Association for Public Policy Analysis & Management

Pennsylvania has a long history of oil and gas extraction. Many of wells have been drilled prior to modern environmental regulations, and a lot of those wells have been left abandoned and unplugged. Even though today the law requires the producers to plug wells after extractions, some of them fail to do so, especially if firms go through the process of bankruptcy. Unplugged wells impose serious environmental risks, including water, atmosphere and soil contamination, methane emission and explosion hazard. In this paper, I estimate how proximity to abandoned wells and exposure to those risks affect housing market. In comparison to active wells, non-producing wells do not generate royalty payments for homeowners. This helps to disentangle environmental risk due to oil and gas extraction from benefits, such as royalty payments.

Using difference-in-differences approach, I find large negative impact of well abandonment on house prices. This effect varies by the number of wells nearby and by the distance cutoff used to determine the treated group - houses close to wells. However, this reduction on price seems to be partially reversible: if a well is properly plugged, house prices increase by approximately a half of what was lost due to well abandonment. Additionally, I use the change in bonding requirements to instrument for the intensity of well abandonment. The impact of this policy on housing market is also evaluated.