HARD AGROUND - Wreck of the Exxon Valdez - March 24, 1989


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Daily News reporter

Anchorage Daily News
Date: 01/10/93
Day: Sunday
Edition: Final
Section: Nation
Page: A1

ANCHORAGE- When Americans coast to coast were asked to put a price tag on the dead seabirds, injured otters, tainted wilderness and damaged shorelines caused by the Exxon Valdez oil spill, they said $2.8 billion instead of the $1.2 billion the state settled for two years ago. That's the closely guarded number kept secret during post-spill litigation and obtained last week through an Freedom of Information request by the Daily News. The 800-page economic study that summarizes three years of work was released by the Alaska Department of Law.

To arrive at that figure, a team of the nation's top economists spent more than $3 million questioning Americans using a controversial surveying technique called "contingent valuation," which tries to place a value on goods where there is no cash market. For example, rather than calculating the worth of a tree based on what a pulp mill would pay, people are asked questions that help price the tree as a part of its natural environment.

Though the study results had only a backstage role in the Exxon settlement, the National Oceanic and Atmospheric Administration is now looking at Alaska's work and considering adopting contingent valuation as a way to calculate damage by future oil spills. NOAA was directed by Congress to come up with a way to fine industries that cause environmental damages.

State Attorney General Charlie Cole said Friday that during settlement negotiations with Exxon, the study was the "heavy artillery in our briefcase." The state and federal governments were suing Exxon and Alyeska Pipeline Service Co. for damages caused when the Exxon Valdez oil tanker ran aground in Prince William Sound in March 1989, spilling 11 million gallons of oil. Nearly 1,000 miles of shoreline inside and out of the Sound were oiled, making it the largest spill in the nation's waters. Scientists estimate that between 75,000 and 150,000 birds were killed; more than 600 otters and seals died.

While the lawsuits lingered and the study was under way, economists and environmentalists speculated that study results would fall between $3 billion and $15 billion. Gov. Wally Hickel said the study would show damages at $600 million. A Hickel spokesman said Friday he was not available to explain where he got that figure.

In the spring of 1991, Exxon settled with the state and federal governments by agreeing to pay $1.2 billion. The Department of Law still kept the study secret as it continued to negotiate with Alyeska. A lawsuit against that company was settled this fall for $32 million.

Cole said the Hickel administration settled with Exxon for $1.2 billion because going to trial with the study results as key evidence was too risky.

"At the time, and even to this date, no court has admitted into evidence a CV (contingent valuation) study," Cole said, pointing out that it's never been fully tested in federal court. "So there was a serious question as to whether our study would have been admissible into evidence" and whether a jury would grasp it.

"Did I feel confident of my case to walk away from a billion and gamble and take the litigation risk with respect to that contingent valuation study?" Cole said. "We thought we should take the billion. It was a bird in the hand versus two in the bush kind of a thing.

"Without the CV evidence, our case would have been $250 million to $400 million," he said. That's what the government could prove as real losses in tourism, sport fishing and birds and mammal populations. Those losses were calculated using standard, court-recognized study methods, Cole said. The state also released those studies on Thursday.

Plus, the state was spending $20 million to $25 million a year in legal fees, Cole said. "The question was: How long would the legislature be comfortable with that. Another factor was that if it had gone to court, it might have been five to 10 years before we saw a penny."

David Olsen, a spokesman for Exxon, said the company had no comment on the $2.8 billion finding. Exxon officials have said that between its cleanup spending and the settlement, the company has spent about $3 billion.

"I think a review of papers would indicate that the issue of CV, the whole technique, is extremely controversial among economists," Olsen said.

"This certainly justifies why we should be in court," said Bob Adler, an attorney with the Natural Resources Defense Council in Washington, D.C., which still has a suit pending against Exxon. "Finally there is public evidence that the damage far exceeds the settlement."

Eric Jorgensen, an attorney with the Sierra Club Legal Defense Fund, said the study results makes "the settlement look a little shy." But he added, the completion of the study and its release are important.

"I think the recoveries from oil spills and other environmental damage are not complete unless they account for this kind of damage," Jorgensen said. "If people can get a chance to see how substantial these studies can be and how significant the evidence is, it bodes well for the future."

The study's chief economist, Richard Carson of the University of California at San Diego, one of the nation's leading environmental economists, said because of all the work that went into the study, it is nearly bomb- proof.

"We took into account what we thought were the most likely attacks that the Exxon people would go after," Carson said. "We don't see anything they've done that blows any holes in our work."

Carson said that before the state's study, there were existing studies and models that would have suggested the Exxon damage totaled $10 billion to $13 billion, but the methods Carson's group used were more exhaustive.

"In some sense it was a state of the art," Carson said. "One part of me says if you were going to go to court and fight it out, this was the study to do it with. Another part of me says, having seen and heard of the hair-raising experiences of depositions and cross examinations, it is not the most pleasant way to spend your life."

To get to the $2.8 billion, Carson's team first set up focus groups across the country. That gave researchers a sense of what people knew about the Exxon spill and how they felt.

From there, they developed a presentation on the spill that included graphs and photographs. They chose their words carefully and numbers conservatively, according to the study.

They continually refined their testing instrument. For example, in rural Georgia, they found wording should clarify that Alaska is one of the 50 states.

Finally, in the fall of 1991, researchers drew 1,043 names from across the country for the final questionnaire. They were conducted in person and averaged 42 minutes.

Less than 10 percent said they had visited Alaska and less than 2 percent had visited Prince William Sound. Seventy-four percent said they had followed news of the spill. Forty-five percent said they got their news from television; 6 percent said they relied on newspapers.

Sixty percent of those surveyed thought of themselves as environmentalists. Previous trips to Alaska or having a fisherman in the house had no effect on the amount individuals were willing to pay to prevent future oil spills. But those who watch television shows about wildlife were willing to pay significantly more.

Eventually researchers found that more than half of those questioned considered the Exxon spill one of the worst environmental disasters in the world. And that Americans were willing to pay $31 per household to have prevented the spill. That, multiplied by the number of households in America equals $2.8 billion, the study shows.

The final report was completed last summer, but Carson said the state had a good idea of what the final figure would be when it began negotiating with Exxon in the fall of 1990.

Cole said he doesn't think the same settlement could be reached today.

"The time comes to ask a girl to dance, it is the right time," Cole said. "It was just the right time to make a deal. In the course of litigation, the right time comes, and if you miss it, it is gone forever."

Story Index:
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