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Testing for Avoidance of Environmental Obligations

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  • Muehlenbachs, Lucija

    (Resources for the Future)

Abstract

The 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.

Suggested Citation

  • Muehlenbachs, Lucija, 2012. "Testing for Avoidance of Environmental Obligations," RFF Working Paper Series dp-12-12, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-12-12
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-12-12.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    environmental remediation; real options; structural estimation;
    All these keywords.

    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

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