An Economic Assessment of Oil Development in the Alaskan Arctic

• Main Author: Dvorak, Michelle T.
• Other Authors: Leschine, Tom
• Format: Thesis
• Language: English
• Published: 2017
• Subjects: Alaska; Arctic; economics; environment; Oil; Environmental economics; Marine affairs; Chukchi Sea; Chukchi; Climate change; Sea ice
• Online Access: http://hdl.handle.net/1773/40225

Thesis (Master's)--University of Washington, 2017-06 The Arctic has become a subject of intense political and economic interest as the effects of climate change have led to rapid losses in sea ice and a subsequent expansion of economic opportunities. The circumpolar north is estimated to contain 13% of the world’s undiscovered oil resources, with over 10 billion barrels (Bbbls) of oil estimated in the Chukchi Sea alone. This thesis presents an empirical model of a supply curve for oil development in the Chukchi Sea, suggesting that at prices of $60/bbl, approximately 3.2 Bbbls of oil are recoverable from the region. With much higher prices, total production could reach upwards of 15 Bbbls. Revenues from the sale of these resources would ensure substantial economic benefits to the U.S. However, oil development in the Arctic is not without risks – to the marine environment and to the Indigenous communities that subsist on Arctic marine resources. A major oil spill in the region would lead to economic losses in the form of reduced subsistence harvests and non-use values for the region as a pristine wilderness. A benefit-cost analysis of oil development in this region shows that, because of these risks and the high costs of production for the region, net benefits are approximately $6 billion when the market price of oil is $60/bbl. Costs associated with the emission of greenhouse gases from the combustion of these resources are not directly considered in this thesis; however, if oil producers in the Chukchi Sea were made to internalize the costs of climate change in the form of a per-barrel tax equal to the social damages of carbon pollution, production costs increase such that no oil becomes profitable for development.