The Economics of Natural Gas Venting, Flaring and Leaking in U.S. Shale: An Agenda for Research and Policy
43 Pages Posted: 21 Jul 2020 Last revised: 30 Sep 2021
Date Written: July 19, 2020
Natural gas venting, flaring and leaking (VF&L) are closely intertwined environmental policy issues for U.S. shale oil and gas operations. In this paper, we lay out an agenda for researchers and policymakers. We describe why VF&L are closely related, both physically and in terms of policy. We perform an interdisciplinary literature review on measurement of VF&L. We marshal granular industry data to identify constraints in the natural gas system correlated with upstream VF&L. Motivated by this descriptive analysis, we discuss the economic reasons for VF&L and the market distortions that could exacerbate VF&L. We then discuss the external cost of VF&L. We calculate that reported 2015 and 2019 flaring and venting imposed climate damages of $0.9 to $1.8 billion and $1.7 to $3.4 billion. We calculate that climate damages of 2015 upstream U.S. methane emissions estimated by Alvarez et al. (2018) were $16.8 billion. Finally, we discuss both existing policy and economic insights relevant to future policy.
Keywords: methane, venting, flaring, leaking, natural gas, shale, energy policy, environmental policy
JEL Classification: Q35, Q48, Q53, Q54
Suggested Citation: Suggested Citation