econsult report 1-15-18On January 8, Sunoco released a report on the Dragonpipe (Mariner East 2 pipeline) and associated processing facilities in Marcus Hook. The 24-page report, put together by Econsult Solutions for Sunoco, concluded that the economic impact of the listed projects “is estimated to be $9.1 billion.”

It is hard to take this report seriously. It is based on many unstated assumptions, a questionable economic model, and a flawed premise.

The unstated assumptions. The report is full of unstated assumptions, and some of them are pretty fundamental. To take one example, the report says that by 2020, pipeline operations will support 360 to 530 fulltime-equivalent jobs. But these figures include “indirect” jobs (those at supplier companies—truckers, for example) and “induced” jobs (those who sell things to the actual employees—car dealers, for example).

Nowhere in the report does it state the number of actual (“direct”) employees Sunoco expects to have in 2020, nor the “multipliers” for indirect and induced jobs that are used to come up with the estimate of 360-590 jobs. Without having that information, you get the sense that numbers are just being pulled out of thin air.

The economic model. There is a 2-page appendix with the title “Detailed Economic and Fiscal Impact Methodology.” In fact, it is anything but detailed. There are no numbers or formulas. Instead, there are a lot of vague statements about the “magnitude and composition of spillover effects” and “social accounting matrices”.

The numbers in this report were generated using a software modeling package called IMPLAN. It is a favorite package of those who want to impress politicians with the economic benefits of projects such as sports stadiums, and it is often abused. As one sports economist wrote online, “Those of us who do sports economics and urban economics seriously are almost constantly having to push back against [IMPLAN studies]. The single most disturbing aspect of the IMPLAN model for local economic analysis is the wildly unreasonable values they have for multiplier effects…. IMPLAN is … designed to generate large impact numbers to please a client who wants to lobby someone.”

All benefits and no costs? This report holds out its $9.1 billion estimate as if it were the final answer to the question of financial impact. Even if there really were $9.1 billion in benefits (which is highly doubtful), the most elementary economic report would consider the costs as well—and this report does not.

To start with the most obvious, what about the people who have lost their well water, who have spills and sinkholes on their properties, or whose environment has been wrecked by clearcutting the right-of-way? Are those not costs? What about the streams and aquifers that have been disrupted by drilling?

And consider the loss of property values. We hear from realtors that clients are saying that they don’t want a house near the pipeline (or even, in some cases, that they don’t want to be in a school district with schools near the pipeline). Sellers have to reduce their prices to attract buyers willing to take the risk. These losses are not taken into consideration by the report. Nor is the fact that some homeowners have been told by their insurance agencies that their premiums will rise dramatically or their homes will be uninsurable if the pipeline goes into operation.

And then there is the air and water pollution from the fracking that feeds the pipeline, and the ocean pollution from the plastic industry that it feeds.

I could go on, but the point is clear: the costs of this pipeline to the rest of us have not been included in this calculation. If they had been, the net benefit would be small—or perhaps negative, as has been shown to be the case with some other recent pipeline evaluations.

The flawed premise. In the end, what ultimately makes this report totally irrelevant is its failure to address the main issue that those questioning the wisdom of this pipeline have raised from the start: safety. The report holds up billions in potential wages as a worthwhile goal. That sounds laudable. But the other side of the bargain must be examined too: suppose there is an accident and 100 people die. How many billions is that worth?

Human lives are not a topic for financial tradeoffs. The airline industry learned that long ago: there is no acceptable risk when it comes to fatalities from airline crashes. Sunoco needs to learn the same lesson. Pipelines leak, and they can explode. If Sunoco wants to build a pipeline this dangerous, it must route it away from population centers, or it must buy up all properties within the blast zone. Nothing less is acceptable.