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Journal of Great Lakes Research xxx (xxxx) xxx

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Journal of Great Lakes Research

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Economic damages from a worst-case oil spill in the Straits of Mackinac

https://doi.org/10.1016/j.jglr.2019.09.0030380-1330/� 2019 International Association for Great Lakes Research. Published by Elsevier B.V. All rights reserved.

⇑ Corresponding author.E-mail addresses: [email protected] (R.T. Melstrom), [email protected]

(C. Reeling).

Please cite this article as: R. T. Melstrom, C. Reeling, L. Gupta et al., Economic damages from a worst-case oil spill in the Straits of Mackinac, Journal oLakes Research, https://doi.org/10.1016/j.jglr.2019.09.003

Richard T. Melstrom a, Carson Reeling b,⇑, Latika Gupta c, Steven R. Miller d, Yongli Zhang e, Frank Lupi d,f

a Loyola University Chicago, Institute of Environmental Sustainability, 1032 W. Sheridan Road, Chicago, IL 60660, USAb Purdue University, Department of Agricultural Economics, 403 W. State Street, West Lafayette, IN 47907, USAcMichigan Technological University, School of Business and Economics, 1400 Townsend Drive, Houghton, MI 49931-1295, USAdMichigan State University, Department of Agricultural, Food, and Resource Economics, 446 W Circle Drive, East Lansing, MI 48824, USAeWayne State University, Department of Civil and Environmental Engineering, 5050 Anthony Wayne Dr., Detroit, MI 48202, USAfMichigan State University, Department of Fisheries and Wildlife, 480 Wilson Road, East Lansing, MI 48824, USA

a r t i c l e i n f o

Article history:Received 6 February 2019Accepted 10 August 2019Available online xxxxCommunicated by Marc Gaden

Keywords:Benefit transferDisasterEnbridge line 5Nonmarket valuationPipeline

a b s t r a c t

This paper presents research on the economic damages from a hypothetical worst-case oil spill at theStraits of Mackinac between Lakes Huron and Michigan. This spill could occur because the EnbridgeLine 5 oil pipeline traverses the Straits between Michigan’s Upper and Lower Peninsula. We quantifypotential economic damages to outdoor recreation, commercial fishing, shipping, residential properties,and energy and water supplies. Damages are estimated for two spill scenarios occurring at the onset ofthe summer tourism season with extensive shoreline oiling. Using evidence from past spills, economicdamages would last for between one and two years and would affect locations on the periphery of thespill area, depending on the activity. We project the loss from the worst-case scenario would be at least$1.3 billion.� 2019 International Association for Great Lakes Research. Published by Elsevier B.V. All rights reserved.

Introduction

Oil spills are a significant threat to water quality and aquaticecosystem services in the United States. Forty-four oil spills of atleast 10,000 barrels have affected US waters since 1969, a rate ofnearly one major spill per year (NOAA Office of Response andRestoration (NOAA), 2018). Under public trust doctrines and lawssuch as the Oil Pollution Act (OPA), the party responsible for thespill can be held accountable for economic damages, which includeslost wages and profits, losses to natural resources, and the costs ofrestoration (33 U.S.C. §2702). Measuring economic damages isessential in recovering public and private losses. Research in eco-nomics and through natural resource damage assessments (NRDAs)has found that large spills can cause billions of dollars in damages topublic resources (Carson et al., 2003; Deepwater Horizon NaturalResources Trustee, 2016; Garza-Gil et al., 2006).

Several oil pipelines cross the Great Lakes region. Of particularconcern recently is the Enbridge Line 5 pipeline, which was con-structed in 1953 and runs 645 miles from Superior, Wisconsin toSarnia, Ontario (Fig. 1), carrying 540,000 barrels of natural gasliquids and light crude oil per day (Enbridge, 2017). Most of the

pipeline traverses land, but a four-mile section with two pipescrosses the Straits of Mackinac, separating Michigan’s Upper andLower Peninsulas and connecting Lakes Michigan and Huron,which make up about 10% of the world’s freshwater lake volume(US EPA, 2018). Inspections of Line 5 have found multiple spanswith irregular and improper distances between support anchorsconnecting the pipeline to the lakebed, leaving the pipeline bentby up to 8 degrees in places (MLive, 2017). Sections of the pipelineare missing protective coal tar enamel coating meant to guardagainst corrosion (Dynamic Risk Assessment Systems, Inc., 2017).Additionally, the pipeline is susceptible to equipment failure,incorrect operation, and mechanical damage due to anchor strikesor even terrorism (Dynamic Risk Assessment Systems, Inc., 2017).For instance, on April 1, 2018, a tugboat and barge dragged ananchor across the lakebed in the Straits’ ‘‘no-anchor” zone, severingelectric cables and denting the wall of Line 5 in three places (MLive,2018a). Over 600 gal of toxic dielectric fluid leaked from the sev-ered cables, although no oil leaked from Line 5.

Public concern about a Line 5 oil spill at the Straits increasedafter another Enbridge pipeline, Line 6B, released more than onemillion gallons of diluted bitumen into the Kalamazoo River nearMarshall, Michigan in 2010. The Kalamazoo River spill is the lar-gest inland oil spill in US history to date (US EPA, 2016), and ithas contributed to increased public awareness of and resistanceto the continued operation of Line 5. Line 5’s location at the Straits

f Great

https://doi.org/10.1016/j.jglr.2019.09.003

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Fig. 1. Enbridge Line 5 and the crossing at the Straits of Mackinac.

2 R.T. Melstrom et al. / Journal of Great Lakes Research xxx (xxxx) xxx

is of particular concern because of its proximity to shorelines, nav-igable waters, and wetlands, and because of the potential threat todrinking water resources, recreational and tourism opportunities,and commercial shipping and fishing afforded by the Great Lakes(MTU, 2018).

After the Kalamazoo River spill, the State of Michigan formed amulti-agency group task force (Michigan Petroleum Pipeline TaskForce) which commissioned two studies to (i) assess alternativemeans of transporting oil across the Straits and (ii) estimate thedamages from a worst-case spill in the Straits, with the goal of esti-mating Enbridge’s liability (https://mipetroleumpipelines.com/).Under OPA, an owner or operator responsible for a facility thatreleases oil in US waters is liable for damages and clean-up costs.Furthermore, the operator of Line 5 is explicitly ‘‘liable for all dam-ages or losses to public or private property” under the terms of theeasement agreement with the State of Michigan (Easement, 1953).Liabilities typically include removal costs and losses to real andpersonal property, profits, subsistence use, public services and util-ities, tax revenues, and natural resources. Fig. 2 illustrates theseliabilities in the context of a hypothetical oil spill in the Straits ofMackinac. The figure shows that an oil spill will have environmen-tal effects that vary with the magnitude and fate of the spill, whichin turn will affect the type and amount of economic damages.

