Tuesday, April 24, 2018

Thinking About Environmental Economics in Alaska

 April 25, 2018 Dinner/Discussion

For our last SWEET meeting, we have a very special guest - Camilla Kennedy. Camilla currently teaches Environmental Economics and Policy at the University of Alaska Anchorage and works as the Economist for the Alaska Department of Environmental Conservation. She received her BA in Economics from UAF and her Masters in Environmental Economics from the London
School of Economics. She is an alumni of Students Who Enjoy Economic Thinking (SWEET) from 2007-2011, however, she considers herself a lifelong student of economic thinking.

It was suggested last week that we discuss the merits of House Bill 199 which mirrors the Stand for Salmon ballot initiative. The bill has drawn the opposition of oil and gas, mining, logging and construction trade groups as well as most Alaska Native corporations for being a de-facto prohibition on new development, such as Pebble Mine, in Alaska. Pebble Mine is  a mineral exploration project investigating a very large copper, gold, and molybdenum mineral deposit in the Bristol Bay region of Southwest Alaska. Proponents argue that the mine will create jobs, provide tax revenue to the state of Alaska, and reduce American dependence on foreign sources of raw materials. Opponents argue that the mine would adversely affect the entire Bristol Bay watershed; and that the possible consequences to fish populations, when mining effluents escape planned containments, are simply too great of a risk.

Some questions to consider:

Are the potential environmental impacts real or exaggerated?

Do the benefits of the project exceed the costs in the short run and long run?

If the project is approved, will the development of the minerals in this region continue the "resource curse" in Alaska?

 HB 199 (Stand for Salmon Initiative)

Pebble Mine

Other topics we could discuss with Camilla:

Fairbanks North Star Borough being reclassified as a “serious” nonattainment area for fine particulate air pollution. 

The Alaska water and sewer challenge. Over 3,300 rural Alaska homes lack running water and a flush toilet. Most of these homes are located in 30 “unserved” villages.


  1. Wow my vintage SWEET scholars account still works...Hi Sherri! See you all tomorrow. :-)

  2. I believe some processes used to collect can have adverse affects on the environment, such as fracking. As far as mining for gold and other minerals, I don't know too much about.

  3. To begin with, I am pro-business. I believe that allowing businesses to expand is generally a good thing. It provides jobs and economic opportunity to people. That said, I also believe in responsible development where businesses pay the full cost for their mistakes. The problem is that our system is set up where businesses tend to underreport the problem, interfere with/hinder investigations, and do their very best to not pay what the “full cost” of a mistake is. Government, as part of the problem, is not able to reliably forecast all the future costs and problems associated with the mistakes businesses make, or, at the very least, convince judges of the veracity of the numbers government agencies calculate. Further, the problems from these large players are coupled with predatory “victims” who do their very best to exaggerate the damages done to them.

    A great example of this is with the relatively recent Macondo spill in the Gulf of Mexico. The Justice Department crowed about the 21 billion dollars in fines they levied against BP, but only about 6 billion dollars were fines which could not be written off as business losses. That meant that about 15 billion dollars in fines are able to be written off on taxes, allowing the company to pay fewer federal taxes (https://www.forbes.com/sites/robertwood/2015/10/06/bps-20-8-billion-gulf-spill-settlement-nets-15-3-billion-tax-write-off/#33d17565c5b3). While large amounts of money were allocated to spill victims, including the Gulf’s shrimping industry and tourism spots, this money was often insufficient. Some companies heavily affected were awarded nothing. Seahawk Drilling, an oil/gas well drilling operation reported losses of 174.8 million dollars due to the ban on offshore drilling that resulted from the Macondo spill. Unfortunately, a U.S. District judge ruled against their claim, siding with BP’s argument that BP hadn’t stopped offshore drilling, the U.S. government had (https://www.maritime-executive.com/article/winners-and-losers-in-deepwater-horizon-payout#gs.qkI0JMY). Seahawk was restructured and sold shortly thereafter.

    While there is concern that the spill caused financial hardship to private businesses, there is also a cost on the taxpayer. Previous to the spill happening, offshore drilling was managed by one governmental entity, the Minerals Management Service (MMS). After the spill, this agency, due to “perceived conflict of interest and poor regulatory oversight”, was split into the Bureau of Ocean Energy Management (BOEM), the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resources Revenue. This vastly increased the cost of regulation to the U.S. taxpayer.

    1. Even ignoring these things, the part that most disappointed me is the practice of concealing the true extent of damage by companies. As a person who has paid close attention to the oil and gas industry, and with a great respect for the technical savvy of petroleum engineers, I couldn’t believe the lack of dialogue between BP executives and U.S. government officials in the days after the Macondo blow out. I had always heard of how BP and the federal government had worked closely together to solve the problem, but the truth does not reflect that. BP executives were pushing the idea that the spill was releasing 5,000 barrels of oil a day into the Gulf (even though the rates were over 50,000 barrels a day). Further, government officials had to request, specifically, information from BP in order for government scientists to work on the problem. There was not the free exchange of information between the company and the government. The problem was such that the U.S. Secretary of Energy and Nobel Prize winning physicist, Steven Chu, was forced to double-check BP’s action plan with independent scientists. After BP failed to present better action plans, Chu approached other oil companies like ExxonMobil, Chevron, and Shell to assist in finding solutions (https://www.scientificamerican.com/article/how-science-stopped-bp-gulf-of-mexico-oil-spill/).

      So, clearly, there are problems. That said, I think companies generally color between the lines, and that with every problem we encounter (including record breaking oil spills), we discover boundaries that we should and do include to better outline the way we want our companies to behave. As long as we continue to refine our laws to better protect people and allow businesses flexibility to act, we can continue to enjoy the fruits of our democracy and markets.