ECONOMIC ANALYSIS OF CRITICAL HABITAT DESIGNATION FOR THE SOUTHWEST ALASKA DISTINCT POPULATION SEGMENT OF THE NORTHERN SEA OTTER Final | August 6, 2009 prepared for: U.S. Fish and Wildlife Service 4401 N. Fairfax Drive Arlington, VA 22203 prepared by: Industrial Economics, Incorporated 2067 Massachusetts Avenue Cambridge, MA 02140 Final Economic Analysis – August 6, 2009 TABLE OF CONTENTS EXECUTIVE SUMMARY ES-1T CHAPTER 1 INTRODUCTION AND BACKGROUND 1-1 1.1 Introduction 1-1 1.2 Overview of Proposed Critical Habitat Area 1-2 1.3 Economic Activities Considered in this Analysis 1-2 1.4 Organization of the Report 1-5 CHAPTER 2 FRAMEWORK FOR THE ANALYSIS 2-1 2.1 Background 2-2 2.2 Categories of Potential Economic Effects of Species Conservation 2-4 2.2.1 Efficiency Effects 2-4 2.2.2 Distributional and Regional Economic Effects 2-5 2.3 Analytic Framework and Scope of the Analysis 2-6 2.3.1 Identifying Baseline Impacts 2-6 2.3.2 Identifying Incremental Impacts 2-8 2.3.3 Benefits 2-13 2.3.4 Geographic Scope of the Analysis 2-14 2.3.5 Analytic Time Frame 2-14 2.4 Information Sources 2-15 CHAPTER 3 OIL SPILLS: PLANNING AND RESPONSE 3-1 3.1 Existing Management of Oil Spills 3-3 3.1.1 Characteristics of Oil Spills that Affect Otters 3-3 3.1.2 Oil Spill Response Planning 3-4 3.1.3 Oil Spill Response Actions in Otter Areas 3-5 3.2 Pre-Designation Impacts on Oil Spill Planning and Response Activities 3-9 3.2.1 Past Oil Spills in Critical Habitat Areas 3-9 3.2.2 Past Economic Impacts of Otter Conservation on Oil Spill Planning and Response 3-12 3.3 Potential Post-Designation Impacts on Oil Spill Planning and Response Activities 3-13 3.3.1 Future Number of Oil Spills Near Proposed Critical Habitat Areas 3-13 3.3.2 Potential Baseline Economic Impacts to Oil Spill Planning and Response 3-16 3.3.3 Potential Incremental Economic Impacts to Oil Spill Planning and Response 3-18 3.4 Sources of Uncertainty 3-19 Final Economic Analysis – August 6, 2009 CHAPTER 4 OIL AND GAS EXPLORATION AND DEVELOPMENT 4-1 4.1 Existing Management of Oil and Gas Exploration and Development 4-2 4.2 Scope and Scale of Oil and Gas Development Activities 4-7 4.2.1 Bristol Bay/Aleutian Basin Area (Units 1 through 4) 4-8 4.2.2 Cook Inlet Area (Northern Portion of Unit 5) 4-9 4.3 Pre-Designation Impacts on Oil and Gas Development 4-10 4.4 Post-Designation Impacts on Oil and Gas Development 4-12 4.4.1 Future Oil and Gas Development Activities in Proposed Critical Habitat Areas 4-12 4.4.2 Potential Economic Impacts to Future Oil and Gas Development Activities 4-15 CHAPTER 5 MARINE AND COASTAL CONSTRUCTION 5-1 5.1 Extent of Known Future Construction Projects 5-3 5.1.1 Airports 5-4 5.1.2 Harbors 5-5 5.1.3 Mariculture 5-7 5.1.4 Tidal Energy Projects 5-8 5.1.5 Geothermal Energy Projects 5-10 5.2 Existing Management of Marine and Coastal Construction Activities 5-11 5.2.1 Clean Water Act 5-11 5.2.2 Coastal Zone Management Act and Alaska Coastal Management Program 5-12 5.2.3 Rivers and Harbors Appropriations Act 5-13 5.3 Analytic Methods 5-13 5.4 Estimated Pre-Designation Impacts of Otter Conservation on Construction Activities 5-17 5.5 Estimated Post-Designation Baseline Impacts of Otter Conservation on Construction Activities 5-18 5.6 Estimated Post-Designation Incremental Impacts of Otter Conservation on Construction Activities 5-20 5.7 Sources of Uncertainty 5-20 CHAPTER 6 OTHER WATER QUALITY MANAGEMENT ISSUES 6-1 6.1 Extent of Economic Activities Affecting Water Quality in Proposed Critical Habitat 6-1 6.1.1 Seafood Processing Facilities 6-3 6.1.2 Log and Log Transfer Facilities 6-4 Final Economic Analysis – August 6, 2009 6.2 Existing Management of Water Quality 6-5 6.2.1 NPDES Permitting 6-6 6.2.2 State Water Quality Standards 6-7 6.3 Analytic Methodology 6-10 6.3.1 Seafood Processing Facilities 6-10 6.3.2 Log Transfer Facilities 6-11 6.4 Estimated Pre-Designation Impacts of Otter Conservation on Water Quality Management Activities 6-12 6.5 Estimated Post-Designation Baseline Impacts of Otter Conservation on Water Quality Management Activities 6-12 6.6 Estimated Post-Designation Incremental Impacts of Otter Conservation on Water Quality Management Activities 6-13 6.7 Sources of Uncertainty 6-14 CHAPTER 7 ADMINISTRATIVE COSTS OF SECTION 7 CONSULTATION 7-1 7.1 Background 7-2 7.1.1 The Consultation Process 7-2 7.1.2 Administrative Section 7 Consultation Costs 7-3 7.2 Oil Spill Planning and Response Administrative Costs 7-6 7.3 Marine and Coastal Construction Administrative Costs 7-8 7.4 Water Quality Management Administrative Costs 7-9 7.5 Naval Activity Administrative Costs 7-11 7.6 Other Activities Administrative Costs 7-12 7.7 Caveats 7-13 CHAPTER 8 ECONOMIC BENEFITS 8-1 8.1 Categories of Benefit Relating to Species and Habitat Conservation 8-1 8.2 Available Literature Valuing Sea Otter Populations 8-2 8.3 Potential Benefits of Northern Sea Otter Conservation Efforts Quantified in this Analysis 8-6 REFERENCES R-1 APPENDIX A SMALL BUSINESS ANALYSIS AND ENERGY IMPACT ANALYSIS A-1 APPENDIX B SENSITIVITY OF RESULTS TO DISCOUNT RATE B-1 Final Economic Analysis – August 6, 2009 EXECUTIVE SUMMARY 1. The purpose of this report is to identify and analyze the potential economic impacts associated with the designation of critical habitat for the Southwest Alaska Distinct Population Segment of the northern sea otter (Enhydra lutris kenyoni). This report was prepared by Industrial Economics, Incorporated (IEc), under contract to the U.S. Fish and Wildlife Service (Service). 