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.
