How Do Higher Fuel Prices Affect Alaska's Transportation System and Economy?
Research Matters No. 69. How Do Higher Fuel Prices Affect Alaska's Transportation System and Economy?
May 15, 2013
Alaska relies much more on air and water transportation than the Lower 48 states do, so it's especially vulnerable to the kinds of fuel price spikes that happened in mid-2008 and again between 2009 and 2010. A new report, the first of its kind for Alaska, analyzes how higher fuel prices affect the costs of transportation in the state and work their way through the economy. The report authors are ISER economists Ginny Fay, Tobias Schwörer, Mouhcine Guettabi, and Jeffrey Armagost. Based on actual fuel price increases of more than 25% from 2009 to 2010, the researchers estimated potential effects on businesses and households, if they continued to use fuel and transportation services at the same levels as before the price spikes. They found:
• It would have cost Alaska industries about $500 million more a year to produce the same goods and services, if they had continued using transportation services and fuel at the same levels as before the price spikes. The losses would have been concentrated in a handful of the most fuel-intensive industries—that is, industries that use the most fuel to create products or transport them to market or both.
• By far the most fuel-intensive industry is air transportation, which accounted for an estimated 90% of the roughly 1 billion gallons of fuel used by air, ship, barge, rail, and trucking industries in Alaska in 2010.
• Oil refineries and commercial fisheries are the next most fuel-intensive. Refining crude oil into products like gasoline uses a lot of fuel—as does transporting those products to market. Likewise, catching fish and other seafood requires considerable fuel, and additional fuel to process the seafood and get it to customers.
• Households statewide would have spent about $150 million more a year for vehicle fuel and transportation services, if they had kept the same levels of use as before the fuel price spikes—boosting annual household transportation spending from about $850 million a year to $1 billion.
• Use of transportation in Alaska dropped between 2008 and 2010, as people and businesses faced higher costs. But there's not adequate data to sort out how much of the drop could be traced to higher fuel prices and how much to the worldwide recession that started about the same time fuel prices spiked in 2008.
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