Minerals Management Service *MMS manages the oil and gas development of Outer Continental Shelf (OCS) lands, about 1.5 billion acres. *OCS produces about 25% of domestic oil and about 25% of domestic gas. *MMS generates about $5 billion annually.

Social Costs of OCS Development From routine operations: * Air pollution injuries * Fishing ground preemption and gear loss * Property value losses * Impacts of land-based facilities * Infrastructure demands

Social 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.

Oil Spill Scenarios *50 spill locations across 26 OCS Planning Areas. *Three spill sizes for each location (111, 7000, and barrels). *Total of 150 spill scenarios. *Relate spill probabilities to production levels.

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 (m 2 -days), shoreline oiling (m 2 -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: N, W Arabian Light Crude Oil MT, OIL #: __________________________________________________________________________ Wildlife category Number killed Waterfowl.2455 Seabirds Wading birds.0055 Shorebirds.0051 Cetaceans.0000 Other mammals.0000 Reptiles.3670 __________________________________________________________________________ Area swept by surface slicks: E+10 m E+09 m2-days Shorelines oiled above lethal threshold, by shoreline type Shore type Length (m) m-days Area (m2) m2-days Sand Beach E E E E+07 Intertidal Wetland E E E E+09

Willingness to Accept Initial utility level = U 0 (I, E 0 ) Utility level after oil spill = U 1 (I, E 0 -  ) where U 1 < U 0 Willingness to Accept: U 0 (I, E 0 ) = U 1 (I+$, E 0 -  )

Natural Resource Damage Assessment (NRDA) *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. Economic Assessment Approach (Value-to-Value)

Natural Resource Damage Assessment *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.” Problems with Economic Approach

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 one actual oil spill (Exxon Valdez). *Legal precedent for habitat restoration rather than direct compensation.

Natural Resource Damage Assessment Ecologically-based Assessment Approach (Service-to-Service) *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.

Compensatory Restoration Initial utility level = U 0 (I, E 0, E 1 ) Utility level after spill = U 1 (I, E 0 -  0, E 1 ) where U 1 < U 0 Compensatory restoration: U 0 (I, E 0 ) = U 1 (I, E 0 -  0, E 1 +  1 )

Methodological Requirements for Generalized HEA *Determine restoration activities and costs for each habitat type. *Determine compensation ratios. *Determine discounted compensatory restoration services. *Equate ecological services losses with compensatory benefits.

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 Years % 50% 0 3 One acre = present value of 4.23 acre-years of ecological service Service

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.)

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. * High damage estimate = $895,000.

Summary of Restoration Costs

Summary of Oil Spill Scenario Results * Ecological losses comprise about 90% of total scenario damages. * Small spill damages = $0.6 - $3 million * Medium spill damages = $7 - $43 million * Large spill damages = $15 - $72 million

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

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