Testing for Avoidance of Environmental Obligations
AbstractThe environmental remediation required to permanently decommission most industrial projects is an expensive and irreversible investment. Real options literature shows that temporarily closing a project and postponing decommissioning has value when economic conditions are uncertain and future reactivation is possible. However, high decommissioning costs create an incentive to “temporarily” close a project, even when there is no intention to reactivate. This paper estimates a dynamic discrete choice model of closure to evaluate the likelihood of reactivation. The model reveals that the option to temporarily close is being widely used to avoid environmental remediation of oil and gas wells in Canada.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-12-12.
Date of creation: 22 Feb 2012
Date of revision:
environmental remediation; real options; structural estimation;
Find related papers by JEL classification:
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-08 (All new papers)
- NEP-ENE-2012-03-08 (Energy Economics)
- NEP-ENV-2012-03-08 (Environmental Economics)
- NEP-PPM-2012-03-08 (Project, Program & Portfolio Management)
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