Please cite this article as: R. T. Melstrom, C. Reeling, L. Gupta et al., Economic damLakes Research, https://doi.org/10.1016/j.jglr.2019.09.003

Published research on the economic damages of oil spills largelyfocuses on several prominent maritime spills (Chang et al., 2014),most often in terms of losses to business income and profits (e.g.,Cohen, 1995; Grigalunas et al., 1986), and the value of naturalresources to tourists (e.g., Garza-Gil et al., 2006; Grigalunas et al.,1986; Sumaila et al., 2012). Furthermore, all of these publisheddamage estimates are after the occurrence of the pollution. Thisleaves a critical need for predictive assessments of liability in gen-eral, and in freshwater systems in particular, to provide decisionmakers with a tool to weigh pre-spill interventions (Chang et al.,2014).

This paper presents estimates of key economic damages for thestates of Michigan and Wisconsin, including public and privatelosses, which would result from a hypothetical worst-case spill inthe Straits of Mackinac. It must be emphasized that this analysisdoes not include damages for the province of Ontario Lake Huronshoreline. Specifically, we combine data on economic activity inMichigan and Wisconsin with observed changes in activity afteractual spills in other coastal areas to estimate the economic lossesfor recreational uses, coastal properties, commercial fishing andshipping, tourism- and recreation-related business income, andchanges in energy and water supplies from the spill. Our predictiveassessment therefore includes economic damages rarely presented

ages from a worst-case oil spill in the Straits of Mackinac, Journal of Great

https://mipetroleumpipelines.com/


Fig. 2. Elements that determine the economic loss or damages from an oil spill, with examples in italics. Bolded text indicates a loss category for which we estimateddamages in part or in whole in the Line 5 worst-case spill study (MTU, 2018), with damages in the other loss categories estimated separately in that study.

R.T. Melstrom et al. / Journal of Great Lakes Research xxx (xxxx) xxx 3

in the literature. As illustrated in Fig. 2, though, our damage esti-mates are limited to a subset of potential losses, and thus a portionof Enbridge’s liability. Some economic damages that we do notestimate, including the cost of removing beached oil and lost taxrevenues, have been quantified by others (MTU, 2018). Neverthe-less, our assessment provides a partial measure on the economiclosses from a potential worst-case spill, which we estimate wouldbe at least $1.3 billion.

Methods

We begin by identifying the extent of a ‘‘worst-case” oil spillfrom the Enbridge Line 5 pipeline across the Straits of Mackinac,and the specific categories of losses that would arise from such aspill. We then describe how we estimate the magnitudes of theselosses.

Defining a worst-case oil spill in the Straits of Mackinac

The goal of this study is to measure a part of Enbridge’s liabilityfrom a worst-case spill scenario. Because the extent of Enbridge’sliability is determined by the economic loss or damages from arupture of Line 5, we define the worst case as the largest foresee-able amount of economic damages from a spill. We realize that thisis one of several possible definitions of a worst-case spill; alterna-tives include the amount of oil released, lake surface area or shore-line oiled, affected habitats, and harm to human health. Ourdefinition is based on the accumulation of several worst-caseassumptions and does not assign any probability that the worst-case spill will occur. As illustrated in Fig. 2, the first task is to estab-lish the physical scenario or event that will give rise to this worst-case outcome. The second task is to establish the magnitude andfate of the oil. We expect damages will correlate closely with theamount of oiled shoreline because of the extensiveness of eco-nomic activity along parts of the Great Lakes. Thus, our definitionassumed ‘‘the largest foreseeable discharge of oil, including a


discharge from fire or explosion, in adverse weather conditions”(USGPO, 2011) and a large extent of shoreline oiling. MTU (2018)estimated that the largest foreseeable discharge of oil from Line5 would release 58,000 bbl (9.2 million liters). The authorsextended the modeling work of Schwab (2014, 2016) to determinethe fate of this volume of oil release. The authors conduct 4380simulations of a 58,000 bbl release at various points on Line 5 inthe Straits under various meteorological conditions. From thosesimulations, we identified the simulation resulting in the greatestdistance of oiled shoreline under spring weather conditions asthe worst-case spill, shown as the yellow line in Fig. 3a. This spill,which we refer to as the ‘‘worst-case scenario,” originates from themiddle of the Straits and beaches oil along 704 km of shoreline onLakes Michigan and Huron, spanning 15 counties in Michigan andWisconsin. Moreover, we estimate damages for an additional sce-nario that results in the greatest distance of affected shoreline fur-ther east in Lake Huron (412 km), shown in Fig. 3b. We do this topresent a distribution of damages that accounts for heterogeneousspatial effects of an oil spill.

The timing of a spill will affect the amount of economic dam-ages. The economic impacts of a spill are likely to be greatest dur-ing the summer months, when recreation- and tourism-relatedusers of the Great Lakes are most active. We therefore assume aspill date of April 1 as a worst-case. The oil spills modeled inFig. 3 would reach their greatest extent just before the peak oftourist season in northern Michigan, affecting myriad recreationaland commercial uses of the Great Lakes. Furthermore, the effects ofa spill on tourism and recreation may last over multiple seasons.For example, Tourangeau et al. (2017) report that visitor numbersalong the Gulf of Mexico shorelines did not return to normal until18 months after the Deepwater Horizon spill.

The economic effects of oil spills depend critically on individu-als’ behavioral responses to the spill and thus are not necessarilyrestricted to the location and time in which oil is present.Researchers estimating the damages from the 2010 DeepwaterHorizon spill found that visits to many beaches along the Gulf ofMexico decreased for months after the spill even where no oil



Fig. 3. Extent of a simulated a) worst-case spill and b) alternative spill from the Enbridge Line 5 pipeline in the Straits of Mackinac.

Table 1Summary of damage categories assessed and general approach to measuring losses.

Category What’s beingmeasured

Summary of measurementapproacha

Recreation Lost value of trips WTP times reduction in trips byactivity, region and season (1)

Energy products Increased costs toproducers andconsumers

Price change times quantity of fuelpurchased (3)

Commercialfishing

Lost profits fromfishing

Price times change in harvest (2)

Commercialshipping

Lost profits fromshipping

Cost per day times days spentwaiting at port (4)

Residentialproperties

Lost amenity valueof coastal housing

Flow of housing services timesdecline from the spill (3)

Municipal andresidentialwater

Costs of testingand substitutesupplies

Well testing costs for groundwaterand cost of supply replacement formunicipal intakes (4)

Tourism andrecreation-relatedbusinesses

Lost incomes Lost visits times spending per visittranslated to lost incomes usingregional economy model

a Numbers in parentheses refer to equation used in calculation, if applicable.


washed ashore (Tourangeau et al., 2017). We therefore divide theaffected region into two areas: the ‘‘core” and ‘‘periphery.” The corecomprises any Michigan and Wisconsin counties in which oilwashes ashore (the red crosshatched counties in Fig. 3). Theperiphery comprises counties adjacent to the core and extendsfrom an oiled county as far as the oiled county’s distance to theStraits (the orange dotted counties in Fig. 3). The analogue to our‘‘periphery” area would be the Florida peninsula, where oil didnot wash ashore (Nixon et al., 2016) and recreation losses weresmaller and did not last as long (Tourangeau et al., 2017). Hence,we assume the farthest periphery county is approximately doublethe spill’s greatest distance from the Straits. This is consistent withthe spatial extent of losses after the Deepwater Horizon accident,which featured zones of higher and lower losses. The analogue toour ‘‘core” area for the Deepwater Horizon spill would be the northshore of the Gulf of Mexico from Louisiana through the Floridapanhandle, where many areas were oiled (Nixon et al., 2016) andrecreation losses were largest and lasted up to 18 months(Tourangeau et al., 2017). Damages in the core will exceed thedamages in the periphery, and the difference will vary by damagecategory; we describe our damage calculations in detail in the Cal-culation section below.

