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Arctic job forecast evokes skepticism: Critics claim the drilling supporters' figures are padded.

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    Arctic job forecast evokes skepticism: Critics claim the drilling supporters figures are padded. By Liz Ruskin Bee Washington Bureau (Published Aug. 31, 2001)
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      Arctic job forecast evokes skepticism: Critics claim the drilling supporters' figures are padded.

      By Liz Ruskin Bee
      Washington Bureau (Published Aug. 31, 2001)

      WASHINGTON -- As drilling supporters prepare to make the case to the U.S. Senate for opening the Arctic National Wildlife Refuge to oil development, the same claim pops up again and again: Production from the refuge could create nearly 750,000 new jobs, in every state in the country.

      The Teamsters, credited with persuading the House last month to pass a refuge drilling bill, are

      relying heavily on the new-jobs pitch as senators return from their summer recess.

      "Opening up the ANWR to oil exploration will create 735,000 jobs across the country -- more than 25,000 of which will go to Teamsters," union President James Hoffa wrote to members of Congress.

      Economist Dean Baker said he read the jobs promise in news accounts so often he decided to look into it.

      "Seven hundred fifty thousand sounded like an extraordinary number to me," said Baker, co-

      director of the Washington, D.C.-based Center for Economic and Policy Research. "Basically, I was trying to see where they came up with that."

      So he got a copy of the 1990 study that the figure came from, a study sponsored by the American Petroleum Institute, and wrote a nine-page analysis of it.

      His conclusion: no way.

      "It is really out of sight," Baker said. A more accurate job projection is 50,000, he added.

      Over the years, a number of economists, some sponsored by environmental groups, also have taken aim at the report. At least one other concluded that refuge drilling would create no more than 55,000 jobs.

      Alaska Teamster leader Jerry Hood, Hoffa's adviser on energy, said he doesn't accept the low estimates.

      "Who knows more about job creation, the trade (unions) and the Teamsters, or the Sierra Club?" he asked.

      John Felmy, chief economist for the petroleum institute, is standing by the 1990 study, written by a firm called the WEFA Group, which predicted that Arctic National Wildlife Refuge oil would lower world oil prices by $3.60 a barrel.

      Felmy said the jobs would result from the oil industry's investment in the Arctic, but also because lower oil prices would spur the U.S. economy, creating many more jobs. And, he said, the country would buy less imported oil, keeping more money in the United States.

      "The net effect is you're saving $30 (billion) to $35 billion in imports," Felmy said. "What it means is that money can now be spent on a lot of other goods and services."

      One measure of the study's accuracy, he said, is that it correctly predicted what employment and the gross national product would be in 2000 if the refuge weren't opened to drilling.

      "It's really remarkable how close their forecast was to what really happened," Felmy said.

      One of the biggest variables in the Arctic projections is how much oil lies under the 1.5 million-acre area that would be opened to drilling.

      The 1990 study assumed 9.24 billion barrels of recoverable oil.

      That was optimistic for the time, but since then government geologists have revised their estimate to between 5.7 billion barrels and 16 billion. If anything, Felmy said, the study's assumption turned out to be conservative.

      Of course, the only certainty in economics is that economists will disagree.

      Baker, the skeptical economist, said the WEFA Group, formerly called Wharton Economic Forecasting Associates, made three fundamental errors.

      WEFA's projection of new jobs depends greatly on the contention that bringing the oil to market would lower the world price. But WEFA underestimated the world supply of oil by half, and thus overstated the impact that refuge oil would have on the market, he said.

      Secondly, Baker said, the study underestimated "supply elasticity," meaning it wrongly predicted that other oil producers wouldn't significantly curtail their oil production once the price dropped.

      "What they assume is for every 1 percent drop in price, supplies fall back a little over 0.1 percent," Baker said.

      He said it is easy to find much higher estimates of supply elasticity. WEFA itself, in a recent paper Baker found, said it is conventional to assume elasticities of 0.3 percent.

      "What that means is much more of the ANWR production is offset by cutbacks elsewhere," further reducing the impact on prices, he said.

      Thirdly, his argument goes, the 1990 study overstated another "elasticity" -- the effect cheaper oil has on the economy.

      The Bee's Liz Ruskin can be reached at (202) 383-0007 or lruskin@....
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