ACCESS NUMBER: M14PD00057

STUDY TITLE: Study to Update and Improve BOEM’s Offshore Environmental Cost Model, Market 

Simulation Model, and Related Analyses

REPORT TITLE: Forecasting Environmental and Social Externalities Associated with Outer 

Continental Shelf (OCS) Oil and Gas Development - Volume 1, The 2015 Revised Offshore 

Environmental Cost Model (OECM); Volume 2, Supplemental Information to the 2015 Revised OECM; 

and Consumer Surplus and Energy Substitutes for OCS Oil and Gas Production: The 2015 Revised 

Market Simulation Model (MarketSim).

CONTRACT NUMBER: M14PD00057

SPONSORING OCS REGION: Headquarters

APPLICABLE PLANNING AREA(S): National

FISCAL YEAR(S) OF PROJECT FUNDING: FY2014

COMPLETION DATE OF REPORT: December 2015

COSTS: FY2014 $158,377; CUMULATIVE PROJECT COST: $353,737 (Difference in funds indicates 

shared funding with another Program Office)

PROJECT MANAGER(S): Gregory Beronja and Jason Price

AFFILIATION: S. Cohen & Associates, Inc. and Industrial Economics, Inc.

ADDRESS: 1608 Spring Hill Rd., #400; Vienna, VA 22182 and 2067 Massachusetts Ave.; Cambridge, 

MA 02140

PRINCIPAL INVESTIGATOR(S)*: Gregory Beronja and Jason Price

KEY WORDS: Offshore Environmental Cost Model; Market Simulation Model; cost-benefit analysis; 

environmental and social costs; consumer surplus; energy substitutes; monetization of oil spill impacts; 

environmental impacts of energy sources

BACKGROUND: As part of the Five Year Program decision process, BOEM conducts a cost-benefit, 

or “net benefits” analysis of the social value of production and related activities anticipated from the 

program proposal. This analysis examines the quantifiable net benefits to society associated with OCS oil 

and natural gas production relative to the accompanying costs. The analysis has three basic components: 

Net Economic Value, Net Environmental and Social Costs, and Consumer Surplus Benefits. Estimates 

for the latter two components are produced by BOEM’s Market Simulation Model (MarketSim) and the 

Offshore Environmental Cost Model (OECM).

MarketSim is an Excel-based model that estimates the substitutions for oil and gas production that would 

occur in the absence of sales for each of the program areas. MarketSim provides two sets of outputs: (1) a 

simulated response of the energy markets to a decision not to implement a new Five year Program and (2)

estimates of the consumer surplus benefits of OCS oil and/or gas production anticipated to occur as a 

result of the new Five Year Program.

Regarding the OECM, the production of oil and natural gas on the OCS imposes negative “externalities” 

on society: those environmental and social costs imposed on society that are not reflected in the prices of 
ACCESS NUMBER: M14PD00057

the oil or gas. These would include costs such as effects on air quality (which may affect human health), 

recreation, property values, and the ecology. Most of these costs are associated with the unavoidable 

degradation of natural resources that result from the OCS oil and gas development process. Likewise, in 

the absence of OCS production, the “energy substitutes” (such as additional imported oil) would create 

their own negative externalities. 

The OECM is an Access-based model that uses the level of OCS activity from exploration and 

development scenarios developed by BOEM along with the energy market substitutions from MarketSim 

to calculate net environmental and social costs. The OECM does not include impacts from catastrophic 

oil spills or all of the impacts from every possible energy substitute, but these are discussed fully in 

supplemental chapters.

OBJECTIVES: The purpose of this contact is to: (1) update MarketSim to reflect changes in the energy 

sector since its development; (2) update and refine OECM data and the presentation of output in order to 

better identify where no sale option costs are expected to occur, incorporate newly available data, and 

expand data on the other planning areas not included in the current Five Year Program that are included in 

the decision options for the Draft Proposed Program for 2017-2022; (3) improve OECM programming to 

optimize model performance; (4) provide update information the impacts of catastrophic spills and the 

monetization of these impacts; and (5) explore the difference between the habitat equivalency approach 

used in the OECM and an ecosystem service value approach.

DESCRIPTION: The updated models and reports developed under this contract update and refine those 

previously developed in 2012 in support of BOEM’s Five Year Outer Continental Shelf (OCS) Oil and 

Gas Leasing Program for 2012-2017. These refinements include: revisions and updates to MarketSim, 

including new elasticities and the addition of a post model processing consideration of oil exports, 

revisions and updates to various air emissions factors in the OECM; OECM programming changes, 

including those to allow for a 75-year analysis period (it was previously 50); and refinements to the 

OECM’s assumptions, including those regarding the spatial allocation of oil and gas imports and Alaskaspecific transportation scenarios. Supplemental discussions of the environmental and social costs of 

energy substitutes and catastrophic oil spills were also provided.

SIGNIFICANT CONCLUSIONS: Not applicable: the study resulted in updated models that can be 

used to determine conclusions for different programmatic analyses.

STUDY RESULTS: The study resulted in updated models (OECM and MarketSim), model user guides, 

and model documentation reports that can be used to evaluate different programmatic alternatives. It also 

provided supplemental discussions of the environmental and social costs of energy substitutes and 

catastrophic oil spills.

STUDY PRODUCT(S): Updated Offshore Environmental Cost Model and Market Simulation Model, 

updated internal user guides for running the models, updated model documentation reports and 

supplemental analyses on the environmental and social costs of energy substitutes and catastrophic oil 

spills.

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