Exploration risks and mineral taxation: how fiscal regimes affect exploration incentives

Journal Article · Tue Jan 01 00:00:00 EST 1985 · Energy J.; (United States)

DOI:https://doi.org/10.5547/ISSN0195-6574-EJ-Vol6-NoSI-10· OSTI ID:6237937

Stauffer, T R; Gault, J C

This paper investigates the effects of taxation on exploration risk and establishes certain criteria for an optimal tax on mineral resources, such as oil and gas, where exploration risk (i.e., geological risk) is a key decision variable. The optimization is considered in the context of government ownership of the resource rights, but with an eye to the after-tax incentives perceived by private-sector explorationists. Any government that relies on the private sector for discovery and development must recognize those effects. Taxation affects not only the expected returns from mineral exploration ventures but also the riskiness of such ventures. The potential for misdesign is great. The authors show, however, that it is possible, in realistic cases, simultaneously to increase government revenues, improve the explorationist's return, and reduce exploration risk. The opportunity for such improvements arises because most common mineral tax schemes skew the tax burdens across fields of different sizes or qualities. A key consideration in optimizing a tax regime is designing the tax to assign the appropriate burdens to different classes of discoveries. 7 tables.

• Research Organization: Georgetown Univ., Washington, DC
• OSTI ID: 6237937
• Journal Information: Energy J.; (United States), Vol. 6
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
03 NATURAL GAS
29 ENERGY PLANNING
POLICY AND ECONOMY
EXPLORATION
FINANCIAL INCENTIVES
NATURAL GAS INDUSTRY
TAXES
PETROLEUM INDUSTRY
RESOURCE DEVELOPMENT
OPTIMIZATION
MINERAL RESOURCES
INDUSTRY
RESOURCES
020700* - Petroleum- Economics
Industrial
& