Assessment of the U.S. Outer Continental Shelf Environmental Studies Program: III. Social and Economic Studies (1992)

This chapter outlines the socioeconomics component of the Outer Continental Shelf (OCS) Environmental Studies Program, which is a component of the Minerals Management Service (MMS) of the Department of the Interior. The presentation in this chapter will be divided by region because the environmental studies are largely products of the MMS regional offices. The discussion is somewhat uneven because of wide variations both in the number of socioeconomic studies and in the documentation of systematic socioeconomics programs in the different regions. Particular focus is placed on the program in Alaska, because most of the socioeconomic studies have been performed there and because the structure and history of the Alaska program are well documented.

The Socioeconomics Panel was unable to identify documentation of a systematic MMS program for identifying and analyzing important socioeconomic issues for study in the Atlantic region. Table 4-1 is a list of studies identified by MMS as socioeconomic.

The Atlantic region socioeconomic studies include collection of baseline information from secondary sources (Research Institute of the Gulf of Maine, 1974); determination of onshore environmental effects of offshore-related facilities (International Research and Technology Corporation, 1976); identification of historically important potential shipwreck sites (Harvard College Institute of Conservation Archaeology, 1979; Science Applications, Inc., 1981); evaluation of the effects of oil spills on commercial fisheries (University of Rhode Island/Applied Science Associates, 1980-1982); quantification of traveler spending and associated state, federal, and local revenues (U.S. Travel Data Center, 1975); an assessment of potential conflicts between the fishing and oil industries (Centaur Associates, Inc., 1981); an evaluation of the technical feasibility of alternative modes of oil and gas transportation (Policy Planning and Evaluation, Inc., 1983); an assessment of effects associated with pipeline construction and operation (Rutgers University, 1983); and conversion of estimates of local expenditures of oil and gas operators to estimates of changes in regional employment and personal income (Kearney, 1991).

Many of these studies address important issues, but they primarily concern natural science or engineering. For example, the Research Institute of the Gulf of Maine (1974) reports what appears to be primarily an inventory of physical and biological resources, but it also includes some secondary data on selected socioeconomic issues. International Research and Technology Corporation (1976) determined the physical and environmental effects of OCS-associated onshore development, but not their socioeconomic implications. The University of Rhode Island/Applied Science Associates model

is primarily an analysis of physical fates and biological effects of oil spills that includes the weight and value of lost catch. This is clearly an important study with serious socioeconomic implications, but it is primarily an analysis of physical oceanography and biology, and contains little or no socioeconomic analysis. No social scientists were involved in the effort. The Policy Planning and Evaluation, Inc., report (1983) is basically a technical analysis that includes a cost analysis of alternative transportation modes, but ignores the effects of the alternatives on society. Rutgers University (1983) compiled secondary data on physical, biological and socioeconomic systems in the Mid-Atlantic.

Few of the studies carried out socioeconomic analysis or focused solely or even primarily on socioeconomics. Most of the socioeconomic content of these studies is in the form of secondary data. Although important, this does not itself constitute a socioeconomics program, and very little of the effort in the Atlantic region is placed on socioeconomic analysis. Notable exceptions are the studies by Centaur Associates, Inc. (1981), and the U.S. Travel Data Center (1975). The Centaur Associates study identifies and characterizes potential areas of conflict between the fishing and oil industries. It examines the history of various conflicts and uses primary data to examine potential for conflict in 30 ports on the Atlantic coast, the Gulf of Mexico, and in California. The study used a sound approach and carried out a thorough analysis of this important issue. Of course, the information requires frequent revision because conditions in many ports change rapidly.

The U.S. Travel Data Center (1975) used a model to estimate various economic effects on recreational travel, including traveler expenditures, associated tax receipts, secondary employment, and personal income. These are potentially valuable data for putting potential tourist revenues into perspective. However, a thorough economic impact assessment of this issue would go beyond the collection of data to an analysis that relates OCS production to changes in those revenues. Some attempts were made at validating the model, and it was found to be successful in providing data that were in agreement with data from similar studies, but it was not useful for comparison with statewide or countrywide studies, which are the significant areas of analysis for OCS-related issues.

