Minerals Management Service MMS manages the oil and gas development of Outer Continental Shelf (OCS), about 1.5 billion acres. OCS produces about 27% of domestic oil and about 15% of domestic gas. MMS generates about $13 billion annually.

Costs of OCS Development From increased probability of oil spills: * Recreational and commercial fishing injuries * Beach recreation injuries * Injuries to subsistence activities * Ecological service injuries

MMS Oil Spill Data Spill data since 1980: Main cause of large spills is anchor damage to pipelines.

MMS OCS Planning Areas

Oil Spill Scenarios 50 spill locations across 26 OCS Planning Areas. Three spill sizes for each location (100, 7000, and 25000 barrels). Total of 150 spill scenarios.

Oil Spill Analysis Steps Input: OCS production level per Planning Area Likely number of oil spills of each spill size Likely physical and ecological “injuries” Output: Likely economic damages

Type A Model User inputs include spill location, chemical spilled, spill magnitude, wind time series, air and water temperature, and marine current data. Model injury outputs include oil slick area (m2-days), shoreline oiling (m2-days by habitat type), wildlife killed (birds, marine mammals, reptiles).

Example Type A Graphical Output

Example Type A Injury Output NRDA: SUMMARY OF TOTAL INJURY AND DAMAGES (1999 US $) Scenario: WGM5-L Spill date: May 1, 1999 Location: 28.333N, 95.167W Arabian Light Crude Oil 3494.320 MT, OIL #: 0 17 1 __________________________________________________________________________ Wildlife category Number killed Waterfowl .2455 Seabirds 1118.5100 Wading birds .0055 Shorebirds .0051 Cetaceans .0000 Other mammals .0000 Reptiles .3670 Area swept by surface slicks: .167827E+10 m2 .205431E+09 m2-days Shorelines oiled above lethal threshold, by shoreline type Shore type Length (m) m-days Area (m2) m2-days Sand Beach .158228E+05 .920091E+06 .316456E+05 .184018E+07 Intertidal Wetland .458861E+05 .146351E+08 .137658E+07 .439052E+09

Natural Resource Damage Assessment (NRDA) Economic Assessment Approach (Value-to-Value) Financial losses relatively easy to estimate. Non-financial losses (use and non-use values) require non-market valuation. Estimate the compensation required to return affected individuals to baseline utility level.

Natural Resource Damage Assessment Natural Resource Damage Assessment Problems with Economic Approach Validity of non-market damage estimates difficult to establish. Compensation must be used for ecological restoration. Public may be over- or under-compensated even if estimates are “correct.”

Advantages of Contingent Valuation Can be used to value any resource. Only method available to estimate non-use values. Has been approved by NOAA for assessing natural resource damages.

Disadvantages of Contingent Valuation Validity of estimates questionable. Few studies available related to marine resources. Only used to value damages in a few actual oil spills (e.g., Exxon Valdez). Legal precedent for habitat restoration rather than direct compensation.

Natural Resource Damage Assessment Ecologically-based Assessment Approach (Service-to-Service, Habitat Equivalency Analysis) Measure injury in ecological service terms. Determine compensatory restoration in ecological service terms, rather than economic terms. Requires ecological compensation that at least equals ecological injury.

Saltmarsh Compensatory Restoration Actions * Raising or lowering elevation * Land acquisition * Flow diversions (dike breaching, channel excavation, control structure construction, etc.) * Planting / replanting * Erosion control (barrier island restoration, dune restoration)

Saltmarsh Compensatory Restoration Costs * A total of 50 estimates obtained. * Cost per acre range from $233/acre to $450,000/acre. * About two-thirds between $5,000/acre and $70,000/acre. * Choose a low estimate of $10,000/acre and a high estimate of $50,000/acre.

Created or Restored Saltmarsh Ecological Service One acre = present value of 4.23 acre-years of ecological service 100% 50% 3 25 Years

HEA Injury Example: Lake Barre, LA, 1997 * Pipeline rupture releasing 6,561 barrels of crude. * Estimated 333 bird deaths. * Four categories of saltmarsh injuries: 1. Light w/rapid recovery (41.9 ac.-yrs.) 2. Heavy w/moderate recovery (26.5 ac.-yrs.) 3. Heavy w/slow to moderate recovery (4.6 ac.-yrs.) 4. Heavy w/slow recovery (2.6 ac.-yrs.) Total of 75.6 acre-years of service loss.

Generalized HEA Damage Example * Injury = 75.6 acre-years of saltmarsh ecological service. Restoration requirement = 75.6/4.23 = 17.9 acres of saltmarsh. * Low damage estimate = $179,000 (17.9*$10,000). * High damage estimate = $895,000 (17.9*$50,000).

Summary of Restoration Costs

Oil Spill-Related Damage Linkages Production of one billion barrels of oil in North Atlantic Planning Area (low estimates): 18 small spills * $757,000 = $13.3 million 1.8 medium spills * $6,987,000 = $12.6 million 1.2 large spills * $20,658,000 = $24.8 million Total oil spill-related damages = $50.7 million Amount of oil spilled = 45,198 barrels Damages per barrel spilled = $1,122

“Reasonableness” Check of Results * Low damage estimates: $4 - $3,000 per barrel Average = $1,000 per barrel spilled * High damage estimates: $22 - $14,000 per barrel Average = $5,000 per barrel spilled * Sirkar, et al. (1997) = $800 per barrel * Helton and Penn (1999) = $3 - $16,000 per barrel Average = $2,700 per barrel for crude oil spills