Estimating economic damages from a worst-case spill

We measure economic damages from each simulated spill forseveral outcomes, including losses to recreational opportunities,losses to commercial shipping and fishing, lost energy products,decreased amenity values for coastal properties, increased costsof drinking water supply, and lost incomes from tourism-relatedspending (Table 1). The damages to each outcome take the formof lost value to consumers, lost profits to producers, and changesin individual incomes resulting from a spill. Note that we do notestimate natural resource losses that are not associated withresource use, such as non-use values for habitat and wildlife, nordo we estimate the cost of habitat restoration, although these areimportant measures. It should be noted also that for many spills,studies suggest non-use losses are much larger than recreationaluse losses. This can be seen by comparing oil spill studies of totaleconomic losses that include non-use values to lost recreation val-ues, such as Bishop et al. (2017) and English et al. (2018) for theDeepwater Horizon and Carson et al. (2003) and Hausman et al.(1995) for the Exxon Valdez.

In practice, many NRDAs assess compensation required for non-recreational losses using resource equivalency analysis for wildlifepopulation losses and the ecological approach of habitat equiva-lence for habitat impairments (Desvousges et al., 2018), which isoutside the scope of our analysis. Because our study does not


account for non-use losses nor any costs of habitat restorationand habitat compensation, we are able to provide only a partialestimate of the economic damages from a worst-case spill.

Our approach to measuring economic damages is consistentwith approaches for measuring economic values specified forbenefit-cost analysis per federal guidelines (OMB, 2003) and usedin oil spill NRDAs (c.f. Chapman and Hanemann, 2001 or Englishet al., 2018). The goal of measuring economic damages is to convertchanges in people’s well-being into dollar values (Bockstael et al.,2000).

For some outcomes, a spill might affect the enjoyment a personderives from the use of a good or service. In this case, we measurevalue to consumers as the difference between consumers’ totalwillingness to pay (WTP) for a good and their expenditure, or theactual amount paid for the good. Fig. 4a illustrates the actualamount paid when the good in question is trips to an outdoorrecreation site (say, a beach on Lake Michigan). The line is ademand curve for trips, which shows the relationship betweenthe price of trips (vertical axis) and the quantity of trips taken (hor-izontal axis). The price of a trip is simply the cost of gasoline, vehi-cle depreciation and maintenance related to the trip, and the valueof travelers’ time. Any point on the demand curve shows the max-imum WTP for an additional trip. The shaded area of Fig. 4a illus-trates the net value to consumers. The spill will reduce total WTPfor any number of trips by shifting the demand curve inward asshown in Fig. 4b. The loss in value the users receive from the recre-ation site equals the shaded area.



Fig. 4. Illustration of calculation method for value of damages to recreation trips from an oil spill.


It is important to note that measuring the economic damagesfrom a spill is not the same as measuring the changes in spendinginduced by a spill. A spill may affect demand, which in turn wouldaffect spending. Changes in spending may tell us something aboutindividuals’ costs, but they generally are not a valid measure ofeconomic loss. That said, some of this spending will affect producerincomes, and those changes in income are relevant to measuringprivate losses due to a spill. This distinction betweentheoretically-appropriate measures of economic value and eco-nomic measures of spending is relevant for anyone seeking to com-pare our results to literature on economic spending and economicactivities that might be affected by a spill; these will not be thesame because the latter do not measure compensable economicvalues.

If we have a measure of WTP from other studies, we can approx-imate the economic loss to consumers of good i in location j andperiod t following an oil spill as.

Lossijt ¼ WTPijt � Dqijt ð1Þ

where WTPijt is a consumer’s willingness to pay for the good andDqijt is the change in quantity demanded after the spill. We use thisapproach to calculate the losses to consumers from foregone recre-ational opportunities, including camping, boating, and fishing tripsas well as beach and state park visits (Table 1).

For other outcomes, a spill may reduce a producer’s profits,measured as the difference between the producer’s revenues andcosts. If the good is supplied by competitive markets such thatits price does not change much for small quantity changes, and ifsupplier costs do not change much for this quantity change, theneconomic loss can be approximated by the good’s price, pijt, timesthe change in the quantity of the good supplied by the producer, or

Lossijt ¼ pijt � Dqijt ð2ÞWe use Eq. (2) to calculate the lost producer surplus from com-

mercial fishing from a worst-case spill (Table 1).A spill might also directly affect the value of a good or economic

asset whose quantity does not change much or at all. For example,disruptions to energy supplies may increase the cost of electricityor heating fuel to consumers, whose ability to switch amongenergy sources is limited in the short-run. The economic losses


to consumers in this case are estimated as the change in pricetimes the quantity demanded,

Lossijt ¼ Dpijt � qijt ð3Þ

where Dpijt is the change in the good’s price after the spill. We useEq. (3) to calculate the lost consumer surplus for gasoline con-sumers and lakefront homeowners from a worst-case spill (Table 1).

Finally, a spill may change a person’s income or a firm’s profitbecause they incur a cost they otherwise would not have. In thesecases, we can directly measure the change in income or profit anduse it as a measure of lost economic surplus (because, for example,the maximum individual WTP to avoid a loss of income equals theamount of the loss). Examples of these damages include defensiveexpenditures, or costs incurred to avoid harm following a spill.Because these costs would not otherwise be incurred, theseexpenses directly reduce income or profit. One specific concern fol-lowing a worst-case spill is contamination of drinking watersourced from the Great Lakes. Individuals whose drinking watersupply is threatened may purchase bottled water until their drink-ing water is deemed safe, yet may use their water for other pur-poses such as laundry or watering vegetation. In this case,individuals face essentially the same cost for their water supply,but must now incur a defensive expenditure for drinking water.We measure this loss in income as the quantity of the defensivegood purchased, qijt, times its price, pijt:

Lossijt ¼ pijt qijt ð4Þ

Likewise, reductions in spending by tourists following a spill lead tolost profits for tourism-related business and, hence, reductions inregional income. We use IMPLAN Pro 3.1 economic modeling soft-ware with statewide data for Michigan and Wisconsin to estimatelost gross domestic product by state (GDPS) from a worst-case spill.GDPS is an aggregate measure of income earned by place, compris-ing employee and proprietor compensation and taxes on productionand imports minus public subsidies to businesses (Broda andCoakley, 2015). GDPS estimates measure the direct effects of achange in spending and do not include multiplier effects. We cau-tion that spending measures can overstate income losses; from ageneral equilibrium perspective, individuals and businesses adjustbehaviors in response to an economic shock, partially mitigatingthe resulting loss in welfare.




