**REPORT TITLE:** Analysis of the Cumulative Impacts, Western Gulf of
Alaska Impact Analysis.

Special Report No. 1.

**STUDY TITLE:** Statewide Impacts of OCS Petroleum Development in
Alaska.

CONTRACT NUMBER(S): BLM: CT6-61; MMS: 14-12-0001-29002.

SPONSORING OCS REGION: Alaska.

APPLICABLE PLANNING AREA(S): Gulf of Alaska; Kodiak; Shumagin.

FISCAL YEAR(S) OF PROJECT FUNDING: 1979.

COMPLETION DATE OF REPORT: July 1979.

COST(S): FY 1979: \$35,979; CUMULATIVE PROJECT COST: \$35,979.

PROJECT MANAGER(S): L. Huskey.

AFFILIATION: University of Alaska, Institute of Social and Economic
Research.

ADDRESS: 3211 Providence Drive, Anchorage, Alaska 99508.

PRINCIPAL INVESTIGATOR(S)\*: L. Huskey.

KEY WORDS: Gulf of Alaska; Kodiak; Shumagin; Alaska; development;
sociocultural change; human population; employment; model; modeling;
economics and demographics; impacts; cumulative impact; Alaska Region.

ACCESS NUMBER: 29002

**BACKGROUND:** In order to meet requirements of the National
Environmental Policy Act of 1969 regarding a determination of the
environmental and socioeconomic effects of outer continental shelf (OCS)
development, the U.S. Department of the Interior, Bureau of Land
Management (BLM, now the Minerals Management Service) initiated the
Alaska Socioeconomic Studies Program. The Program objectives were to
predict and evaluate the effects of offshore oil and gas exploration and
development activities on the economic, physical, and social
environments within the State. By 1974, Alaska had produced only 1% of
U.S. domestic crude oil; however by 1985, this value was projected to
reach 25%. Alaska accounted for one‑fourth of identified oil and gas
reserves in the U.S. and one‑third of estimated undiscovered recoverable
domestic reserves. Development of these reserves was expected to have a
dramatic effect on the economy of Alaska. Previous studies on OCS
effects were sale-specific and thus did not account for socioeconomic
changes to the entire State.

**OBJECTIVES:** (1) To provide information needed to predict economic
and social changes in Alaska as a result of OCS petroleum development;
and (2) To analyze these data and make forecasts regarding socioeconomic
changes.

**DESCRIPTION:** The study consisted of two parts: (1) a base case
projection describing the future Alaska economy without OCS development,
and (2) a projection describing the economic impacts of OCS‑related
activities. Economic impacts of oil development were predicted from a
statewide econometric model developed by the University of Alaska,
Institute of Social and Economic Research during the Man‑in‑the‑Arctic
Program. The econometric model consisted of three components, including:
(1) an economic model, (2) a fiscal model, and (3) a demographic model.

The economic model consisted of exogenous (basic) and endogenous
(nonbasic) sectors. Exogenous output was regulated by factors outside
the State, whereas endogenous output was regulated within Alaska. Within
the economic model, industrial production regulated employment and
employment determined personal income.

In the demographic model, each demographic component (i.e., births,
deaths, and migrations) was projected separately. Age‑sex‑race specific
survival and age‑race specific rates were used to predict births and
deaths. Migration components were subsequently added.

In the fiscal model, personal tax payments were predicted in order to
estimate disposable income. The fiscal model also took into account
State government employment and monies spent on capital improvements
because of State government effects on construction industry employment.

The three sub‑models were linked together through transfer of
information at various stages of model development. The model was used
to predict economic and social impacts of OCS development in lower Cook
Inlet, Beaufort Sea, and the northern and western portions of the Gulf
of Alaska.

**SIGNIFICANT CONCLUSIONS:** The model predicted that OCS development
would generate employment primarily in construction, manufacturing,
mining, and transportation industries. As a result, private incomes and
public revenues in Alaska would increase. This resultant increase in
public sector spending would stimulate increased governmental employment
and construction expenditures.

**STUDY RESULTS:** Although individual Alaska OCS leases may produce
only minor economic and social impacts, together they were predicted to
be significant. The qualitative effect of OCS development, as predicted
by the model, was similar to most exogenous induced growth. OCS
development was projected to generate direct employment in construction,
manufacturing, mining, and transportation industries. Because a number
of fields were affected simultaneously, various development phases
occurred in unison. Private incomes and public revenues in Alaska were
projected to increase as a result of this development. Additional
employment and income in the endogenous sector resulted from
trickle‑down effects of expenditure of OCS‑related salaries and wages.
The resultant economic activity stimulated public sector spending
through increased governmental employment and construction expenditures.

The qualitative effects of OCS activity and its associated impacts
supported trends in the base case and in the historical period. Three
obvious changes occurred in the base case, based on model predictions.
First, more goods and services were produced in Alaska as the economy
grew. Secondly, employment rates increased as a result of increased
labor force participation and population aging. Finally, State
expenditures were predicted to increase faster than revenues, even after
petroleum revenues began to decline, resulting in a drawing down of the
general fund balance.

The results of the modelling predicted that OCS development would cause
significant increases in the population of Alaska. By the year 2000, OCS
development was projected to increase employment by 2% (i.e.,
representing an addition of 6,124 employees), increase the total State
population by 2.7% (i.e., addition of 15,700 persons), and increase
personal income by 2.3% (i.e., representing an increase of \$221
million) above the base case. Although significant, these changes were
relatively small. Despite an estimated 16,000 persons predicted to
migrate to Alaska as a result of OCS development activity, population
increases were expected to be gradual; the largest yearly increase was
2,000 people.

The model predicted that there would be relatively little impact on
individual welfare as a result of OCS development. By the year 2000,
real per capita income in Alaska was actually reduced (i.e., \<1%) by
offshore oil development. At the point of maximum difference, OCS
development increased per capita income by 1%. OCS development reduced
per capita expenditures for most of the projection period. By the year
2000, per capita income only differed by \<1% in the two scenarios;
however, per capita fund balance was increased by offshore oil
development by 25%.

**STUDY PRODUCT(S):** Huskey, L. 1979. Analysis of the Cumulative
Impacts, Western Gulf of Alaska Impact Analysis. Special Report No. 1. A
final report by the Institute of Social and Economic Research,
University of Alaska for the U.S. Department of the Interior, Bureau of
Land Management Alaska OCS Office, Anchorage, AK. NTIS No.
PB80-108707/AS. Social and Economic Studies Program Special Report
No. 1. Contract No. 14-12-0001-29002. iv + 120 pp.

\*P.I.\'s affiliation may be different than that listed for Project
Manager(s).