By Margaret Bauman
Alaska Journal of Commerce

Proposed federal legislation on climate change could result in billions of dollars in increased revenues to the state of Alaska, a University of Alaska economist said April 14.

The Lieberman-Warner Climate Security Act, now before Congress, would impose a cap-and-trade mechanism on most energy-using activities. The move would likely greatly increase the demand for Alaska North Slope gas, said Steve Colt, an associate professor of economics with the University of Alaska's Institute of Social and Economic Research.

“Economic theory predicts that the more stringent is the cap on emissions, the more the demand for natural gas will be stimulated,” Colt said.

The wellhead price of the natural gas would increase, and there would be strong economic incentives to develop Alaska's vast wind and geothermal resources for use in energy-intensive export industries, creating many new jobs, Colt said.

Colt's working paper analyzes the economic costs of the Lieberman-Warner climate bill based on scenarios provided by the American Council for Capital Formation and the National Association for Manufacturers.

Natural gas contains only 55 percent as much carbon dioxide as a unit of energy as coal, and switching from coal to natural gas is one way for electric utilities to reduce greenhouse gas emissions, he said.

The projections show that the blended market price of natural gas would increase by about 6 per thousand cubic feet in 2020, and by about $20 per thousand cubic feet in 2030, Colt has calculated.

This market price premium far exceeds the projected cost of carbon dioxide allowances, meaning that the “netback” well head value of North Slope gas would be higher - by between $3 and $6 per thousand cubic feet - during the expected life of an Alaska gas pipeline, estimated from 2018 to 2047.

The wellhead price premium for Alaska North Slope gas translates into between $4 billion and $9 billion per year of additional wellhead value, Colt said.

“The total additional wellhead value over a 30-year pipeline life ranges from $150 billion to $230 billion,” he said. “If discounted back to year 2008 at 5 percent, the discounted present value ranges from $50 billion to $74 billion.”

While the gas producers would likely receive the largest share of this additional value, the state of Alaska would also benefit directly, he said.

Assuming a 25 percent share, the state would receive between $1 billion and $2.2 billion annually of additional gas revenue under Lieberman-Warner, based on ACCF/NAM and National Energy Modeling System projections, he said.

“There would be sufficient additional oil and gas revenue flowing to the state under the ACCF/NAM scenarios to easily offset any increases in consumer (energy) prices through increased permanent fund dividends or other vehicles for recycling oil and gas revenues,” he said.

Colt also concluded that, contrary to what the ACCF/NAM report said, the Lieberman-Warner bill is likely to boost Alaska's employment.

“It is clear that Alaska is an oil and gas state in which more than one-third of current jobs are based on petroleum,” he said.

Projections from the National Energy Modeling System, ACCF and NAM imply that Lieberman-Warner would stimulate the construction of the gas pipeline and increase the value of Alaska North Slope gas and oil by billions of dollars, he said.

“Alaskans know that a gas pipeline sooner rather than later, and high wellhead prices, are the best thing possible for more jobs,” he said. “In addition, under these projections, there would be strong additional economic incentives to develop Alaska's vast wind and geothermal resources and to use them for energy-intensive export industries. This development would also create many new jobs.”

Alaska currently exports nine times as much fossil fuel as it uses. With a gas pipeline, that ratio will increase. According to the ACCF/NAM projections, the value of Alaska's energy exports would increase by billions of dollars under Lieberman-Warner.

“Alaska could use these funds to stimulate new hydro, wind, tidal and other zero-fuel energy sources,” Colt said. “As these sources come online, Alaska consumers would stop paying for greenhouse gas allowances. In addition, there would be sufficient additional oil and gas revenue flowing to the state under the ACCF/NAM scenarios to easily offset any increases in consumer prices through increased permanent fund dividends, or other vehicles for recycling oil

Colt's full report is posted on the ISER Web site at www.iser.uaa.alaska.edu.

Margaret Bauman can be reached at margie.bauman@alaskajournal.com.