Abstract
In accordance with the requirements of 50 CFR § 224.105(d), the National Oceanic and Atmospheric Administration (NOAA) has initiated an assessment of the costs and benefits of the vessel speed limitations set forth in the Final Rule to Implement Speed Restrictions to Reduce the Threat of Ship Collisions with North Atlantic Right Whales. In support of this effort, Industrial Economics, Incorporated (IEc) is working with the Office of Protected Resources of the National Marine Fisheries Service (NMFS) to analyze the Rule’s costs. This report presents our findings. It begins with an analysis of vessel transit data to assess the marginal effect of the Rule on transit times, i.e., the extent to which transits through areas subject to the Rule are delayed when vessels reduce their speed to comply with its requirements. It then applies available data on hourly operating costs for various types of vessels to estimate the direct costs attributable to these delays. Depending on the method employed to characterize the Rule’s impact on transit times, we estimate its direct costs at approximately $28.3 million to $39.4 million annually. The analysis indicates that the commercial shipping industry bears between 74 to 87 percent of these costs. This result is not surprising. Of the wide range of vessels the Rule affects, commercial shipping accounts for the greatest number of affected transits. These vessels also have high hourly operating costs and ordinarily operate at relatively high speeds; thus, the impact of the speed restrictions on their operations accounts for a large share of the costs attributable to the Rule. In comparison, other types of vessels account for a substantially smaller share of the Rule’s estimated costs, either because their hourly operating costs and/or routine operating speeds are much lower – as is the case with commercial fishing vessels – or because they account for a smaller share of affected transits. Our analysis is subject to several important limitations. Most notably, the data available on vessel operating costs are limited, and the characterization of the counterfactual scenario upon which our estimates are based – i.e., our estimate of the speed at which vessels would operate in the absence of the Rule – involves some degree of professional judgment. Additionally, our analysis considers only the direct costs of the Rule; we do not attempt to evaluate the extent to which these costs may be passed on to consumers in the form of higher prices, nor do we attempt to analyze the potential effect of changes in operating costs on overall levels of commercial shipping activity. We do, however, briefly review the available data on commercial shipping activity since the Rule took effect. This review provides no prima facie evidence that the Rule has had an adverse effect on the volume or value of economic activity at ports along the eastern seaboard.