03/23/2018

In Alaskan Cities, Climate Risks Could Become Credit Risks

4:29 minutes

a line of fishing trawlers docked in the harbor with a red and blue gradient
Fishing trawlers in Dutch Harbor in Unalaska, Alaska, September 24, 2013. Credit: James Brooks/Flickr/CC BY 2.0

state of science iconThis segment is part of The State of Science, a series featuring science stories from public radio stations across the United States. A version of this story originally appeared on KTOO Public Media.


Late last year one of the world’s largest credit rating agencies announced that climate change would have an economic impact on the U.S.

Moody’s suggested that climate risks could become credit risks for some U.S. states.

Even though Alaska is warming nearly twice as fast as the rest of the U.S., its credit rating doesn’t seem to be in danger. But take a closer look at some of the state’s coastal communities and the story changes, especially when Alaska’s fishing towns consider adding climate risks to their balance sheets.

Frank Kelty is the mayor of the Unalaska, a tiny town is on an island sandwiched between the Bering Sea and the Gulf of Alaska, near some of the richest fishing grounds in the world.

Kelty has been there for 45 years, and lately, he’s seen a lot of changes.

“We’ve had a huge increase in humpback whales coming right into the inner harbor by the road system. Just hundreds of them hanging around,” he said.

[Antarctica is getting greener.]

People have been pulling off of the road to watch what he calls the “whale show.”

“Traditionally, the whales would be out in the pass and we’d hardly ever see them in town. But now they’re coming into the inner harbor,” Kelty said. “They must be feeding on something. I don’t know if it’s krill or salmon smolt, or what … maybe their cycle’s off too. I don’t know.”

Some of the other changes in the Bering Sea aren’t as entertaining.

“Two years ago we missed our herring season because the herring had already moved into the area and left when the fishery opened in July,” Kelty said.

In Unalaska, fishing is a primary driver of the economy. When the fish don’t show up, Kelty said the city starts to lose money.

“It’s our only industry in this area,” he said. “And the trickle-down effect you get for jobs throughout the community, be it the clinic, city workers, State of Alaska workers that work for fish and game and maintain the airport, things like that, it’s all driven by the health and well being of the seafood industry.”

It’s really not surprising that some of Alaska’s communities rely on one industry to keep them afloat. The whole state has traditionally relied on oil to pay for almost everything.

The state’s treasurer and debt manager, Deven Mitchell, said even though Alaska is at the forefront of visible effects of climate change these things really aren’t a risk to the state’s credit.

“Is it…just a normal cycle in the fishery? Or is it something that you know, this ocean acidification issue, or warming, the blob, whatever is going to create a permanent situation?”

But, the state isn’t the only entity that needs a credit rating. Sometimes, cities need them too. Valdez and Kodiak have had them in the past. The rating helps determine how cheaply a community can borrow money to finance things like big infrastructure projects.

In Alaska’s coastal fishing communities, climate change is a very real, if not somewhat unpredictable, threat to the economy.

Like, there has been this massive decline in the population of cod in the Gulf of Alaska. That’s a big money fish in places like Kodiak. Commercial fishermen land millions of pounds in Alaska each year. This year, the amount they’re allowed to catch has been cut by 80 percent.

Mitchell says that’s where he sees the most economic risk for communities in Alaska.

“Is it…just a normal cycle in the fishery? Or is it something that you know, this ocean acidification issue, or warming, the blob, whatever is going to create a permanent situation?” Mitchell said. “Is there an alternative fishery that might develop as a result of that? From, you know, tuna moving in or something that’s a warmer water fish that the people in Kodiak are going to be able to rely on? Or is it, you know, the end of a community’s economy?”

[Alan Alda wants to know: What is climate?]

This is something that fisheries scientists have been trying to get a grasp on in Alaska. Beyond asking what will happen to fish, what will happen to fishermen and the fishing communities that rely on them?

Stephen Kasperski is an economist with the National Oceanic and Atmospheric Administration. He said researchers are trying to model the impact on fishermen as the fleets move around to keep up with the fish.

He said they build these economic models with information they have on fishing revenues by vessel, where vessels deliver and where fishermen are catching.

Kasperski said the researchers take that catch data and then model where the fishing fleet might end up.

“And then, you know, tying that back to where do we think the economic impacts are happening? Saying, for this change in fisheries landings in these given communities, how much does that mean for fisheries support business? For processors? For people who support that industry, and kind of get a sense of the total economic impact from those changes,” he said.

When considering economic impact to the city, Mayor Kelty brings up pollock. Unalaska is the top fishing port in the country and the vast majority of that volume comes from pollock that fishermen bring in from the Bering Sea.

“It’s going to have a major impact to our shoreside facilities because of the distance the catcher vessels have to run and cause a major problem for the products that we produce in this town.”

Every year, those fishermen come to Unalaska and spend millions of dollars on fuel and groceries. There’s this whole industry built around what happens to the pollock they catch. Some of it comes into the port and goes into these huge multi-million dollar processing facilities. That means jobs and property taxes for the city.

But there’s evidence that pollock are sensitive to sea temperatures. Kelty said there’s this concern that with warmer water, they could move farther offshore.

“It’s going to have a major impact to our shoreside facilities because of the distance the catcher vessels have to run and cause a major problem for the products that we produce in this town,” he said.

Members of Kasperski’s team have modeled the economic impacts of climate change on pollock in the Bering Sea.

They’re expecting a drop in pollock catch in the region through the next half a century. Their modeling showed economic losses that, while relatively small percentage-wise, could add up to billions of dollars.

