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Economic Impacts of an Oil Spill


January 2015

Cover Story

Economic Impacts of an Oil Spill

by Lovel Pratt

Lovel Pratt is a former member of the San Juan County Council. While in office she served on the Puget Sound Partnership Oil Spill Work Group, the Oil Spill Rule Advisory Committee and the Vessel Traffic Risk Assessment Update Steering Committee. She lives in Friday Harbor.

The economic impacts of a major oil spill in this region would far exceed the estimates made to date.

On Dec. 1st, the Department of Ecology (Ecology) submitted the Draft 2014 Marine & Rail Oil Transportation Study to the state Legislature, which, in its upcoming legislative session, will address the increased and proposed additional transportation of oil by both rail and vessel in our region. The legislature and Governor Inslee wil1l consider allocating additional resources and requiring additional risk mitigation measures in answer to the public’s growing concerns about the public safety, health, and financial risks and impacts related to oil transportation. This is essential, given that Washington State has yet to adequately address the oil spill risks and impacts that existed up to 2012.

The consequences are huge: Ecology estimates that a major oil spill in the state would cost 165,000 jobs and $10.8 billion in annual economic activity.2 However, these figures are undervalued because, in addition to being two years outdated, this estimate does not include any costs associated with the impacts of oil spills to privately owned shoreline and water-view properties.

When Washington State’s Oil Spill Contingency Plan3 was being updated in 2012, Ecology received comments during the rulemaking process expressing concerns about oil spill impacts to shoreline properties and property values. The state’s oil spill regulations were updated but without a thorough cost-benefit analysis and requests for additional resources were denied.4 If the costs associated with impacts to privately owned shoreline and water-view properties had been included in the cost-benefit analysis, additional costs, paid by industry, would have been justified for additional oil-spill prevention and spill response resources.

Included in that cost-benefit analysis are the potential oil spill impacts to ports and commercial vessels; marinas and recreational boating; tourism (including both direct and indirect lost income); subsistence, commercial, tribal, and recreational fisheries and shell fisheries; national and state park use; and wildlife and nature viewing. Absent are the potential impacts to the most expensive residential properties in the Puget Sound and Salish Sea region.5

Given the geography of the Puget Sound and Salish Sea, any oil spill would take place close to shorelines. Oiled shorelines have significant environmental and economic impacts. Shoreline properties provide access to the shore for beach walks and boating. Shoreline and water-view properties provide spectacular vistas of the beautiful marine environment and wildlife that this region is famous for. Owners of these high-value properties often build expensive homes and other improvements that generate higher tax revenues for state and local coffers. An oil spill would most likely severely impact these prime real estate values for the duration of the cleanup, with probable long term degradation of the marine environment and wildlife species.

Property owners may be required to evacuate if faced with fire danger and/or air pollution from emissions of benzene and other volatile organic compounds. If evacuation is not required, shoreline and water access could be cut back or prohibited. Water views would be spoiled by oil slicks and noisy cleanup operations, and oiled shorelines would likely be mechanically cleaned by pressure washing and bulldozing.6

Property owners also face losses to assessed values. A study conducted in British Columbia revealed that privately owned properties can lose from 10-40 percent in value, and even properties near spills that are not directly affected can lose value by association.7

In terms of property tax collections, oil spill impacts are not just a concern for shoreline and water-view property owners. According to the Washington State Department of Revenue’s Property Tax Division, a loss in assessed value might reduce the taxes collected on individual properties, but would not reduce the total amount of property taxes collected by the state and the municipality or county (though tax collections for some junior taxing districts could be reduced). Lower tax collections on properties that lose assessed value as a result of oil spill impacts could cause a shift in the tax burden, with properties that aren’t directly affected having to more. If the assessed value reductions are widespread, the result could be a change in the millage rate (the amount per $1,000 that is used to calculate property taxes) so that the amount of tax collections remains the same – even with a reduction in value.

Typical homeowner’s insurance would not provide compensation in the event of an oil spill. Pollutants are excluded in property policies unless the coverage is specifically defined to include the pollutant. According to my local insurance agent, unless a homeowner’s policy specifically covers oil spills, there would be no compensation for loss of use or loss of value resulting directly or indirectly from an oil spill. Further, it would be both difficult and most likely quite expensive to find such coverage.

