Testing for Avoidance of Environmental Obligations

Lucija Muehlenbachs

RFF Working Paper Series from 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.

Keywords: environmental remediation; real options; structural estimation (search for similar items in EconPapers)
JEL-codes: C63 Q30 Q47 Q58 (search for similar items in EconPapers)
Date: 2012-02-22
New Economics Papers: this item is included in nep-ene, nep-env and nep-ppm
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