[Celebrate spring at the Orchid Social.]

But, there are other factors. Like, if there are fewer pollock—will the price go up? What happens if fuel prices spike? Kasperski says all of these studies have caveats. It’s hard predict what fish or fishermen are going to do in response to a changing marine ecosystem.

He also says there’s no conclusive evidence that any fleet in Alaska is going to need to move—leaving a community high and dry anytime soon.

“Nothing has come up that clear,” he said. “I think the mayor is right. That these are big boats that are capable of doing that, especially the pollock fleet. Whether or not we get more fish processing farther north—that’s kind of an open question depending on, you know, if it makes sense to open a bigger plant in Nome if the species are closer there.”

Back In Unalaska, Kelty said it’s not really a pressing concern for the city’s bottom line right now.

“We just did a $40 million bond for upgrades to our main port facility,” he said, “and we were able to get the bonds, so at this time I don’t think we’re worried about our credit rating.”

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Segment Guests

Rashah McChesney

Rashah McChesney is a reporter for Alaska’s energy desk in Juneau, Alaska.

Segment Transcript

IRA FLATOW: Now it’s time to check in on the state of science.

SPEAKER 1: This is [? KERE, ?] for [? WWNO, ?] St. Louis public radio, Iowa public radio news.

IRA FLATOW: Local science stories of national importance. And that’s going to take us to Alaska. Let me tell you how that works. The credit rating agency Moody’s recently announced that, if states don’t create what they say sufficient adaptations and mitigation strategies– it’s legalese for, you know, how to tackle climate change– they could see their credit rating fall.

It was a call to action for most states– you have Texas, Louisiana, and New York– but not to Alaska. Arguably, it’s ground zero for climate change in the US. Moody’s said, here is the reasoning, Alaska’s credit rating is not at risk of being downgraded, even though Alaska is warming twice as fast as everywhere else in the country.

Why not? Well, I’m not going to tell you. Here to tell you is Rashah McChesney, reporter for Alaska’s Energy Desk. Welcome to Science Friday.

RASHAH MCCHESNEY: Hello, Ira.

IRA FLATOW: Hi, how are you?

RASHAH MCCHESNEY: Pretty good, it’s nice and warm here. We actually have some sun in Juno for the first time in weeks.

IRA FLATOW: Wow, and that’s all part of the story. So Moody’s is basically telling states to get a plan for dealing with climate change, or else the credit rating will fall but, but not for Alaska. Why is that?

RASHAH MCCHESNEY: Well, the simple answer is that the impacts of climate change can be expensive. Think heat waves, hurricanes, flooding– you mentioned a few of those things. And as we’ve seen in recent years, it can cost hundreds of billions of dollars to recover from them. And these kinds of extreme weather events are projected to happen more often. And the expense of dealing with them is projected to climb as well.

This strain on a state’s budget would definitely impact its ability to pay its bills, and that’s where the Moody’s analysts were coming from. But the report largely ignored Alaska. And I asked our state’s debt manager Devon Mitchell why.

And he says it’s all about the state’s dependence on oil. Alaska is in this very unique situation where the effects of climate change are very, very obvious, but the impact on the state’s credit is vague. In purely economic terms. None of the places in Alaska that are the most impacted by climate change right now generate much revenue for the state’s economy.

Alaska is a one-resource state. Oil revenue is over half of the state’s total budget, and it’s about 90% of our discretionary spending. So unless something were to happen to the pipeline, climate change really just doesn’t impact the state’s ability to pay its bills. And that’s where your credit rating comes from.

IRA FLATOW: It’s Moody’s. It’s all about the money. Not about the people, or the melting tundra, or any of that stuff.

RASHAH MCCHESNEY: Devin, our state’s credit manager, says it’s an economic perspective. He’s very much stressed it wasn’t a human perspective.

IRA FLATOW: [LAUGHS] That’s quite interesting. But there is economic pressure to put on some of the cities, if not the state, is that correct? Moody’s? Is pressuring the cities?

RASHAH MCCHESNEY: Uh, yes. So Moody’s gives credit ratings to some cities too. And when you look at Alaska from the perspective of individual communities rather than the state as a whole, the story completely changes.

In Unalaska, which is actually the top fishing port in the country. It’s this little town out in the Aleutian chain, a lot of that volume that makes them the top fishing port comes from pollock that the fishermen bring in from the Bering Sea. And there’s evidence that pollock are sensitive to sea temperatures.

The mayor there, Frank Kelty, tells me that their big concern is that if something happens to the fish, their economy is just going to take a huge hit. And a lot of Alaska’s coastal fishing communities would be hugely impacted. There’s millions of dollars that fishermen spend on fuel, and groceries, and then there’s jobs, and property taxes for the cities from these massive fish processing facilities.

And the state has the most productive fishing industry in the country, and it generates about $6 billion in economic activity each year, just the commercial fishing industry. And so cities like Kodiak and Valdez and Unalaska have gotten credit ratings in the past to finance things like big infrastructure projects. In Unalaska, they just had a $40 million port expansion. So it follows that those communities would feel that economic pressure to plan and adjust to climate impacts, even if the state as a whole doesn’t.

IRA FLATOW: I get it, and because of that huge fishing economy, Moody’s is interested. Thank you very much for taking the time to be with us, Rashah.

RASHAH MCCHESNEY: Absolutely, thanks for having me.

IRA FLATOW: You’re welcome. Rashah McChesney, reporter for Alaska’s energy desk.

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