Costs of Inefficient Regulation: Evidence from the Bakken

Abstract

Efficient pollution regulation equalizes marginal abatement costs across sources. Here we study a new flaring regulation in North Dakota's oil and gas industry and document its efficiency. Exploiting detailed well-level data, we find that the regulation reduced flaring 4 to 7 percentage points and accounts for up to half of the observed flaring reductions since 2015. We construct firm-level marginal flaring abatement cost curves and find that the observed flaring reductions could have been achieved at 20% lower cost by imposing a tax on flared gas equal to current public lands royalty rates instead of using firm-specific flaring requirements.