The panel found no documentation of a systematic program for identifying and analyzing important socioeconomic issues for study in the Gulf of Mexico region. Table 4-2 is a list of studies identified by MMS as socioeconomic.

Early studies in the Gulf of Mexico were primarily baseline studies (Environmental Consultants, Inc., 1974; Larson et al., 1980; Liebow et al., 1982; Friend et al., 1982; French and Parsons, 1983). These broad characterizations of entire regions were previously criticized by the National Research Council (NRC, 1978) for their lack of focus on scientific issues and for their lack of relevance in determining the effects of OCS activities. Although the baseline studies contain interesting information, their encyclopedic approach virtually ensures that their coverage will be too superficial for meaningful analysis beyond a general characterization of the region. For example, in less than one page, the Friend et al. report (1982) discusses the economic effects of OCS activities on the Port of Mobile. Mobile is a major port with connections to the Intracoastal Waterway and the Tenn-Tom waterway. Notable exceptions to the baseline study approach during the Bureau of Land Management (BLM) era were two Coastal Environments, Inc. (1977, 1986) underwater surveys of potential archaeological sites in the northern Gulf of Mexico; and an analysis by Restrepo et al. (1982) of the economic effects of the Ixtoc I well blowout in the Bay of Campeche, Mexico, in 1979, and the Burma Agate tanker spill, which resulted from a collision with the freighter Mimosa near Galveston, Texas, in 1979.

Since the creation of MMS in 1981, there have been two primary studies completed in the Gulf Region (Centaur Associates, Inc., 1986; Texas A&M Research Foundation, 1989). The Centaur Associates study was an extensive effort conducted in cooperation with the Offshore Operators Committee to collect data about offshore workers in the Gulf of Mexico in 1984. The data were used to create an input-output model for the coastal northern Gulf. It is unclear how this model has been used, if at all. Socioeconomic analyses outside of MMS have been performed, with the data used to compile the input-output model. For example, Gramling (1989) uses the data to demonstrate that about $77 million flowed out of the state of Louisiana in 1984 in the form of wages and salaries paid to offshore workers. The Texas A&M Research Foundation study (1989) is an archaeological evaluation concentrating on historic shipwrecks.

The panel was unable to identify documentation of a systematic program for identifying and

analyzing important socioeconomic issues for study in the Pacific region. Table 4-3 is a list of studies in the Pacific region identified by MMS as socioeconomic.

The earliest MMS socioeconomic study in the Pacific Region is an archaeological survey and collection of maps (Science Applications, Inc., 1978). Two other studies include modeling targeted toward particular lease sales (Blayney-Dyett, 1981; BLM, 1981) and an effort to inventory coastal recreation sites (Granville Corporation, 1981). Other studies focus on the issues of mitigation of sea-floor conflicts between pipelines and trawl fisheries in California (Centaur Associates, Inc., 1984a); the cumulative effects of oil and gas development in the Santa Barbara Channel (Centaur Associates, Inc., 1984b); information about OCS oil activities and their direct effects (Centaur Associates, Inc./ECOS Management Criteria, Inc., 1985); and the effects of OCS development on recreation (Dornbusch and Co., 1987a, b). Later efforts gathered socioeconomic baseline data from secondary sources (Kearney/Centaur, 1987a,b).

Several of the socioeconomics studies in the Pacific Region have attempted to go beyond secondary data collection and to apply socioeconomic analysis. However, the modeling efforts are based on critical assumptions that are not easily justified, nor are they supported by data. Many of these studies are small-scale computer analyses, rather than in-depth studies based on primary data collection and actual experience. As discussed in an earlier review (NRC, 1989a), the modeling efforts have not been adequately integrated with field observations, or adequately calibrated and verified.

