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Cleanup Delay and Second-Best Environmental Policy: Structural Estimates from Texas Oil & Gas Wells

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  • Agerton, Mark
  • Beatty, Lauren
  • Cruz Figueroa Garcia, Diogenes

Abstract

Environmental remediation yields no direct profit for producers, making delay privately rational and resulting in an externalization of the environmental costs of inaction, such as methane leaks and risk of groundwater contamination. There is option value to delaying plugging, however, if there is an expectation of future higher prices. Using data from the Railroad Commission of Texas, we estimate a discretetime dynamic discrete choice model of well production, shut-in, and plugging decisions. We recover the structural costs of shut-in maintenance, plugging and abandonment, and well reactivation for both oil and gas wells. We use these estimates to evaluate counterfactual policies, including plugging subsidies, idling taxes, capacity-based plugging mandate and time-based idling limits, that aim to accelerate the abandonment of unproductive wells.

Suggested Citation

  • Agerton, Mark & Beatty, Lauren & Cruz Figueroa Garcia, Diogenes, 2026. "Cleanup Delay and Second-Best Environmental Policy: Structural Estimates from Texas Oil & Gas Wells," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404437, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea26:404437
    DOI: 10.22004/ag.econ.404437
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