Economic Analysis of Oil and Gas Brine Regulations

Abstract

Economic analysis can help estimate the benefits and costs of environmental regulations that affect energy industries. The usefulness of tools such as engineering economics, econometrics, and Leontief input‐output analysis is demonstrated by a study of the benefits to Ohio of a controversial brine‐disposal practice: annular disposal. Its direct benefits are the avoided costs of more expensive, but safer, disposal via deep‐well injection. Its indirect benefits include impact upon the region's employment and income. This impact was estimated by first constructing econometric models of oil and gas drilling and production in Ohio. Those models were then used to forecast drilling and production both with and without the added cost of deep‐well injection. The resulting changes in the industry's activity were then inserted in an input‐output model in order to calculate changes in employment and income. The analysis shows that in two areas of Ohio, the direct benefits alone are an order of magnitude larger than the expected cost of water supplies lost due to failure of annular disposal. However, health and policy considerations may still justify a ban of the practice.