In addition, some of these analyses have methodological difficulties, as noted previously (NRC, 1989a). The Dornbusch (1987) study contains an inventory of California's aesthetic resources, but no research questionnaire was used. Landscape architects developed aesthetic ratings to evaluate effects, but did not survey recreational users. The study also used a travel-cost procedure for California. Unfortunately, the contractor combined it with another procedure, a gravity model, whose underlying foundation contradicts the travel-cost procedure. The results are therefore logically inconsistent. The use of the gravity model driving the tourism analyses also is flawed. Gravity models (described on pp. IV-67-69 in the draft environmental impact statement for Lease Sale 91; MMS, 1987d) have a long history in the social sciences, but their basic limitations (although understood) are not usually appreciated (Stewart, 1948). Among other limitations, one direct application to the draft environmental impact statement for northern California (MMS, 1987d) is that ''the gravity model is designed to account for the behavior of large groups of people'' (Huff, 1965). This means that only large spatial units (100 km2), trafficked by large numbers of people (100,000 or more), are amenable to a gravity treatment. Also, in common use, spatial units are treated contiguously, not in isolation or as being disconnected. None of these conditions holds for tourism in northern California.

The results regarding offshore platforms and beach use were reported to be "conflicting and erratic" (Dornbusch & Co., 1987). The presence of oil rigs was found to be associated with increases in beach use in some cases and with decreases in others. The contractor rejected the results in the detailed discussion in the third volume and concluded in the executive summary that there would be no effect from oil rigs. The environmental impact statement for Sale 91 drew on the contractor's conclusion in the executive summary to conclude that oil platforms have no effect on tourism. This is inconsistent with the detailed findings of the Dornbusch & Co. study.

There have been several attempts to apply socioeconomic analysis to OCS activity in the Pacific region. As such, the program in the Pacific has gone beyond those in the Atlantic and the Gulf of Mexico. However, modeling efforts in the Pacific Region are small-scale computer analyses, rather than in-depth studies with primary data. Insufficient efforts have been made to incorporate actual primary data to calibrate or verify the models. In addition, many of the studies have serious methodological difficulties.

The Alaska Socioeconomics Study Program (SESP) is an extensive, substantive program of more than 159 individual studies (Appendix D). Rather than providing a discussion of individual studies, this section provides a brief summary of the structure of the program, discusses broad coverage of studies, and discusses some individual studies as examples. The Alaska North Slope region, primarily the Beaufort Sea area, is used for purposes of illustration.

The impetus for the Alaskan SESP was a request by the state of Alaska to the Department of the Interior to develop a special program for socioeconomics, in recognition of the uniqueness of Alaskan cultures. This resulted in a request by Bureau of Land Management to the University of Alaska Sea Grant Program for an integrated, comprehensive planning document for Alaska socioeconomics research. The planning document was developed through a three-day workshop with participants from federal and state agencies, universities, and industry (University of Alaska Sea Grant Program, 1975) and was modified following a public review and presentation at a public conference.

The Sea Grant Program document suggests a structure for a research program and describes its 13 tasks (Table 4-4). These proposed tasks include setting alternative development scenarios; assessing technology to determine facilities likely to be associated with each level of development; examining and learning from the experience of OCS-related socioeconomic effects elsewhere; assessing a variety of socioeconomic effects associated with the various levels of development; and assessing the potential for current or emerging institutions to control and mitigate effects.

The Alaska SESP grew out of this early proposal. Its structure is based on three general components—baseline studies, development scenarios, and impact assessments (Banks, 1986)—which include many of the proposed research tasks. Baseline studies elucidate the nature and status of the human environment and predict changes in that environment in the absence of OCS activity. This provides a basis against which effects can be measured and evaluated. The available baseline studies appear to be carefully conceived and administered descriptions of a broad range of social, economic, and cultural facets of native communities in rural Alaska. The studies' observations of the

consequences of contact between native communities and modern industrial society provide an idea of the alterations in culture that could result from OCS activity.