The Exxon Valdez oil spill, which hasn’t been completely cleaned up after 25 years, still has continuous and compounding environmental and economic impacts.8 Washington State can’t afford that tragedy. The 165,000 jobs and $10.8 billion in annual economic activity don’t accurately estimate the costs that such a catastrophe would have on the state.

This legislative session requires action on oil transportation issues. The legislature and Governor Inslee must prevent and mitigate the full costs of accidents and spills from oil transportation, including the impacts to privately owned properties. Contact your representatives and the Governor to ensure the economic and environmental well-being of our state.

Endnotes

1. Washington State Department of Ecology: Spill Prevention, Preparedness, and Response Program. 2014. Draft 2014 Marine & Rail Oil Transportation Study. Publication Number: 14-08-015. See http://www.ecy.wa.gov/programs/spills/OilMovement/2014MRstudy.html accessed 12/2/2014.

2. Washington State Department of Ecology: Spill Prevention, Preparedness, and Response Program. 2012. Final Cost-Benefit and Least Burdensome Alternative Analysis: Chapter 173-182 WAC Oil Spill Contingency Plan. Publication no. 12-08-014. See https://fortress.wa.gov/ecy/publications/publications/1208014.pdf accessed 12/1/2014.

3. WAC 173-182. See http://apps.leg.wa.gov/wac/default.aspx?cite=173-182 accessed 12/8/2014

4. As required by RCW 34.05.328. See http://apps.leg.wa.gov/rcw/default.aspx?cite=34.05&full=true#34.05.328 accessed 12/8/2014

5. Etkin, D. S. 2005. Socioeconomic Cost Modeling For Washington State Oil Spill Scenarios: Part II. Prepared for the Washington State Department of Ecology Spills Program. 71 p.

6. See http://www.epa.gov/oem/content/learning/oiltech.htm accessed 11/22/2014. See also http://www.itopf.com/knowledge-resources/documents-guides/economic-effects accessed 11/22/2014.

7. Conversations for Responsible Economic Development (CRED). 2013. How do Pipeline Spills Impact Property Values? Assessing the real estate risk of an oil spill in southern British Columbia. (See http://credbc.ca/wp-content/uploads/2013/12/Pipeline-spills-property-values.pdf accessed 11/15/2014)

8. See http://www.huffingtonpost.com/2014/03/20/25-years-later-exxon-valdez-spill_n_4999628.html and http://www.npr.org/2014/03/26/294709397/exxon-valdez-oil-spill-brings-bad-juju-and-pain-25-years-later accessed 12/14/2014.

Tanker Spill Scenarios

The worst possible oil spill would be from a crude oil tanker, given the volume and type of cargo. Tankers’ propulsion fuels are also a potential source of oil spills. Kinder Morgan’s Trans Mountain Pipeline Expansion (TMPE) project would increase the exports of Canadian tar sands crude oil through Georgia Strait, Boundary Pass, Haro Strait, and the Strait of Juan de Fuca from 300,000 barrels per day to 890,000 barrels per day (and potentially over a million barrels per day). 1 Tanker vessel traffic would increase from the current estimate of 60 tankers per year to up to 408 tankers, making 816 annual transits.2

This surge in traffic greatly increases the risk of a spill, according to the 2014 Vessel Traffic Rick Assessment.3 The Kinder Morgan projected increase would almost triple (by a factor of 2.76) the existing oil spill risk in Haro Strait and Boundary Pass and more than double (by a factor of 2.08) the risk in the western entrance to and (by a factor of 2.32) in the eastern area of the Strait of San Juan de Fuca, the study concluded.

Canadian tar sands crude oil (aka Alberta tar sands, oil sands and bitumen) is most typically transported in tankers, barges, pipelines and rail cars as diluted bitumen. Even diluted it is a heavy (defined in terms of weight or gravity, i.e., the oil’s density relative to water) and persistent crude oil (persistent oils break up and dissipate more slowly in the marine environment than do non-persistent oils).4 An oil spill of any product in Puget Sound/Salish Sea would have a high impact given the region’s tourism, residential, and fisheries economies. A spill of heavy and persistent Canadian tar sands crude oil in this region would be devastating both environmentally and economically.

