[Economics] Willow Project: why Alaska needs this oil megaproject to sustain its economy

[HeWhoRemains™]

From afar the paradox would seem to jump out at you.

Alaska, one of the places in the world where the effects of climate change are most appreciated and felt, has just embarked on a new oil megaproject, thus helping to increase the production of fossil fuels, a central factor in global warming.

The controversial Willow project, approved by the Joe Biden government this March, provides for the extraction of 600 million barrels of oil in the Alaska National Petroleum Reserve, one of the largest areas of virgin territory in the United States, located about 300 kilometers from the Arctic Circle.

Your environmental footprint will be palpable. During its 30-year useful life, it is estimated that it will generate some 280 million metric tons of CO2, which is equivalent to putting two million gasoline-powered cars on the US roads each year, according to Office estimates. of Land Administration of that country.

Willow's environmental impact is seen as unacceptable by environmental groups who see it as a setback in the fight against global warming.

 

Its approval also comes at a time when the International Energy Agency has warned governments that to avoid the most catastrophic effects of climate change they must stop giving the green light to new fossil fuel projects.

Despite this, Willow enjoyed the unanimous support of the Alaska House of Representatives, lawmakers from both parties representing that state in the US Congress, most Native American groups in that state, as well as like the unions.

Behind these endorsements lies Alaska's long and complex relationship with the hydrocarbons sector.

What is it about?

 

A resource that changed Alaska

Alaska began drilling for oil in 1979 and has changed markedly thereafter.

"Oil transformed Alaska. Before this resource was discovered and exploited, Alaska was a relatively poor state with fairly poor public services and an economy that was not growing very quickly," says Gunnar Knapp, a retired professor at the University of Alaska. from Alaska in Anchorage, who has spent more than 35 years researching the economy of that state, in conversation with BBC Mundo.

He explains that, from then on, as has happened in many places where they have found oil, that bonanza changed things quickly.

"Suddenly the government has money and that can be good and bad. It can build roads, schools, universities and even give money to people. But that changes the nature of society, the po[CENSORED]tion grew rapidly and maybe not anymore. it's the same place it used to be, and maybe people aren't as independent and resilient as they like to think they are anymore," she adds.

Oil wealth became central to Alaska and for decades became the source of 85% of the state's revenue, something that began to change around 2013-2014, when it fell due to the combination of a sharp slide in prices with a drop in production.

According to data from the US Energy Information Administration (EIA), Alaska had its peak production in 1998, when it extracted more than two million barrels of oil per day. Instead, by 2022 its average was just 437,000 barrels a day.

But the importance for Alaska of the so-called black gold goes further.

 

Taxes, jobs and checks

"The state of Alaska is heavily dependent on the oil industry for its economy," says Gunnar Knapp.

The expert explains that taxes and royalties paid by oil companies continue to be one of the main sources of financing for the state government, in a place where it is expensive to maintain a government.

He adds that the oil industry generates many well-paying jobs both directly and through the service companies that support it.

But that is not all.

Since oil exploitation began, Alaska created a sovereign wealth fund called the Alaska Permanent Fund, in which they have been saving part of the profits generated by the oil boom and which by February 2023 was valued at more than US$75,000 million.

According to Knapp, the oil wealth has allowed Alaska residents to not have to pay income tax or consumption taxes, unlike what happens in other states.

Furthermore, for decades a mechanism known as the Permanent Fund Dividend was established in that state, through which part of the profits generated by investments made with the Permanent Fund are distributed directly and equally among citizens.

"Every Alaskan, man, woman or child receives an equal check. It's a very po[CENSORED]r program among citizens," says Knapp.

In 2022, each of those checks was for the amount of US$3,284.

Knapp explains that for decades Alaska allocated half of the profits generated each year by the Permanent Fund to pay that dividend, but in recent years due to the drop in revenue in public coffers due to the decline in oil revenues began to use to finance spending

 

https://www.bbc.com/mundo/noticias-65144165