| Abstract: | This paper examines the impacts of environmental regulations on firms in the oil and gas industry. A model is developed using optimal control theory, which extends the existing models by incorporating the environmental compliance costs into the exploration and production stages. An approach for measuring the cumulative impacts of these regulations on the firm's exploration and production is presented. The results indicate that rising environmental compliance costs lead to reductions in investment and production, and the alteration of investment and production profiles. This implies that less resources will be developed and associated economic benefit will decline. Therefore, it is vital for policy makers to consider carefully whether the perceived environmental benefits derived from these regulations justify associated compliance costs. |
