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Hard to Measure Well: Can Feasible Policies Reduce Methane Emissions? (job market paper)

Coauthor: Wenfeng Qiu

Abstract: Oil and gas wells emit large quantities of methane, a greenhouse gas 34 times more potent than carbon dioxide. Methane emissions are rarely priced and lightly regulated—in large part because they are hard to measure—leading to a large climate externality. However, measurement technology is improving, with remote sensing and other techniques opening the door for policy innovation. We present a theoretical model of emissions abatement at the well level and a range of feasible policy options, then use data constructed from cross-sectional scientific studies to estimate abatement costs and simulate policies under realistic constraints. We focus on audit policies, varying the information the regulator uses in choosing wells to audit. These simulated second-best audits become more effective when they can target on well covariates, detect leaks remotely, and charge higher fees for leaks. A policy that audits 1% of wells with uniform probability may achieve less than 1% of the gains of the infeasible first best. Using the same number of audits targeted on remotely sensed emissions data could achieve gains of 30–60% of the first best. These simulation results demonstrate that because leaks are rare events, targeting is essential for achieving welfare gains and emissions reductions. The results also show that auditing a small fraction of wells can have a large impact when properly targeted.

Rate of Return Regulation Revisited

Coauthor: Stephen Jarvis

Abstract: Investor-owned utilities set prices to recover their costs, including a regulator-approved rate of return on their costs of capital. The cost of risk-free capital fallen dramatically in the past 20 years, but nominal rates of return have not. We use timeseries machine learning methods to estimate how the utilities' risk-adjusted rates of return have changed using a comprehensive database of utility rate cases dating back to the 1980s. We find a significant role of inertia: the nominal rate of return this period is likely to be the same as last period, even when the real cost of capital has changed significantly. We then revisit the effect posited by Averch–Johnson (1962), estimating the consequences of excess returns on capital investment and consumer prices.

A Welfare Analysis of Drilling on US Public Lands

Coauthor: Eva Lyubich

Abstract: A large fraction of US oil and gas deposits are on land owned by federal and state governments. This public land is frequently leased at prices as low as $2 per acre, and federal royalty rates set by the Mineral Leasing Act of 1920 are much lower than the current rates on private lands. This paper seeks to estimate the welfare effects of these discrepancies—welfare gains from additional resources available, less losses from misallocated production, forgone government revenue, and increased emissions of greenhouse gases. We then consider a hypothetical ban of all drilling on federal land, and estimate the incidence across income groups and types of producer.

Hedonic Valuation of Flood Risk on Agricultural Land

Coauthors: Oliver Browne, Alyssa Neidhart, and David Sunding

Abstract: Economic theory implies that the hedonic discount on the value of a parcel of flood-prone land should scale with the expected probability of flooding. Most empirical studies of the impact of flood risk on property values in the US focus on the relatively small risk posed by the 100-year or 500-year flood plains. Focusing on agricultural land near the Missouri River, we find that the hedonic discount climbs sharply from near-zero in the 500-year floodplain to 40% in the 2-year floodplain. We use our model to predict the reduction in property values from increased flooding due to climate change. In the next 50 years, absent abatement that substantially changes flood risk, most of the expected reduction in property value does not result from changes in the 100-year and 500-year flood plain, but rather from increased flood frequency on land that is already expected to flood at least once every 50 years.

Nuclear Closures and Air Pollution

Abstract: Cheap natural gas and increased renewables have lowered wholesale electricity prices and made some existing nuclear power plants unprofitable. Environmentalists worry, however, that closing nuclear plants increases pollution by shifting more load to fossil fuels. I use quasi-experimental variation to estimate the environmental benefits in terms of both greenhouse gas emissions and local air pollution from nuclear plant closures. Earlier work suggests that closing these plants could increase emissions by 5.3 million tons of CO2 per plant per year, along with 1700–2300 tons each of SO2, NOx, PM10, and PM2.5. That work used a grid operations model, focused on only four plants, and didn't consider the location-specific damages of the pollutants. Instead, I combine two empirical approaches to think about all US nuclear plants: a synthetic difference-in-differences approach to estimate the effect of past closures, and low frequency temperature variation to estimate the marginal baseload generation that would be affected by future closures. These estimated changes in generation allow us to calculate changes in GHG emissions and, using a reduced-complexity pollution model, the location-specific local air pollution damages.