Working Paper: NBER ID: w13211
Authors: Matthew J. Kotchen; Nicholas E. Burger
Abstract: This paper provides model-based estimates of the value of oil in Alaska's Arctic National Wildlife Refuge (ANWR). The best estimate of economically recoverable oil in the federal portion of ANWR is 7.06 billion barrels of oil, a quantity roughly equal to US consumption in 2005. The oil is worth $374 billion ($2005), but would cost $123 billion to extract and bring to market. The difference, $251 billion, would generate social benefits through industry rents of $90 billion as well as state and federal tax revenues of $37 billion and $124 billion, respectively. A contribution of the paper is the decomposition of the benefits between industry rents and tax revenue for a range of price and quantity scenarios. But drilling and development in ANWR would also bring about environmental costs. These costs would consist largely of lost nonuse values for the protected status of ANWR's natural environment. Rather than estimate these costs and conduct a benefit-cost analysis, we calculate the costs that would generate a breakeven result. We find that the average breakeven willingness to accept compensation to allow drilling in ANWR ranges from $582 to $1,782 per person, with a mean estimate of $1,141.
Keywords: Arctic National Wildlife Refuge; oil drilling; economic analysis; environmental costs; willingness to accept
JEL Codes: Q3; Q4; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Drilling (L71) | Economic benefits (O22) |
| Economically recoverable oil (Q35) | Economic benefits (O22) |
| Extraction cost (L71) | Net benefit (D61) |
| Net benefit (D61) | Social benefits (I31) |
| Willingness to accept compensation (J33) | Recommendation for drilling (L71) |
| Economic rents and tax revenues (H29) | Benefits to society (H43) |