If a tanker transporting Kinder Morgan’s Canadian tar sands crude oil has a spill, their liability is limited to a maximum of approximately $137 million (Canadian) with additional levels of international and Canadian oil pollution funds available up to approximately $1.3 billion (Canadian) for an individual spill.5

Kinder Morgan’s TMPE project application estimates that a Trans Mountain Pipeline related tanker’s credible worst-case spill volume is 104,000 barrels and the mean-case spill volume is 52,000 barrels.6 The $1.3 billion (Canadian) oil pollution funds available for an oil spill might appear to be sufficient to cover the costs and damages, but the heavy and persistent Canadian Tar Sands crude oil has higher cleanup costs than other crude oils.

A tragic precedent is the 2010 Enbridge pipeline Canadian tar sands crude oil spill that impacted approximately 38 miles of the Kalamazoo River and Talmadge Creek waterways.7 The spill volume is estimated at 843,000 gallons or 20,071 barrels. The cost to date of this spill, as reported by Enbridge on September 30, 2014, is $1.2 billion or nearly $60,000 per barrel.

At $60,000 per barrel, the cost of a Kinder Morgan TMPE related tanker’s mean-case spill would be $3.12 billion, and the cost of a credible worst-case spill would be $6.24 billion.8

Endnotes

1. Kinder Morgan’s TMPE “theoretical future expansion scenario” that would bring the total to over a million barrels per day can be found in this ‘Engineering and safety’ response to Canada’s National Energy Board. See page 44 (listed as page 463 of 481) https://docs.neb-one.gc.ca/ll-eng/llisapi.dll/fetch /2000/90464/90552/548311/956726/2392873/2451003/2454322/B32-3_-_Trans_Mountain_Response_to_NEB_IR_No._1_2_of_2_-_A3W9H9.pdf?nodeid=2462074&vernum=1 accessed 12/14/2014.

2. Kinder Morganユs TMPE application. See http://application.transmountain.com/facilities-application accessed 12/12/2014. See also San Juan Islanders for Safe Shipping graphics and Kinder Morganユs Trans Mountain Oil Spill Study documents.

3. Van Dorp, J. R., and J. Merrick. 2014. VTRA [Vessel Traffic Risk Assessment] 2010 Final Report: Preventing Oil Spills from Large Ships and Barges in Northern Puget Sound & Strait of Juan de Fuca. Prepared for Washington State Puget Sound Partnership. 166 p. See http://www.seas.gwu.edu/~dorpjr/VTRA/PSP/FINAL REPORT/PSP FINAL REPORT 033114 - SIGNED.pdf accessed 12/12/2014.

4. See http://www.itopf.com/knowledge-resources/documents-guides/fate-of-oil-spills accessed 12/8/2014.

5. See http://www.transmountain.com/marine-spill-liability accessed 11/22/2014.

6. Kinder Morganユs Trans Mountain Pipeline Expansion project application Volume 8A, Section 5.0 Risk Assessment and Spill Management. See http://transmountain.s3.amazonaws.com/application/V8A_3_of_4_5_TO_8_MAR_TRANS_ASSESS.pdf accessed 11/22/2014.

7. See http://csr.enbridge.com/Systems-Integrity/Case-Studies/Marshall-Spill-Case-Study.aspx accessed 11/15/2014.

8. The Kalamazoo River oil spill cleanup cost per barrel of $59,786.48 is based on the current EPA spill volume estimate of 843,000 gallons (see http://www.epa.gov/enbridgespill accessed 11/14/2014) and Enbridgeユs September 30, 2014 cost estimate included in its Third Quarter Report (see http://www.enbridge.com/~/media/www/Site%20Documents/Investor%20Relations/2014/2014_ENB_Q3_Report.pdf?la=en pages 7-9, Line 6B Crude Oil Release, accessed 11/14/2014).


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