In cases where goods and services at risk of an oil spill aretraded in markets, price and quantity data can be observed andused directly in Eqs. (2) through (4). However, many of the goodsand services at risk of an oil spill (e.g., recreational opportunities,environmental quality) are not traded in markets and hence haveno price. In this case,WTPijt in Eq. (1) must be estimated using non-market valuation methods. Economists possess a suite of nonmar-ket valuation methods (c.f. Champ et al., 2017) which have beenwidely applied for assessing the damage from environmentalcatastrophes like oil spills (e.g., Alvarez et al., 2014; English et al.,2018; Whitehead et al., 2018). We use the benefit transfer methodto measure WTPijt for activities in the Great Lakes. Benefit transferidentifies empirical studies that estimate WTP for a good, and thenapplies that estimate to a similar good in one’s own research set-ting. Benefit transfer is widely used for policy analysis in caseswhere time and budget constraints limit the application of moreelaborate (and costly) nonmarket valuation methods(Rosenberger and Loomis, 2017).

We expect that some of the effects of an oil spill last more thanone year. Hence, we calculate Lossijt for each good or service foreach period t over which the effects of the spill persist, then calcu-late the present value of losses as Rt Lossijt(1 + r)–t, where r is a dis-count rate assumed equal to 0.025. This discount rate is lower thanthe 0.03 value per federal guidelines (OMB, 2003), and is thereforecloser to the real rate of return in recent decades on riskless assets(i.e., 10-year US Treasury notes).

Calculation

We calculate damages from the simulated spills pictured inFig. 3 for seven broad categories of outcomes, including recre-ational losses, higher energy prices, losses to commercial fishingand navigation, lost amenity values to coastal properties, costsfrom switching to alternative drinking water supplies, and lossesto tourism- and recreation-related businesses. We briefly summa-rize the calculations in each category in the following subsections.Readers interested in the detailed calculations are referred to thefinal report (MTU, 2018). We focus for now on the worst-case spillshown in Fig. 3a; we repeat the calculations and describe resultsfor the other simulated spill in Fig. 3b below.

Recreation

We use benefit transfer and Eq. (1) to estimate damages to fiverecreational uses of the Great Lakes from a worst-case spill, includ-ing (i) beach use; (ii) visits to state parks; (iii) state park camping;(iv) recreational boating; and (v) recreational fishing. In each case,we estimate the quantity demanded without a spill as the baselinenumber of day trips for each use, times a scalar representing thereduction in trips caused by the spill, to calculate Dqijt as in Eq.(1). The reduction in trips varies by use and is estimated fromTourangeau et al. (2017), who estimate the decline in similar recre-ational activities in the Gulf of Mexico following the DeepwaterHorizon spill. In addition, we expect the duration of the spill effectswill vary by use (Tourangeau et al., 2017). We take estimates ofWTP to avoid a lost day trip for each use from prior literature, asdescribed below. Table 2 summarizes our calculations.

First, consider the damage from lost beach visits. Cheng (2016)reports annual visitation levels for each publicly-accessible beachin Michigan’s Lower Peninsula. We identify the beaches affectedby a worst-case spill and assume visits decline (i) 53% for corecounties in the first beach visit season after the spill (MemorialDay through Sept. 30); (ii) 10% for core counties in the secondbeach visit season after the spill; and (iii) 23% in periphery countiesin the first season only. Our assumptions yield a decrease in trips to


core Lower Peninsula beaches of 4,141,989 trips in the first yearfollowing the spill and 781,507 in the second season followingthe spill. Trips to periphery beaches decrease by 908,147 the yearfollowing the spill only. These reductions in beach visits are consis-tent with those observed following the Deepwater Horizon spill(Tourangeau et al., 2017). Cheng (2016) also estimates WTP toavoid beach closure for different regions of Michigan’s LowerPeninsula. We use Cheng’s estimates to calculate mean WTP of$30.98/trip to avoid lost beach trips in the spill area.

We have no data for estimating the loss in trips to beaches inMichigan’s Upper Peninsula or Wisconsin. However, we can inferthe loss in trips from estimates of the foregone surplus from aworst-case spill. Specifically, we assume the WTP to avoid closureof an Upper Peninsula beach due to a worst-case spill equals theaverage WTP to avoid closure of a Northern Lake Huron beach(where Northern Lake Huron comprises Alpena, Cheboygan, andPresque Isle Counties). This quantity is equal to the total WTP forall Northern Lake Huron beaches as estimated by Cheng (2016)—equal to the meanWTP per beach visit, $24.76, times the estimatednumber of visits—divided by the total number of beaches. We thenmultiply the average WTP by the number of affected Upper Penin-sula beaches to measure total WTP for access to these beaches.Assuming surplus declines proportionally to visits and visitsdecrease by the same percentages following the spill as in theLower Peninsula, we calculate the total yearly loss in surplus fromUpper Peninsula beach visits resulting from a worst-case spill asthe total WTP times the percentage decline in visits each year.The decline in core beach visits in the Upper Peninsula is 0.67 mil-lion and 0.13 million in years 1 and 2, respectively. The decline inperiphery visits is 0.06 million in year 1. We use an analogous pro-cedure to calculate the lost value for Wisconsin beaches exceptthat we assume the mean WTP to avoid closure of these beachesequals $24.74 per visit—the average total WTP to avoid closure ofa Northern Lake Michigan beach (where Northern Lake Michigancomprises Antrim, Benzie, Charlevoix, Emmet, Grand Traverse, Lee-lanau, Manistee, Mason, and Oceana Counties). We calculate thedecrease in core beach visits to be 2.9 million and 0.55 million inyears 1 and 2, respectively, and the decrease in periphery beachvisits to be 0.65 million in year 1 only.

Next, consider changes in day trips to state and federal parks forrecreational purposes, including hiking, sightseeing, wildlifewatching, and picnicking. Using publicly-available Michigan stateand federal park (including federal forestlands and national parks)visitor statistics, we estimate the reduction in day visits to parks inMichigan counties with affected Lake Huron or Lake Michiganshoreline equal to 28.4% of the baseline, or 346,283 visits, for thefirst year after the spill. This percent reduction is based on the low-est percentage loss measured by Tourangeau et al. (2017) for recre-ational activity in the northern Gulf of Mexico following theDeepwater Horizon oil spill, although the Tourangeau et al. (2017)study did not explicitly measure reductions in state and federalpark day visits. Note that the losses we estimate scale linearly withthis percentage reduction in visits, which could be higher or lower.The duration of this estimated reduction is consistent with otherspills, which indicates declines in general tourism lasting one sea-son. For example, the Amoco Cadiz oil spill in 1978 reduced tourismvisits by approximately 11% for one year (Grigalunas et al., 1986;Restrepo et al., 1980). This reduction represents day visits for pur-poses other than fishing, boating, and beach use, which are valuedseparately as described above and below. Furthermore, this esti-mated reduction does not include visits to Wisconsin state parks,for which data are unavailable. We estimate WTP to avoid lostday visits of $58.73/day following Rosenberger et al. (2017).

