Wells left behind by industry threaten to overwhelm Western states.
Source: âOrphanedâ oil and gas wells are on the rise (High Country News)
A good High Country News story about the problem of orphaned methane wells in Colorado & Wyoming. Well operators âbecome bankruptâ and walk away, leaving the public to cover cleanup costs. In theory, operators have to put a bond up to get a permit, but the bond isnât enough to cover cleanup costs. One operator named Atom recently forfeited a $60K bond on 50 wells, which subsequently cost the public ~$600K to clean up. The same problem exists with reclamation bonds covering coal mines on federal land in Wyoming, except the dollar values are three orders of magnitude larger.
You can slosh the costs & profits around through PPAs and other arrangements, but at a basic level, that big up front cost + long trickle of income is the fundamental cashflow time series of renewables too. Even if these different energy investments all add up to the same dollar value, the time distribution matters, because capital often just cares about net present value. (See Dave Roberts’ famous
Discount Rates: A Boring Thing You Should Know About With Otters!)
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From an extractorâs point of view, pushing the reclamation costs into the future makes them unimportant, because theyâre discounted to the present. By the time they loom large, the true remaining value of the well or mine is already negative, with cleanup costs included. And the only rational thing to do at that point is to walk away. Thatâs what bankruptcy is for. But in this case, the counterparty is the public, and we have no upside risk.
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The public takes on the environmental or cleanup costs of the mine or well at the outset, rather than internalizing those costs within the business decision. To put energy investments without those environmental or cleanup costs on equal footing, youâd need to give them up front or ongoing subsidies. And here we’re just talking about the traditional “environmental” costs — not the climate costs.
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Half of finance and capital markets is just smuggling money through time. We can pull piles of it back from the future. Or we can exile our debts to the future. From and to those people we donât think are us. The other half of finance seems to do the same thing with risks, extracting certainty from others, pushing uncertainty onto others, moving uncertainty through time. Trying to keep upside uncertainty, and lose downside uncertainty.
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