Costs of Inefficient Regulation: Evidence from the Bakken

Efficient pollution regulation equalizes marginal abatement costs across sources. We study a new flaring regulation in North Dakota and document its efficiency. The regulation reduced flaring 4 to 17 percentage points, accounting for most of the observed flaring reductions at new wells in the state since 2015. We construct firm-specific marginal abatement cost curves and find that the flaring reductions could have been achieved at 46% lower cost by taxing flared gas instead of imposing firm-specific requirements. Taxing flared gas at the public lands royalty rate would achieve 90% of the year-on-year flaring reductions at 60% lower cost.