Likewise, we estimate the loss from camping trips to stateparks. We again assume that a worst-case spill reduces overnightcamping trips by 28.4%, following Tourangeau et al. (2017). Using



Table 2Calculated damages to recreational uses of great lakes from the worst-case spill.

Recreational use Reduction in visits after spilla WTP/trip Present value WTP (million)b

Core Periphery

Year 1 Year 2 Year 1 Year 2

Great lakes beach visitsLower Peninsula Michigan 4,141,989 (�53%) 781,507 (�10%) 908,147 (�23%) – $30.98 $180.1Upper Peninsula Michigan 666,964 (�53%) 125,842 (�10%) 56,877 (�23%) – $24.76 $21.0Wisconsin 2,925,623 (�53%) 552,004 (�10%) 647,846 (�23%) – $24.74 $101.7

State park visits 346,283 (�28.4%) – – – $58.73 $20.3State park camping trips 88,791 (�28.4%) – – – $24.75 $2.2Recreational boating (user days)Motorized 532,754 (�28.4%) – – – $48.65 $25.9Non-motorized 65,145 (�28.4%) – – – $101.72 $6.6

Recreational fishing 61,115 (�32.8%) – – – $101.51 $6.2

a Figure in parentheses represents percentage change in trips from baseline.b Assumes an annual discount rate of 2.5%.

Table 3Economic losses from disruptions in energy markets due to a worst-case spill.

Losses from propane supply disruption

Average annual propane use (gal/household) 1141Households affectedUpper Peninsula 22,050Lower Peninsula 297,000

Change in price post-spill ($/gal)Upper Peninsula 0.35Lower Peninsula 0.13

Total loss from propane supply disruption $52,859,678

Losses from oil supply disruption

Change in regional gasoline price ($/gal) 0.02Quantity of gasoline demanded (gal) 6,000,000,000Total loss to consumers from oil supply disruption $120,000,000Change in crude oil supply costs to producers ($/bbl) 2.40Quantity of crude oil demanded by producers (bbl) 3,426,902Total loss to producers from oil supply disruption $8,224,565


the same data sources for park visits described above, we calculatea reduction of 88,791 nights spent camping in the core for the firstseason. These losses scale linearly with the assumed percentagereduction in visits. We assume campers have a WTP to avoid lostcamping days of $24.75/day (Rosenberger et al., 2017).

Next, we estimate the damage from lost boating trips, includingboth motorized and non-motorized boating. We calculate the base-line number of boating user days by multiplying the estimatednumber of boating days in Michigan and Wisconsin (USACE,2008) by the number of users per boat (USCG, 2016). We calculateuser days in each county by multiplying total user days by theshare of public harbor and private marina slips in each county.We assume the number of user days declines by 28.4% only inthe core in the first year after the spill. This is again consistent withTourangeau et al. (2017). Rosenberger et al. (2017) estimate motor-ized and non-motorized boating is worth $48.65 and $101.72 peruser day, respectively, in the US Great Lakes region, and we usethese WTP estimates to calculate losses.

Finally, we estimate the damage to recreational fishing. We usecreel survey data collected by the Michigan and Wisconsin Depart-ments of Natural Resources to estimate the baseline number offishing day trips to each county. We assume a spill would causethe number of trips to decline by 32.8% in the core in the first sea-son after the spill only; the spill would have no effect on the num-ber of trips in the periphery area. Recovery in recreational fishingtrips after one year is consistent with the effects observed afterother spills, including the Deepwater Horizon (Tourangeau et al.,2017), Burmah Agate, and the Exxon Valdez (ARI, 1993; Restrepoet al., 1980). We use the model developed in Klatt (2014) to esti-mate an average WTP of $101.51/trip, which is an upper-boundon the true average because the model does not include an alterna-tive to not go fishing.

Energy products

A spill in the Straits would shut down Line 5, suspending trans-port of crude oil to refineries in southeastern Michigan and Ontarioand natural gas liquids sold for propane in Michigan (Dynamic RiskAssessment Systems, Inc., 2017). We assume propane consumersare not responsive to propane price changes given its necessityas a heating fuel. We are unable to find rigorous estimates of theprice elasticity of demand for propane in the Upper Peninsula.However, Considine (2000) finds energy consumers have highlyinelastic demand for other fuel sources, including natural gas andheating oil. This supports our assumption that propane consump-tion will be largely insensitive to changes in fuel price. Further-more, the effects of a worst-case spill will likely be felt over a


relatively short time horizon. Residential and commercial energyequipment tends to have a lifespan of decades and typically mustuse a specific fuel source. These features of energy equipment limitthe ability of consumers to respond to energy price changes overthe short-run (Bhattacharyya, 2011; Ryan and Plourde, 2011).Hence, we assume a shutdown of Line 5 will increase the price ofpropane while quantity demanded remains fixed. The economicloss to propane users can be calculated from Eq. (3) given estimatesof the quantity of propane consumed and the price change result-ing from a worst-case spill (see Table 3). We estimate that 22,050and 297,000 households use propane as a primary heat source inthe Upper and Lower Peninsulas, respectively (MAE, 2018). Aver-age annual usage is 1141 gal (4319 L) per household (MAE,2018), which implies a total of 25 million gallons (94.6 million L)per year in the Upper Peninsula and 339 million gallons (1.3 billionL) in the Lower Peninsula. We assume the price of propaneincreases by 35 cents per gallon for customers in the Upper Penin-sula and 13 cents per gallon in the Lower Peninsula due toincreased transportation costs in the absence of a functioning pipe-line (Dynamic Risk Assessment Systems, Inc., 2017).

We approximate the loss to consumers and producers in the oilmarket by multiplying the change in fuel prices by the quantity ofconsumed fuel. Our estimates are shown in Table 3. Dynamic RiskAssessment Systems, Inc. (2017) estimates that the disruption ofsupply to refineries would increase gasoline and oil prices by 2cents per gallon. Michiganders consumed approximately 6 billiongallons of gasoline and diesel in 2018 (MAE, 2018). In 2016, Line5 sent 3,426,902 barrels of crude oil produced in Michigan to



Table 4Costs of groundwater testing and alternative water supply.

Groundwater testing

Cost per test $346


refineries (MAE, 2018). We expect the cost of transportationwould increase by $2.40 per barrel if producers had to switch totrucks to transport the oil (Dynamic Risk Assessment Systems,Inc., 2017).

