Costs of Inefficient Regulation: Evidence from the Bakken
48 Pages Posted: 15 Dec 2017
Date Written: December 12, 2017
Efficient pollution regulation equalizes marginal abatement costs across sources. Here we study a new flaring regulation in North Dakota's oil and gas industry and document its efficiency. Exploiting detailed well-level data, we find that the regulation reduced flaring 4 to 7 percentage points and accounts for up to half of the observed flaring reductions since 2015. We construct firm-level marginal flaring abatement cost curves and find that the observed flaring reductions could have been achieved at 20% lower cost by imposing a tax on flared gas equal to current public lands royalty rates instead of using firm-specific flaring requirements.
Keywords: North Dakota, Bakken, hydraulic fracturing, flaring, efficient regulation, oil and gas
JEL Classification: L71, Q3, Q4
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