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Should We Drill in the Arctic National Wildlife Refuge? An Economic Perspective
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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 374billion(2005), but would cost 123billiontoextractandbringtomarket.Thedifference,251 billion, would generate social benefits through industry rents of 90billionaswellasstateandfederaltaxrevenuesof37 billion and 124billion,respectively.Acontributionofthepaperisthedecompositionofthebenefitsbetweenindustryrentsandtaxrevenueforarangeofpriceandquantityscenarios.ButdrillinganddevelopmentinANWRwouldalsobringaboutenvironmentalcosts.ThesecostswouldconsistlargelyoflostnonusevaluesfortheprotectedstatusofANWR′snaturalenvironment.Ratherthanestimatethesecostsandconductabenefit−costanalysis,wecalculatethecoststhatwouldgenerateabreakevenresult.WefindthattheaveragebreakevenwillingnesstoacceptcompensationtoallowdrillinginANWRrangesfrom582 to 1,782perperson,withameanestimateof1,141.