Number of tests per well 13Number of wells testedMichigan 93Wisconsin 5

Total testing costs $440,804

Alternative water supply

Alternative supply cost/day $9.55Population affectedMichigan - Mackinac Island, St. Ignace 3369Wisconsin - Sheboygan 62,000

Days affectedMichigan - Mackinac Island, St. Ignace 60Wisconsin - Sheboygan 2

Total supply costs $3,114,637

1 A model of fish harvesting that generates welfare losses matching condition (2)follows from the classic Gordon-Shaefer specification (Gordon, 1954). Index the stateof the world as i = 0,1, where 0 and 1 denote the ‘‘pre-spill” and ‘‘post-spill” worlds,respectively. Harvests in state i are qi = kEiSi, where k is a catchability coefficient, Ei isharvest effort, and Si is the fish stock. Let p be the (fixed) unit price of fish, and let thecost of effort be C(Ei) = cEi, where c is a parameter. We can rewrite the cost function asC(Ei/(qikSi)) = C(hi) = cqi/kSi. Eq. (2) is a valid welfare measure if the change in fisherprofits after the spill, p(q1 – q0) – [C(q1) – C(q0)], equals p(q1 – q0). This condition issatisfied if costs do not change or if q1/q0 = S1/S0. From our definition of qi, we canrewrite this condition as (kE1S1)/(kE0S0) = S1/S0, implying E1 = E0 such that harvesteffort is constant before and after the spill. Harvest effort will necessarily be constantassuming (i) the unit cost of effort is fixed, (ii) the amount of effort is capped at somefinite amount (say, due to fishing quotas), and (iii) pkSi > c such that the marginalbenefit from harvesting effort is greater than its marginal cost in each state of theworld.

Water supplies

Several coastal communities rely on Great Lakes surface waterto meet their water needs. A worst-case spill would affect somemunicipal water intake systems so that residents would have touse alternative sources for drinking water (e.g., bottled water)but would incur essentially the same costs of water supply becausemost water is used for purposes other than drinking. We calculatethe economic loss from having to find alternative drinking watersupplies using Eq. (4). Table 4 summarizes our calculations. Theworst-case spill would affect lake water intakes supplying theMichigan communities of Mackinac Island and St. Ignace and theWisconsin cities of Sheboygan, Green Bay, and Manitowoc. Theselatter two Wisconsin cities have access to standby backup watersupplies. Hence, we calculate the cost of alternative water supplyto Mackinac Island, St. Ignace, and Sheboygan by multiplying thetotal affected population of drinking water users by average dailywater use of 11.2 gal/day/person (Water Footprint Calculator,2018) to estimate the total quantity of water demanded per day.Note that this water use figure includes water for consumptionand certain cleaning activities (e.g., dishwashing). It excludes otheruses (e.g., watering plants, washing clothes) that would not affecthuman health. Because Sheboygan is a relatively large city far fromthe spill site (so that most oil will have evaporated by the time thespill reaches the region), we assume Sheboygan would experiencedrinking water impacts over two days, similar to the durationexperienced in other locales during algal blooms (The Blade,2014). In contrast, Mackinac Island and St. Ignace are very closeto the spill location, and water intakes in these two areas wouldbe heavily impacted. Hence, we assume an alternative drinkingwater supply would be required for 60 days for these communities,which is the time when over 95% of oil is predicted to be evapo-rated or beached (MTU, 2018). We multiply daily water demandby the number of days affected and the cost of bottled water of$9.55/person/day supplied during the Flint water crisis (MLive,2018b) to estimate total defensive expenditure on alternativedrinking water supplies. We note that, while expenditures on alter-nate water sources and testing (described later) are a reasonableproxy for welfare losses in our case, there are many situationswhere expenditure measures such as these may over- or under-state true welfare impacts; see Dickie (2003) for a thorough discus-sion. In addition, to the extent that state or federal governmentsmay fund testing and alternative water supplies, expenditurewould likely underestimate the true welfare loss given the oppor-tunity costs of funds spent on water.

Other residents rely on groundwater wells for drinking water.The groundwater gradient to the Great Lakes is strong enough thatexperts do not anticipate groundwater well contamination from aworst-case spill (MTU, 2018). However, it is likely that coastalwells will be monitored for volatile organic compounds, semi-volatile aromatic compounds, and metals based on the recommen-dation of MDEQ and the water quality assessment during the Kala-mazoo River Spill. We calculate the loss as the cost per test timesthe number of tests. We use GIS to identify the groundwater wellsthat would be affected by the worst-case spill. We assume eachwell test costs $346/sample (MDEQ, 2016). Further, we assumeeach well is tested twice in the first month, once per month inthe following three months, and then quarterly over the remainderof the cleanup period for a total of 13 tests per affected well(MDCH, 2013).


Commercial fishing

An oil spill will affect commercial fishing through the closure offishing grounds to contain and remove oil, and to protect con-sumers if fish are contaminated. We approximate the loss in pro-ducer surplus to commercial and tribal fishermen using Eq. (2).1

We expect declines in harvests (the term Dqijt in Eq. (2)) equal to90% of baseline in the core area in the first and second seasons fol-lowing the spill, consistent with the reduction in pelagic fish har-vests in 2009 and 2010 after the Deepwater Horizon spill (Carrollet al., 2016). The commercial fishing data was too coarse spatiallyto differentiate a periphery in the worst-case scenario. Michigan’sGreat Lakes fishery had landings valued at $8 million in 2016, withLake Michigan and Lake Huron contributing $1 million and $4.8 mil-lion, respectively. Lake whitefish is the most valuable fish in thepotential spill area, with 1,540,993 pounds harvested in 2014 anda dockside price of $1.91/lb. Lake trout is the next most valuable fish,with 773,077 pounds harvested in 2014 and a dockside price of$0.82/per pound. Table 5 shows the losses for these and otherspecies.

We assume the loss to consumers is zero; losses would onlyoccur if the demand curve for fish was downward-sloping and con-sumers placed a premium on Great Lakes fish products over non-Great Lakes fish products. Historically a premiummay have existed(Frick, 1965), but more recently the price for Great Lakes fish hasnot responded to changes in harvest, which suggests no significantpremium in the market as a whole.

Commercial shipping

The Great Lakes is home to substantial waterborne commerceand is a key component of North America’s economic health. Aftera spill, the Coast Guard would halt shipping in areas of the lake



Table 5Economic losses to commercial fishers. There are 2.2 lbs. (pounds) in a kilogram.

Price ($/lb) Reduction in harvests from spill (lbs) Present value of lost surplus

Year 1 Year 2

Lake whitefish 1.91 893,957 893,957 $3,375,035Lake trout 0.82 448,475 54,814 $411,099Walleye 2.79 16,475 16,475 $90,909Yellow perch 2.82 4963 4963 $27,697Chinook salmon 1.71 39,004 39,004 $131,881


with a visible oil sheen. Depending on water flows and weatherconditions, simulations of hourly surface flows suggest that animpassable sheen would be present in the Straits for five to tendays (MTU, 2018). Daily costs of Great Lakes freighters averageabout $1 million per day, including navigation and fuel costs, laborand capital and other associated freight operational costs (MartinAssociates, 2011; Jerome Popiel, US Coast Guard, Mackinaw CountyEmergency Response Team, 2018). Our operating cost data do notdistinguish between freighters and tugs. They also do not take intoaccount the costs of delays on the shipper or the recipient of thecommodities shipped. Vessel operators with sufficient lead timemay partially mitigate these operating costs by leaving vessels dor-mant in port or through other mitigating actions that reduce theoperational costs of idled freighters.

