets,” he said.
Alaska is following in the footsteps of several other governments that have introduced carbon offset schemes to encourage decarbonisation and fund green energy operations. In November last year, U.S. Climate Envoy John Kerry announced a carbon offset programme that would allow companies to finance renewable energy projects in developing countries. This could boost investment in a global green transition, so green energy projects are not only concentrated in high-income countries. The Energy Transition Accelerator has the backing of several philanthropic groups, such as the Rockefeller Foundation and the Bezos Earth Fund, and is expected to be finalised in 2023.
Similar schemes have been seen from airlines that offer customers to pay to offset their carbon emissions. This money typically goes to charities associated with airlines carrying out decarbonisation or offset activities, such as reforestation. Although many of these schemes have been widely criticised for being poorly monitored and ineffective. Nevertheless, if the money from Alaska’s carbon offset scheme goes directly to the government, the investments can be more closely monitored. And while Alaska carbon offsets should not be the only way the state is supporting a green transition – as the diversification of its energy portfolio could support economic growth as well as the environment – it could be a key source of revenue while oil and gas operations continue.
By Felicity Bradstock for Oilprice.com
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