WORKING PAPERS

• Covert, Thomas R. and Ryan Kellogg, Environmental Consequences of Hydrocarbon Infrastructure Policy, NBER working paper #23855 (revised 2023), revise-and-resubmit at the Journal of Political Economy.
  - Working paper (September, 2023), Original NBER working paper #23855 (2017)

  [abstract]

  We study policies that aim to 'keep carbon in the ground' by blocking fossil fuel infrastructure investment. Our analysis relies on a model of hydrocarbon production and transportation, incorporating substitution between pipeline infrastructure and flexible alternatives, like crude-by-rail. We apply the model to the Dakota Access Pipeline (DAPL), which moves oil from North Dakota to Texas and was controversially completed in 2017. Had DAPL's construction been enjoined, we estimate that 81% of the blocked pipeline flows would move by rail instead. This substitution induces both private costs and local environmental damage, since rail transport imposes greater local externalities than pipelines.

• Kellogg, Ryan, The End of Oil, NBER working paper #33207, revise-and-resubmit at the Review of Economic Studies.
  - Working paper (November, 2024)

  [abstract]

  It is now plausible to envision scenarios in which global demand for crude oil falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, adoption of stringent climate policies, or both. This paper asks what such a demand decline, when anticipated, might mean for global oil supply. One possibility is the well-known ``green paradox'': because oil is an exhaustible resource, producers may accelerate near-term extraction in order to beat the demand decline. This reaction would increase near-term CO2 emissions and could possibly even lead the total present value of climate damages to be greater than if demand had not declined at all. However, because oil extraction requires potentially long-lived investments in wells and other infrastructure, the opposite may occur: an anticipated demand decline reduces producers' investment rates, decreasing near-term oil production and CO2 emissions. To evaluate whether this disinvestment effect outweighs the green paradox, or vice-versa, I develop a tractable model of global oil supply that incorporates both effects, while also capturing industry features such as heterogeneous producers, exercise of market power by low-cost OPEC producers, and marginal drilling costs that increase with the rate of drilling. I find that for model inputs with the strongest empirical support, the disinvestment effect outweighs the traditional green paradox. In order for anticipation effects on net to substantially increase cumulative global oil extraction, I find that industry investments must have short time horizons, and that producers must have discount rates that are comparable to U.S. treasury bill rates.

• Covert, Thomas R., Konan Hara, Ryan Kellogg, and Richard L. Sweeney, "Investment, Productivity, and Selection in the U.S. Shale Boom", Work in progress

  [abstract]

  Why was the U.S. shale oil and gas revolution so revolutionary? As the U.S. Energy Information Administration quipped in 2024, ``the U.S. produces more crude oil than any country, ever''. The current, record, rate of production has been achieved though increases in the industry's oil and gas production per well, which have out-weighed a decrease in the drilling of new wells since the onset of the boom in 2010. This project asks how, why, and when the industry achieved these gains. Our primary focus, at least for now, is on decomposing the evolution of output per well into changes due to drilling site selection versus changes due to firms' adoption of improved technologies or fracking inputs. Site selection could be positive (better geologic locations are drilled first), negative (firms learn over time which locations are best), or some of both. We evaluate these possibilities by developing and estimating a joint model of oil production and drilling decisions. While the model is tailored to the shale oil and gas setting, its core ideas are applicable to other settings in which the productive outcome of an investment is a function of both the investment's location and the investing firm's skill in executing the project, conditional on location. The model uses local variation in land leasing difficulty as identifying variation that shifts the timing of firms' first well drilled in each location. And it accounts for firms' ability to learn from previously drilled wells' production realizations before deciding whether to drill additional wells in the same location. Using data from the Bakken Shale in North Dakota, we find evidence of positive selection early in the boom and negative selection later, but these effects are swamped by a large increase (~0.5 log points) in output per well that is driven by changes in firms' inputs and application of technology, conditional on location. Most of this increase occurred shortly after the sharp fall in oil prices and drilling activity in late 2014, consistent with ``slack time'' theories of innovation.