The additional cost to shipping firms from closing the Straits isan economic loss that we calculate with Eq. (2). We assume dailyoperational costs of $1 million per ship. We expect shipments morethan five days out to be deferred at the port to avoid the lost oper-ating costs of being anchored in the lakes. However, those within afive-day window may not have the option of mitigating actions.Rather, they will likely be compelled to anchor outside theimpacted region in wait. The Straits average 2.8 commercial ship-ping vessel passages per day based on vessel tracking through theGreat Lakes (Boatnerd.com, 2018). Hence, on the day of the release,2.8 vessels will be moored for five days. An additional 2.8 vesselsarriving on the second day of stoppage will be moored for fourdays. By the fifth date, 14 vessels will be in waiting for passagethrough the Straits. The cumulative effect of the stoppage willresult in 42 lost shipping days.

Note that the spill scenarios we examine do not affect shippingthrough the Soo Locks and traffic between Lake Superior and LakeHuron. Some have suggested that prolonged spills affecting theseshipping routes would cause massive nation-wide effects on USsteel production and other industries (Richardson and Brugnone,2018). These effects require that the shipping lanes be closed toany traffic and no mitigating actions be taken to avoid losses. How-ever, in previous oil spills, exceptions have been made that allowvessels to pass through spill areas. For example, cruise ships havebeen allowed through (Bacon, 2014), booms have been used to pro-vide passage (Nossiter, 2008), and cleaning stations have been setup to decontaminate ships passing through a spill (Guarino, 2010;UDSG, 2004). It seems likely that similar responses would apply toa spill with prolonged effects on any vital shipping lanes. Becausethe spills we examine would not lead to a closure of the Soo Locks,costs of any mitigation needed to keep these shipping lanes openwere not assessed.

Residential properties

Beached oil will reduce the amenity values homeowners receivefrom lakefront property (e.g., due to the loss of scenic vistas orsmells from the oil). The welfare loss to property i’s owners fromthe oil spill equals the difference in the property’s sale price beforeand after the spill, or Dpijt in Eq. (3) (Rosen, 1974). Most prior workmeasures effects of oil spills on properties from the waterfront


(e.g., Epley, 2012; Simons et al., 2001; Winkler and Gordon,2013) up to 1.5 miles from shore (Hellman and Walsh, 2017).Siegel et al. (2013) and Winkler and Gordon (2013) both examinedthe effect of the Deepwater Horizon spill on coastal property values.These studies collectively found that the spill decreased salesprices by 1–16%, with effects lasting 3.5–5 months after the spill(beyond which we assume a property’s market price returns toits pre-spill value). Siegel et al. (2013), which measured the largestpercentage reduction of property values, focused on propertieswithin one mile of shore. Given our focus on a worst-case outcome,we assume the change in price is 16% for homes within one mile ofthe coast and the duration of spill effects is 5 months. Prior work ineconomics (e.g., McCluskey and Rausser, 2003) finds that, for sometypes of environmental harms, property values may not fullyreturn to their pre-event values after remediation due to ‘‘stigma”effects (i.e., individuals place a lower value on property upon real-izing the possibility of environmental damage). We are not awareof any literature that demonstrates long-term stigma effects onproperty values due to oil spills. Estimating welfare losses as pricedifferences also abstracts from features of real estate markets thatmay affect the final sales price of a home (e.g., moving costs ordecisions about whether or not to list a home for sale during anevent [Guignet, 2014]). These features could mean that the trueamount of welfare loss from an oil spill is larger or smaller thanthe difference in sales price; we do not consider these featureshere.

We assume the sales price of a given property equals the pre-sent value of an annuity, or stream of benefits from owning thehome over a fixed period of time—here, 50 years. We use parcel-level and—where unavailable—US Census block-level data to iden-tify all residential property within 1 mile (1.6 km) of affectedshoreline. We find the oil spills in Fig. 3 may affect up to $2.8 bil-lion in coastal property. We calculate the monthly annuity value ofeach affected property. Losses from the oil spill are assumed toequal 16% of this annuity value. We then calculate the presentvalue of these losses over a five-month period assuming a discountrate of 2.5%. Adding the present value of losses over all affectedproperties yields total economic losses from reduced amenityvalue to lakefront homeowners.

Tourism and recreation-related business income

The oil spill will affect income by shifting tourism and recre-ation activities away from the core and periphery areas. We esti-mate the change in incomes to business owners and labor bycalculating the expected loss in total tourism expenditures at thecounty level, and we then convert these expenditure changes tolosses in state income using IMPLAN 3.0, an input-output (IO)model widely used for regional economic analysis. A detaileddescription of IMPLAN and IO models in general is available inMTU (2018) and its technical appendix GI-1 (available athttps://mipetroleumpipelines.com/document/risk-analysis-straits-pipelines).

For the damage simulations, Michigan and Wisconsin coun-ties were assigned to the core region, the periphery, or the


https://mipetroleumpipelines.com/document/risk-analysis-straits-pipelines

https://mipetroleumpipelines.com/document/risk-analysis-straits-pipelines


Table 6Economic losses in regional incomes from lost tourism spending from a worst-case spill.

Expenditure category Lost direct sales ($000s) Adjusted GDP factors Lost GDPS ($000s)

Michigan Wisconsin Michigan Wisconsin Michigan Wisconsin

Lodging $194,780 $366,385 0.5582 0.4114 $108,726 $150,731Restaurant food and beverage $133,271 $250,685 0.4150 0.3813 $55,307 $95,586Retail purchases $75,178 $141,412 0.5865 0.5348 $44,092 $75,627Recreation, sightseeing, and entertainment $61,510 $115,701 0.4648 0.4849 $28,590 $56,103Transportation at destination $58,092 $109,273 0.3772 0.5354 $21,912 $58,505Total $522,831 $983,456 ––– ––– $258,628 $436,552

Table 7Summary of damages from simulated worst-case spills ($ millions).

Activity Worst-case spill

Alternativespill

Total recreation 363.9 63.4Recreational fishing 6.2 0.4Recreational boating—motorized 25.9 3.1Recreational boating—non-motorized 6.6 0.6Park day visits 20.3 7.3Park camping days 2.2 1.0Recreational beach use 302.7 51.0

Lost amenity value to coastal property 6.4 6.1Commercial fishing 4 2.4Commercial shipping 43 43Michigan energy supply effects 181 181Water supply effects 3.6 3.6Lost incomes for tourism and recreation-related

businesses695.2 99.1

Total economic damages 1297.1 398.6


not-impacted region. Consistent with Tourangeau et al. (2017), weassume core and periphery counties experience 45 and 22%decreases in tourism visits the year of the spill, respectively, andthat in the following year the core area only experiences a 10%decrease in visits. We also assume tourism expenditures scale lin-early with visits.

Annual state-level total expenditures are allocated by countybased on official state estimates of tourism visits and expendituresfor Michigan (Longwoods International, 2016) and Wisconsin(Wisconsin Department of Tourism, 2017). Annual tourism activi-ties are broken out by month, based on the share of annual Mack-inac Bridge crossings. Expenditure breakouts by type of purchase,such as lodging, food, and retail spending, are based on estimatedtourism expenditure profiles (Longwoods International, 2016). TheIMPLAN model transforms the expenditures for each county bycategory to annual GDPS contributions using ratios provided bythe Bureau of Economic Analysis. We net out federal and statetaxes on production and imports to derive estimated incomelosses. Taxes were equal to 6.6% of gross domestic product, basedon national statistics (BEA, 2018).