Table 4-5 is a list of some baseline studies of Alaska's North Slope, focusing mainly on the Beaufort Sea planning area. The studies describe general demographic, social, economic, and cultural facets of native Alaskan communities; the current condition of transportation systems; subsistence resource uses; and the availability of water and other natural resources.

Development scenarios describe alternative levels of various OCS-related activities, onshore and offshore, to provide a range of expected activities, including the location, timing, and amount of OCS exploration, development, and production. Technology-based studies are used to predict the location, size, and timing of associated onshore and offshore activities. Development scenarios are meant to be based on a reasonable range of technological, economic, and geographic options so that a wide range of development effects can be considered. Technological options include alternative means for transporting oil. Alternative economic conditions would include various assumptions concerning oil prices, investment costs, tax status, and transportation costs. Geographic options would include the possible locations of resources and alternative locations for facilities. Table 4-6 is a list of sample development scenarios for the North Slope.

Impact assessment studies project the positive and negative consequences of OCS development for the human environment and review various scenarios, including a "no-development" scenario. This information is used to identify the effects of OCS development, to determine the desirability of OCS development given these effects, and to provide information that can be used to help plan for and manage socioeconomic effects. The impact assessment studies are conducted for communities, regions within the state, and for the state as a whole.

Within the Alaska SESP, effects on the human environment are broadly defined to include socioeconomic, sociocultural, and natural-resource effects. The first category includes changes in population, demographics, and employment; fiscal effects; effects on infrastructure; and effects on regional transportation systems. Sociocultural effects include those on subsistence, cultural values, politics, interethnic relationships, public health, and family relationships. Natural-resource effects include changes in water resources, mineral resources, fish and wildlife, and waste discharges.

Table 4-7 is a list of impact assessment studies, classified in several nonexclusive categories. Methodological studies develop methods or models for monitoring and assessing the effects that can accompany development. As an example, Technical Report 77 (TR 77), "Social Indicators of OCS Impact Monitoring," develops techniques to provide quantitative measures of social change and welfare.

Descriptive or case studies examine effects that have occurred in some other context than OCS activity. These studies are particularly important. TR 7, "A Case Study of Copper Center, Alaska," is an in-depth description of the native Alaskan community of Copper Center during construction of the Trans-Alaska Pipeline. The author, an anthropologist who lived in the community

during the construction, provides a comprehensive description of the ways Copper Center's society and institutions change and dealt with the associated pressures placed on the community. This study of the community's response to rapid industrialization is useful to show the kinds of changes one might expect in other native Alaskan communities and could suggest steps to be taken or avoided in development elsewhere.

Prediction is a major goal of the Alaska SESP: to forecast the effects of OCS activities in an effort to evaluate the desirability of proposed development and to identify means to plan for and mitigate damage to the human environment. Predictive studies are based on work developed in the other categories. Baseline conditions and development scenarios are used to project effects with and without OCS development. Potential effects are identified and measured using case studies and methodological studies.

The final category contains workshop proceedings and program summaries, the primary purpose of which is public dissemination of results. Although this form of publication does not contribute new information, it does provide brief and accessible summaries of the studies. These sources also can provide an overview of the program, which can be difficult to obtain from reading individual project reports.

The Alaska SESP has systematically constructed a substantive and scientific socioeconomics program that is based on a broad definition of the human environment. This framework identifies research needs and ensures that individual studies are combined into an integrated whole. Some of the studies show a broad concept of the human environment, and explicitly consider perceptions of risk and the symbolic value of people's activities (e.g., TR 85). The Alaska SESP is a reasonable model that can be favorably compared to the socioeconomics studies programs of virtually any federal or state agency.

