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

Mark Agerton, Lauren Beatty and Diogenes Cruz Figueroa Garcia

No 404437, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

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.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 32
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404437

DOI: 10.22004/ag.econ.404437

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