Essays on Regulatory Uncertainty & Energy Development in the American West

Abstract

This dissertation undertakes an analysis of regulation in the American West, investigating the effects of expropriation uncertainty and technological change in the leasing process.The first chapter explores the possible expropriation of drilling rights due to the addition of the sage-grouse under the Endangered Species Act. Leveraging prior decisions of the US Fish and Wildlife Service, I estimate there was a 52.6% chance the sage-grouse would be listed. Using the real-options framework of Kellogg (2014) and constructing an extension of his simulation to accommodate expropriation risk parameterized by real-world drilling data, I find that developers are expected to delay spudding wells to wait out the uncertainty. This result is corroborated with a Cox proportional hazards model. Additionally, using a difference-in-differences model I find robust evidence that developers reduce their bids for leases commensurate with the expected reduction in profits from possible regulation, and using a conditional logit discrete choice model I find evidence that firms abandon core sage-grouse habitat. Lastly, I find no evidence that developers increase the extraction rate of drilled wells. The second chapter investigates expropriation risk in the context of ozone pollution controls from the Environmental Protection Agency. Here, I find a hurry-up-and-drill response. I place this result within the literature of the green paradox, and find that the EPA regulation did not produce a green paradox but if costs were lower, or if the regulation were modified, a green paradox would have existed and briefly result in higher emissions under a stricter regulatory regime. The policy takeaway is that regulators should avoid a long announcement period, as it gives developers time to drain wells before regulation occurs. The third chapter is a cost/benefit test of auctioning drilling leases online rather than in-person. I leverage the fact that only specific leasing jurisdictions transitioned to an online system called EnergyNet in late 2016 to estimate the causal effect of moving to online leasing. I estimate that a given parcel sold online versus in-person will generate 40% higher bids against only a 2% extra cost.