Petroleum production is a multifaceted endeavor. The greenhouse gas emissions from burning fossil fuels are the main driver of climate change. Extracting these resources also emits CO2 into the environment, in addition to air pollution and toxic substances. Any policies seeking to curb oil production will affect people for better and worse. The industry employed 25,000 Californians in 2019, and provides tax revenue to local governments. “Our analysis is trying to quantify what those tradeoffs look like as the state considers different policies,” said co-author Kyle Meng, an associate professor in UC Santa Barbara’s economics department and the Environmental Markets Lab (emLab) at the Bren School of Environmental Science & Management.
“We’re taking traditionally climate-focused policies and comparing them along local impacts, health benefits and employment costs,” added co-lead author Paige Weber, an environmental economist at UNC Chapel Hill, previously an emLab post-doc.
The authors developed a framework to analyze the impact of three policies: an excise tax (paid per barrel); a carbon tax (paid per ton emitted); and setbacks at 1000 feet, 2500 feet and 1 mile. Taxes increase the cost of production, curbing activity and driving down emissions. Setbacks essentially ban extraction in areas where people live. In a previous study, the authors found that production decreases because it might not be economical to drill somewhere else.
To compare between the policies, each setback distance had a corresponding excise and carbon tax level that achieved the same emissions target in 2045.
The authors started with a suite of models to predict oil production in California. Using historical data and economic theory, the team attempted to answer the following questions: Will they drill here? How much will a well produce? When will it shut down?