However, the existing program has several shortcomings. First, the noneconomic studies focus almost exclusively on native Alaskans. Such a focus is understandable, because these communities are least understood and because they are likely to feel the greatest effect of OCS production: Industrial development in Alaska could threaten entire cultures. However, nonnative communities should not be excluded from sociocultural analyses. For example, many of those who choose to live in Alaska have done so to escape industrialized society. Yet industrial development in Alaska could threaten this last frontier. The nonnative components of Alaskan society should receive more attention from sociocultural studies.

The estimated economic effects of OCS exploration and development are the focus of several interdependent subtasks, some of which include technical and social analyses. A useful overview of the structure is provided in the proceedings of a workshop (SR 6), summarized here.

First, a development scenario and associated technical analysis are prepared, in which the number of exploration rigs, platforms, and pipelines and the amount of production are estimated. Next, MMS staff specify the probable location of the onshore facilities and likely transportation routes. MMS then translates the development scenario into employment estimates, which appear to be fixed-coefficient, engineering-type estimates. Although one could question whether there is enough flexibility in the technical relationships to permit appropriate adjustments in labor inputs, for

example, if wages are sufficiently high, this likely constitutes an acceptably small error. These data form the starting point for the economic analysis, which is captured in part by the Rural Alaska Model (RAM), summarized and evaluated independently in SR 5, "Review of Cumulative Impact Assessment and North Slope Borough Development Projects." RAM is an econometric model used to project socioeconomic conditions under various scenarios. It is made up of statewide and regional submodels with three integrated components: economic, fiscal, and demographic.

The economic component divides the Alaskan economy into external forces, those from outside the state and the OCS development process (including such sectors as the mining industry and the federal government), and internal forces, which include the portions of the economy determined from within the state and affected by OCS-related activity. For example, demand for labor and the overall level of employment are defined as those needed to produce the required level of output, and thus are affected by industrial production, including that associated with OCS activity. Alaskan wage rates are jointly determined by mainland wages and by the rate of growth of employment in Alaska. The rate of employment and wage rates determine total wages and salaries. Real disposable income is determined by deflating disposable personal income by a relative price index. The major determinants of Alaska prices are overall prices for the United States and the size and growth rate of the economy. Income determines the demand for local production; thus, income and output are simultaneously determined by the model.

The model's fiscal component provides a framework for analyzing the effects of alternative policies. It calculates tax payments to derive disposable personal income. It assumes a state spending rule and it calculates personnel expenditures, state government employment, and the amount spent on capital improvements, all of which affect the amount of construction activity and therefore the demand for labor.

The demographic component of RAM projects each component of population change—births, deaths, and migration. It uses specific survival rates for various ages, sexes, and races, and age- and race-specific fertility rates to project birth and death rates for the civilian population. Population change is determined by net migration and natural increase. Net migration is determined for relative economic opportunities in Alaska by comparing employment changes and real per capita income in the state relative to the real per capita income in the rest of the country. RAM predicts changes in regional and statewide population, employment, and wages, as well changes in tax revenues and government spending.

The members of the panel concur with independent reviewers, who concluded that the model meets the following criteria in a reasonable fashion (SR 6).

• It is sufficiently detailed.

• It is scientifically and legally defensible.

• It is well documented and can be replicated, although MMS doesn't have access to the Massachusetts Institute of Technology computer on which it runs (MMS obtained access to the model in 1990).

• It makes clear and well-documented assumptions.

The model is sufficiently detailed to estimate employment in Anchorage or Bethel for a given year for the basic economic sectors and to predict annual, real, per capita expenditures by the state government from its general fund (TR 106). An interesting result of using the model is the prediction that the cumulative effect of OCS Sales 97 and 109 would reduce the migration of the native population from the North Slope over the duration of production (TR 120). Therefore, one cumulative effect of OCS activity is expected to be the stabilization of the native population for more than a generation (TR 100 contains further documentation).

