This is a perfect opportunity for government regulation. Tax the waste so that it becomes something more than a rounding error. Government gets a source of revenue, get the environmental benefits of increased natural gas use, and it's not like the oil companies are going to pack up and leave because of a tax, because the oil isn't going to leave with them.
Tax the waste so that it becomes something more than a rounding error.
So what exactly, an arbitrary 1,000% tax just to make it expensive, because of a subjective emotional reaction that says this particular 3% ineffeciency is pure evil, where 3% ineffeciencies elsewhere are natural and understandable engineering compromises?
The incentives are absolutely correct in my view. The "waste" here is apparently less expensive than the alternative (low-value gas pipelines). Maybe some peoples' guts say gas flares are an "evil" type of waste, whereas the human labor spent installing thousands of miles of unproductive pipelines is a "good" waste. I hope those peoples' guts aren't put in decision-making positions.
The incentives are completely screwed, because flaring off that gas represents a mere opportunity cost to the oil company, yet imposes a heavy externality on the rest of the world. The waste is only "less expensive than the alternative" because the person doing the wasting isn't the one paying the price.
So yes, absolutely: impose a carbon tax, where the person burning any fossil fuel pays a price that actually reflects the externalities of their choice. That's not arbitrary at all. If it still makes financial sense to flare rather than capture, fine. But there's no pretending that everything is all right with the existing equation.
But isn't the point that the externality is in fact not that heavy? That implies that the process is at most 97% efficient, which is actually pretty damn good (of course, there'll be other inefficiencies, but nobody's complaining about those). If the rest were burnt in internal combustion engines to move cars about, it's almost certainly < 30% efficient and very often < 20%, which implies most of the externality comes from people further down the chain.
Just to make sure we're on the same page: I'm talking about the externality of global warming, which at present is completely absent from the oil pricing system.
As a result, I'm not sure it's as simple as a straightforward efficiency calculation, because under a system where the consumer bears the currently externalised costs of burning fossil fuels, both the cost of flaring would go up, and the oil value captured by the drilling company would go down. I have no idea what a sane level for a carbon tax would be, and I'm certainly not economist enough to predict the ramifications for global fuels pricing; like I say, it may well work out that flaring remains cost-effective. But the costs of an action should be borne by the party that benefits, otherwise the incentives are, as I say, totally screwed.
I believe the implication is that the environmental impact of building natural gas pipelines criss-crossing the U.S. so we don't have to see flares in North Dakota may outweigh the marginal impact of the CO2.
It's not entirely subjective. I think the underlying reasoning is that regardless of current prices, gas and oil are non-renewable resources that should not be wasted.
That may not be entirely true: using hydrolitic disproportionate of super-critical water and heated crushed coal slurry, dropped 10000 feet down in a closed continuous feed chamber, the coal slurry will break into shorter segments and reform as hydrocarbons using the hydrogen from the super-critical water. The same process may also be applicable to bio-mass, such as plant material.
Punitive tax -> higher oil price -> shipping oil from overseas is more competitive -> more fuel used and environmental impact to get the oil from overseas
You should probably just be advocating a carbon tax since that addresses this externality in a more general way.
A carbon tax makes sense, but probably wouldn't impact this behavior explicitly, since the natural gas is being burned before it even reaches the market.
A carbon tax can apply here as well. In fact, it's probably best to make producers pay carbon tax where possible, since they will be simpler to tax (and the tax will be harder to evade for them).
