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Should we drill in the Arctic National Wildlife Refuge? An economic perspective

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  • Kotchen, Matthew J.
  • Burger, Nicholas E.

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.
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Suggested Citation

  • Kotchen, Matthew J. & Burger, Nicholas E., 2007. "Should we drill in the Arctic National Wildlife Refuge? An economic perspective," Energy Policy, Elsevier, vol. 35(9), pages 4720-4729, September.
  • Handle: RePEc:eee:enepol:v:35:y:2007:i:9:p:4720-4729
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    References listed on IDEAS

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    1. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 312-319.
    2. Cleveland, Cutler J. & Kaufmann, Robert K., 2003. "Oil supply and oil politics: Deja Vu all over again," Energy Policy, Elsevier, vol. 31(6), pages 485-489, May.
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    Cited by:

    1. Hahn, Robert & Passell, Peter, 2010. "The economics of allowing more U.S. oil drilling," Energy Economics, Elsevier, vol. 32(3), pages 638-650, May.
    2. Eric C. Edwards & Oscar Cristi & Gonzalo Edwards & Gary D. Libecap, 2016. "An Illiquid Market in the Desert: Estimating the Cost of Water Trade Restrictions in Northern Chile," NBER Working Papers 21869, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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