4. Conclusion and policy implications
This research has shown that the price of oil is a major determining factor in the amount of earthquakes witnessed in the state of Oklahoma. This finding makes intuitive sense because as the price of oil increases, further exploration and production is incentivized, and as more oil and gas are produced, so too is the amount of ‘produced’ water which is subsequently pumped deep underground into injection wells. The causal link between wastewater disposal and earthquake activity has been established in the geological literature, and the present research aids in establishing a correlation between the economic viability of oil production (and hence wastewater production) and the amount of earthquakes in Oklahoma.
In an effort to curb earthquake activity in Oklahoma, state regulators issued directives and established areas of interest in which the daily volume and depth of disposal was limited. While at first these policy measures seemed effective, one must also consider that these policies were issued when the price of oil was reaching new lows. I find that there has been a statistically discernible effect on the daily amount of earthquakes in the time-period of policy prescriptions. However, the decrease in earthquake activity has as much to do with the low price environment as the policies. In total, I find that the era of disposal directives is associated with about 2.7 fewer earthquakes per day. This finding is robust to modeling assumptions and remains true when longer futures contracts are considered, local competitive advantages are accounted for by using an asymmetric error correction model, and when the sample period is extended to include observations from 2000 to 2009.
