Technological change, depletion and environmental policy in the offshore oil and gas industry

Technological change is central to maintaining standards of living in modern economies with finite resources and increasingly stringent environmental goals. Successful environmental policies can contribute to efficiency by encouraging, rather than inhibiting, technological innovation. However, little research to date has focused on the design and implementation of environmental regulations that encourage technological progress, or in insuring productivity improvements in the face of depletion of natural resources and increasing stringency of environmental regulations.; This study models and measures productivity change, with an application to offshore oil and gas production in the Gulf of Mexico using Data Envelopment Analysis. This is an important application because energy resources are central to sustaining our economy. The net effects of technological progress and depletion on productivity of offshore oil and gas production are measured using a unique field-level set of data of production from all wells in the Gulf of Mexico over the time period from 1946–1998. Results are consistent with the hypothesis that technological progress has mitigated depletion effects over the study period, but the pattern differs from the conventional wisdom for nonrenewable resource industries.; The Porter Hypothesis was recast, and revised version was tested. The Porter Hypothesis states that well designed environmental regulations can potentially contribute to productive efficiency in the long run by encouraging innovation. The Porter Hypothesis was recast to include market and nonmarket outputs. Our results support the recast version of Porter hypothesis, which examine productivity of joint production of market and environmental outputs. But we find no evidence for the standard formulation of the Porter hypothesis, that increased stringency of environmental regulation lead to increased productivity of market outputs and therefore increased industry profits.; The model is used to forecast market and environmental outputs under alternative policy scenarios. Reliable baseline forecast and response to different policy actions of production and pollution are critical to the formation of sound energy and environmental policy. Forecast of production and pollution until year 2050 are generated from the model. Detailed policy scenarios provide quantitative assessments of potential benefits that indicate the significance of potential benefits of technological change and well-designed environmental policy.