Information Matters: Feasible Policies for Reducing Methane Emissions

Oil and gas wells emit methane, a potent greenhouse gas. Emissions are minimally regulated, leading to a large climate externality. We explore how technologies can enhance welfare gains from regulatory policies by providing policymakers with more information. We focus on audit policies with realistic constraints, such as limited audit budgets and caps on fees. We develop a model of emission abatement, estimate the abatement costs using cross-sectional data from scientific studies, and simulate welfare gains from policies with varying levels of information availability. We show that targeting substantially improves the effectiveness of policies. In particular, a policy that audits 1% of wells with uniform probability achieves 0.3% of the gains of the infeasible first best, while targeting audits using remotely sensed emissions can achieve 16% of the first best, even with moderate fee levels.