The Exxon Valdez Oil Spill, Research Paper Example

This paper addresses the economic implications of the Exxon Valdez oil spill. It examines various economic indicators that include economic growth/decline, real GDP, Unemployment rates and inflation rates.  The use of an Economics model is provided in order to illustrate the conclusions.In his March 24, 1989 that the ex-envoy says super tanker ran aground in Alaska’s Prince William sound, and in a short period of time and 250,000 barrels of oil was spilled into the sound.  US Coast Guard immediately set out on an extensive cleanup operation.  More than 11,000 Alaskan residents helped out in the operation and in 1992, some three years later, US Coast Guard stated that the operation was complete.

Exxon Mobil assumed responsibility for the damage and cleanup operation and over $4.3 billion was spent as a result of the accident.  Today the ecosystem of Prince William sound is said to be healthy again.  As such, there has been no long-term ecological damage causes a direct result of the spillage. [ a view from Exxon Scientists not necessarily shared by other environmental firms ]  At the time the spill  contaminated 1300 miles of shoreline.  [Heavy oil] and 1100 miles of [light oil] contamination.  Total cost for the legal considerations are stated to be in excess of $7 million.  The disaster created $300 million of economic harm to more than 32,000 people.  “Tourism decreased by 8% in the south-central Alaska, and by 35% in Southwest Alaska.” (Susan Lyon).  Despite the alarm being generated by the Gulf oil spill disaster, this still remains small compared to the amount of oil spilt by the Exxon Valdez super tanker .. consider: ” Five thousand barrels a day is the equivalent of 210,000 gallons of oil. The Exxon Valdez spilt 11m gallons, so it will take some time for the spill in the Gulf of Mexico to equal it.” (The Economist).

The clean up operation in Alaska had a knock-on effect to the seafood producers as these workers left to deal with the oil spill ” The clean-up in Alaska occupied many fishermen and their equipment. As a result of the reduced resources available, the harvest suffered delays and damage that may have reduced the quality of the seafood. Moreover, competition from Exxon for fishermen and equipment forced seafood processors to offer higher prices for seafood to induce the fishermen to harvest seafood rather than work for Exxon on the clean-up. This raised the processors’ costs and thereby reduced supply.”  (Bruce M. Owen)

Exxon Mobil states that it has stepped up its investment into oil spillage and clean up technology and that we have made significant improvements in the design and deployment of booms ” ExxonMobil said it spends $50 million a year on oil spill response, drilling and deepwater development research activities. The company says it has maintained an internal spill research program for 40 years.”  (FLESHER).   Many are predicting that the Gulf Oil spill will ultimately exceed that of the Exxon Valdez disaster and that this despite the facts that the Alaskan spill figures were considered to be underestimated. ”  Stan Senner, former science adviser to trustees administering the Exxon Valdez settlement, said today in a telephone interview from Houma, Louisiana. “That’s the generally accepted figure. People will argue to this day that the size of the Exxon Valdez spill has been underestimated.” (Burke).

There was a study done in order to examine the economic existence loss caused by the oil spill in Prince William  sound.  ” , a survey approach designed to create the missing market for public goods by determining what people would be willing to pay (WTP) for specified changes in the quantity or quality of such goods or, more rarely, what they would be willing to accept (WTA) in compensation for well-specified degradations in the provision of these goods. The results suggest an aggregate loss of $4.9 to $7.2 billion dollars. In effect, these amounts reflect the public’s willingness to pay to prevent another Exxon Valdez type oil spill given the scenario posed.”  (Encyclopedia of the Earth).

The following diagram shows the impact of the oil spill on the perceived contamination of Alaskan seafood. Examining the change in both Supply and Demand.

It is based upon the premise that consumers avoided seafood which they concluded my be contaminated or tainted as a result of the oil spill in the area. ” The net effect being to suppress demand for the seafood”  (Bruce M. Owen).

The Disaster at Prince William Sound is unlikely to happen again owing to impropvement in maritime laws and technological advances in the ship. Despite the disaster in the Gulf undoubtedly similar valuable lessons will be learned and future improvements will be put in place. ” The accident would likely never have happened today: Most tankers are now double-hulled, and they are escorted out of the Sound by two tugboats. The captain of the Valdez was allegedly drunk when the tanker struck the reef; ship officers are tested for alcohol before the tanker goes to sea.”  (Chang).