2. This final economic analysis analyzes the proposed designation as described in the proposed rule. This analysis does not reflect changes to the proposed critical habitat designation made in the final rule. Consequently, description of the habitat designation in the final rule may differ from maps and figures presented in this analysis.1 3. The Southwest Alaska DPS of the northern sea otter (hereafter, “otter”), a small marine mammal generally occupying nearshore marine waters, was listed as a threatened species on August 9, 2005.2 On December 16, 2008, the Service proposed critical habitat for the otter, identifying 5,879 square miles organized in five “units” as proposed for critical habitat designation.3 The five units are further broken down into seven subunits (Units 1, 2, 3, 4a, 4b, 4c, and 5), and include waters adjacent to the Aleutian Islands, the Alaska Peninsula, the Kodiak archipelago, and the Barren Islands. The proposed critical habitat area comprises nearshore marine waters ranging from mean high tide to 20 meters in water depth, as well as those waters that occur within 100 meters of the mean high tide line. Exhibit ES-1 maps the areas proposed as critical habitat, highlighting landownership of the adjacent lands. 4. This analysis considers the economic impacts of otter conservation efforts associated with the following categories of economic activity: 1) oil spill planning and response, 2) oil and gas exploration and development, 3) marine and coastal construction activities (including airport construction, harbor developments, and tidal and other alternative energy projects), and 4) water quality management (e.g., National Pollutant Discharge Elimination System (NPDES) permitted activities). 5. This analysis does not consider subsistence hunting and arts and crafts uses of the otter by Alaska Natives. These activities are allowed under Section 101(b) of the Marine Mammal Protection Act, Section 10(e) of the Endangered Species Act, and the Special 1 For a detailed discussion of public comments on the draft economic analysis and associated responses, refer to the responses to public comment section of the final rule. 2 70 FR 46366. 3 73 FR 76454. ES-1 Final Economic Analysis – August 6, 2009 Rule published for the otter on August 15, 2006.4 Commercial shipping and fishing are also prevalent within the proposed critical habitat. This analysis considers the potential for oil spills from commercial shipping and fishing vessels, as well as construction of associated ports and harbors. No impacts to the fishing and shipping activities themselves, however, are forecast. As the Service states in the proposed rule, “With the exception of oil spills from shipwrecks, we do not believe that existing commercial fishing activities in southwest Alaska have the potential to harm the identified physical and biological features for the southwest Alaska DPS of the northern sea otter.”5 6. To provide an understanding of the potential economic impacts that could be associated with otter conservation, this analysis: 1) characterizes existing or potential threats to the otter and its habitat within the proposed critical habitat; 2) links these threats with particular economic activities; 3) identifies modifications to these activities that would avoid or minimize these threats (“otter conservation efforts”); and (4) to the extent feasible, quantifies and monetizes the economic costs of these modifications. Where data are not available to quantify or monetize potential impacts, this analysis qualitatively describes the potential for impacts to occur and highlights specific geographic areas within the proposed designation where economic activities may occur that may be a conservation threat to the otter or its habitat. For example, Chapter 4 addresses the potential for future oil and gas exploration and development activities to be affected although data limitations on the scope and scale of this activity and potential otter conservation efforts that may be recommended prevent the quantification of impacts.