Table 6 shows estimates of the corresponding losses in tourismexpenditures. Changes in direct sales are distributed by aggregatesectors as indicated in the ‘‘Expenditure Categories” column. Wemultiply these losses in transactions by the correspondingadjusted GDP factors to estimate net changes in GDPS. These esti-mates assume that losses are not recovered through second-bestredeployment to non-tourism activities. This assumption mayoverstate the impact to the extent that tourism-related businessescan be redeployed to mitigate losses, or to the extent that theimpacted region can realign tourism attractions to tourism sectorsnot affected by the spill. In addition, spending that may shift toother regions outside the spill areas would result in gains for thoseother regions, but we do not net those out to reflect the damageswithin the spill counties.


Results

The worst-case scenario causes $1.3 billion in damages for theimpacts we quantified. Table 7 presents the damages in each cate-gory. Losses to tourism and recreation visitors are approximately$364 million, and income losses to workers and owners oftourism-related businesses are estimated at $695 million. In addi-tion, we estimate the damages to drinking water, fuel prices,coastal properties, commercial fisheries, and commercial naviga-tion to be $238 million.

In the worst-case scenario we analyze, the oil spill spreads pri-marily westward along the northern Lower Peninsula shore of LakeMichigan and across Wisconsin. This simulated spill features thegreatest shoreline distance oiled (over 700 km) of all spring spillscenarios. However, the damages from a spill will vary acrossspace. As a sensitivity analysis, we use the approach describedabove to estimate the damages from an alternative spill scenario(Fig. 3b) that spreads along 412 km of Lake Huron shoreline. Weestimate that this spill causes considerably less damage ($399 mil-lion). The smaller damage estimate arises mostly from a smallerreduction in income from lost out-of-state tourism expenditures.The losses to recreational beach visits are also much smaller underthe alternative spill scenario. This is because WTP for visits toNorthern Lake Huron is smaller than WTP for visits to NorthernLake Michigan, and there are fewer annual visits to these beaches.However, damages in these categories are likely underestimatedbecause this simulated spill would also affect shoreline in Ontario,Canada as well; we do not estimate losses for this region due to alack of data. However, this region of Canada is remote, and weexpect the recreational and commercial losses from a possible spillto be comparatively small.

Discussion and conclusions

Based on an unmitigated release of 58,000 bbl, the largest dam-ages occur when the oil spill affects shoreline on both sides of theStraits but principally along the shores of northern Lake Michigan.We assumed that an oil spill would have a core impact area (whereoil washes ashore) and a periphery area (adjacent to the core) withlower losses. Additionally, we assumed that recreation for mostactivities recovers within one year and that there are no long-term residual injuries to recreational uses of the affected naturalresources beyond these periods. Both assumptions are consistentwith the pattern of economic impact, restoration, and recoveryafter the Deepwater Horizon oil spill, as well as several coastal tan-ker spills.

A crucial caveat is that our analysis does not encompass everycategory of economic loss. Specifically, we did not estimate lossesto recreational hunting because we do not expect a worst-case spillto have a large effect on waterfowl hunting trips; only 5% of water-fowl hunting trips are on the Great Lakes, and there are many sub-stitute sites available in the event of a worst-case spill (Austinet al., 2007). Nor did we estimate damages to human health, irre-versible damage to resources for which estimates are unavailable,




subsistence fisheries, value-added commercial fish products, com-pensatory habitat costs, and cultural goods and services supportedby the Great Lakes, which are challenging to quantify and measure.In addition, lost producer surplus for liquid propane producers wasnot estimated due to the variety of providers that serve the regionand the proprietary company data required for computation (MAE,2018). Limited data also precluded estimating the effects on indus-trial and agricultural water users. Moreover, these costs do notinclude the costs of repairing the pipeline itself. Finally, we didnot estimate the damages to non-use valued habitat and wildlifebecause we lacked comparable studies for benefit transfer. Wetherefore caution that our final estimate is only a partial estimateof the total economic damages that would occur in the event of aworst case-spill. In fact, the loss to non-use values may be severaltimes larger than the losses to tourism and recreation, based onevidence from other spills. For example, in the Deepwater Horizonoil spill, estimated public damages for total use and non-use lossesof $17.2 billion (Bishop et al., 2017) far exceed the estimated $661million in recreation losses (English et al., 2018). Estimated lossesof $1.3 billion in measurable categories includes $364 million inlosses to shoreline recreation in the Great Lakes. This figure is sub-stantially greater than recovered losses for other oil spills with theexceptions of the Exxon Valdez and Deepwater Horizon spills(Dunford et al., 2019); it is less than the $661 million in estimatedrecreation losses for the Deepwater Horizon oil spill (English et al.,2018). On the other hand, since our estimates apply to a worst-casespill, most spills would result in losses smaller than the total lossesquantified here.

Double-counting of losses could have occurred across recre-ation categories. We excluded specific subcategories of activities(i.e., fishing and boating in parks) to avoid double-counting withother categories, although this was not possible in all cases. Forexample, there may be double-counting between income andproperty value losses, and between recreational visits and propertyvalue losses (e.g., McConnell, 1990) because property values areaffected by incomes and recreation demand. We expect theamount of double-counting in our estimates is minimal. The prop-erties most affected by the spill will be in closest proximity to thelake (i.e., waterfront properties), which we expect sell at a pre-mium principally for viewing and recreational activities at privatebeaches whose value is not included in the other categories.

Our assessment is important because it provides decision mak-ers with part of the information they need to weigh the benefitsand costs of policies to protect the Great Lakes from oil spills. ForLine 5, one alternative considered by the State of Michigan to avoida worst-case oil spill is to place the pipeline in a tunnel under theStraits of Mackinac. In fact, Enbridge recently agreed to constructsuch a tunnel as well as ensure $1.8 billion to cover its liability,although Michigan’s Attorney General subsequently filed a lawsuitto decommission the line. Our methods and results may also beuseful in assessing threats to other aquatic ecosystems in the GreatLakes and other freshwater systems. For example, Wisconsin alonehas over 300 miles of oil and gas pipelines that transport nearly20% of all US crude oil imports (Milwaukee Journal Sentinel,2017). These pipelines cross more than 240 rivers and streams,many of which are located within the Great Lakes Basin. In anycase, a valuable aspect of our assessment is that it provides thepublic, in general, and analysts, in particular, with a transparentmethodology to estimate the damages from oil spills in freshwateraquatic systems.

Acknowledgements

Wewould like to thank the Principal Investigator Dr. GuyMead-ows, Project Coordinator Amanda Grimm, and the project team ofthe Independent Risk Analysis report. This research is based on the


Independent Risk Analysis for the Straits Pipelines - Final Reportwhich was commissioned by the State of Michigan. Any viewsexpressed in this paper are our own, and do not necessarily reflectthose of the State of Michigan. Any errors are our own.

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