Three Essays on Environmental Economics

Abstract

Oil and gas production is associated with numerous types of environmental damages and hazards. This dissertation is a collection of three essays which empirically examine how oil and gas production affects environmental outcomes, with a particular lens on avenues for policy to remediate these damages.

In chapter 1, I focus on the joint relationship between drilling, building pipelines, and emissions. Most oil wells co-produce natural gas. Producers can choose to burn this valuable co-product on site (known as flaring) if the cost of connecting to the existing natural gas pipeline network is sufficiently high. I construct and estimate a dynamic model of producer drilling and flaring decisions which depend on the current state of the pipeline network and expectations over its evolution. My model also allows producers to internalize spillover effects for their neighbors -- any pipeline they build will extend the network and weakly decrease their neighbors' future pipeline connection costs. Using my model estimates, I simulate pipeline development and flaring outcomes under counterfactual policies. My counterfactual simulations show that flaring abatement costs are higher than previous studies but suggest that a flaring tax could substantially reduce flaring. A $\$5/$Mcf tax reduces flaring by $39\%$.

In chapter 2, I focus on the non-point source pollution nature of methane emissions from oil and gas production. New scientific literature demonstrates that methane emissions from oil and gas production are a far larger problem than previously estimated. However, very little economics work has been conducted on this problem. Methane emissions are caused by leaked natural gas which escapes during the normal operation of equipment as well as leaks from faulty equipment. This implies that there are two avenues to abate emissions -- operators can install more efficient pumps and pneumatic devices, or they can expend more effort finding and fixing leaks from faulty equipment. In this chapter, I seek to understand how operators respond to prices on each margin using output from an inverse atmospheric modelling tool which outputs a gridded inventory of emissions. If producers primarily abate emissions through capital upgrades, then an input-based scheme where the regulator observes capital choices, then asses a tax on imputed emissions will be fairly efficient. I find that both channels of abatement are important, and that a tax on imputed emissions would achieve significantly less emissions reductions than an equivalent Pigouvian tax.

Finally in chapter 3, I focus on policy options to deal with governmental liabilities from abandoned oil and gas wells. There are hundreds of thousands of aging oil and gas wells scattered throughout the United States that pose serious environmental and safety risks. These well sites will require billions of dollars of investment in remediation. When producers go bankrupt before remediation is complete, the responsibility to clean up the site often lands with either the state or federal government. These wells are known as orphan wells, and have received increasing attention in the scientific and policy literature. In this chapter, I estimate a model of well-level status transitions, then use my model to simulate how a policy requiring producers to either bring wells back into production or plug them after two years of inactivity would affect well orphan rates. I find that since many wells are left inactive for years at a time, this simple policy would be an effective way to decrease government plugging responsibilities and prevent environmental damage without dramatically reducing oil and gas production.