In our judgment, the model is sophisticated, carefully designed, and accurate. It is reviewed at least once each year, to integrate new findings about the Alaskan economy, as shown, for example, by comparing TR 115 with TR 106. It is unlikely that many natural-resource-development agencies in the United States or in the world can match it. It is unlikely that many states have a better model of fiscal, income, and population growth. MMS and its consultants have an overall structured view of how to estimate the economic effects of OCS development. Armed with this, MMS commissions studies that produce results useful for and consistent with the overall studies that estimate economic effects. Some of these studies, such as the three-volume TR 137, ''A Demographic and Employment Analysis of Selected Rural Alaskan Communities,'' simply gather basic data—on population, wages, and employment for communities. TR 51, "Western Alaska and Bering-Norton Petroleum Development Scenarios: Commercial Fishing Industry Analysis," identifies three areas of potential effects: labor, the components of the communities' infrastructures, and use of ocean space. The study is forthright about the need for more data to make empirical estimates. Nevertheless, the authors used econometric analysis for another region in Alaska to demonstrate that the petroleum industry does not harm manufacturing employment, including fish processing. The results were corroborated by interviews with workers in the fish-processing industry. Competition for ocean space can occur, particularly because of gear loss caused by debris on the ocean floor and marine traffic. The size of OCS vessels makes them basically noncompetitive with fishing vessels, which moor in small harbors. Specialized services (such as electronic repair) to the petroleum industry could aid the fishing industry, and oil-related structures in the ocean can be used as navigational aids (TR 51).

There are exceptions to the interdependent nature of some studies. It is not apparent how the subject matter of SR 7, detailing the distribution of employment in village corporations, will fit into a study on the effects of oil development, however important the study might be from other perspectives. TR 71, "Alaska Peninsula Socioeconomic and Sociocultural Systems Analysis," is an exceptionally detailed report about economic activity in six communities—it discusses trends in dogfish prices, types of gear used, and the size of fishing vessels—with no apparent purpose or relationship to oil development.

Despite its shortcomings, the process that produced the structure of the Alaska program could be regarded, with minor revision, as a national model for research on the effects of OCS development.

Missing from the research program is any serious attempt to estimate the more broadly social costs associated with oil spills. Outside of indirect studies, such as those on the effects of disrupting subsistence activities, the panel was unable to identify a single research document devoted to this important subject. MMS is currently studying the effects of the Exxon Valdez oil spill on native communities, however, and such studies are important and should receive high priority for funding.

Furthermore, the economic analyses are defined quite narrowly by SESP to include macroeconomic effects on employment, income, and population changes. Broader economic analyses, such as analysis of social costs and nonmarket effects, are nonexistent. However, extensive work in the noneconomic disciplines could diminish the importance of economic analyses of nonmarket effects. Furthermore, nonmarket economic methods might not be appropriate for evaluating many of the most important issues related to development of rural Alaska. For example, appraisal of cultural change is beyond the scope of economic analysis. Similarly, social ills potentially associated with OCS development, such as alcoholism, the breakup of the family structure, or the loss of subsistence harvest, involve values that are beyond the current abilities of economic analysis.

With the exceptions of the shortcomings noted above, the Alaska SESP is a well-conceived and carefully constructed program. Of the four MMS regions, only Alaska has a true socioeconomics program, a carefully considered scientific approach that has systematic underlying conceptual structure, that gives a broad definition of the human environment, that has identified study

needs, and that integrates studies to fulfill program requirements. There is no scientific reason that Alaska's program should be so much better than those in other regions, although there are certain features of Alaska (among them is relatively small population) that make it easier to study than other regions.

Nonnative communities should receive attention from sociocultural studies, and economics studies should focus on nonmarket effects, through social cost analyses of oil spills and the potential effects on recreation. Analyses should specifically address the distribution of economic benefits to be obtained from oil development and the implications of various distribution schemes.