The disaster of oil spillages also causes significant health concerns based on the exposure to the chemicals used to disperse or break up the oil deposits.  There has been significant health issues reported since the spill in Prince William Sound ” First, consider the effects of the oil itself. We know that Exxon Valdez cleanup workers faced average oil mist exposure that was 12 times higher than government-approved limits, and those who washed the beach with hot water experienced a maximum exposure 400 times higher than these limits. Many of those workers suffered subsequent health problems and in 1989, 1,811 workers filed compensation claims, primarily for respiratory system damage, according to National Institute of Occupational Safety and Health”  (Smith).

Fishing was the most important economic activity in the Prince William Sound as this yielded $131 million of Salmon, Herring and Halibut together with a productive shellfish catch.  As a result the herring fishing was cancelled with a projected loss of $12 million to the fishermen employed there.  The oil spill also happened to collide with the release of millions of Salmon Fry to the ocean.  The long term impact to the fishing industry may take a few decades to evaluate and the legal arguments are still persisting in the courts today. It is considered that Exxon may well have to pay Alaska in excess of $1.2 billion in compensation together with scores of smaller claims that will be hotly contested for many years to come.  One of the interesting things about all of this is that the victims are not immediately compensated and that legal settlements can take many years in order to resolve.

The Phillips curve, as illustrated to the right is a somewhat dated approach in order to show how unemployment relates to inflation.  the larger the excess demand for labour in this industry, the faster the rate of adjustment of the money wage.  If there is no productivity growth, then for profit-maximizing firms, the real wage should be constant. Keynesian economists also studied another model looking at the inflationery gap.  Demand pull inflation and Cost pull inflation.

With the Phillips Curve you are able to determine inflation and unemployment have a stable and inverse relationship. According to the Phillips curve, the lower an economy’s rate of unemployment, the more rapidly wages paid to labour increase in that economy.  With the Exxon Valdez spill we witnessed a sharp decline in employment in the Seafood industry as the employees went off to deal with the clean up operations in Prince William Sound.  This increased the wages bill in that economy but created a sharp decline in the seafood business as a whole.

Severe labour shortages in the Tourism and Visitor industry suffered a huge setback as  locals flocked into the higher paying ‘ oil clean up jobs’ with Exxon Mobil.  This caused a sharp decline in the services being provided across the State.  People surveyed in the spill impacted areas stated that they experienced an average 43% drop off in business volume.  59% of business interviewed reported a large amount of cancellations from tourists.

Oil inflation really started with the Exxon Valdez situation because the world started to ban the use of single hull tankers.  This meant that a new fleet of tankers had to be built and these are very expensive. They were also not deemed very profitable with oil being at $20/barrel.

Final costs still being determined indicate :

Spill size: 38,500 tons

Responsible party: Exxon

Cost: $3.5 billion

Inflation-adjusted: $6.3 billion

Works Cited

Bruce M. Owen, David A. Argue,. The Economics Of A Disaster . Westport, Conneticut, London: Quorum Books, 1995.

Burke, Jim Polson and Jordan. “BP Well May Have Leaked More Than Twice Exxon Valdez .” Business Week (2010).

Chang, Cindy. Alaskans are better prepared for catastrophe, 21 years after Exxon Valdez oil spill. 27 6 2010. 27 6 2010 <http://www.nola.com/news/gulf-oil-spill/index.ssf/2010/06/alaskans_are_better_prepared_f.html>.

Encyclopedia of the Earth. exxon valdez oil spill. Boston USA: Boston University, 1969.

Flesher, Phuong Le and John. “Little spent on oil spill cleanup technology.” Forbes Magazine (2006).

Smith, Megan. The Oil Disaster Is a Health Disaster, Too. 2010. 27 6 2010 <http://www.americanprogress.org/issues/2010/05/oil_public_health_html>.

Susan Lyon, Daniel J. Weiss. Oil Spills by the Numbers. 30 4 2010. 26 6 2010 <http://www.americanprogress.org/issues/2010/04/oil_numbers.html>.

The Economist. “Spill, baby, spill.” The Economist (2010).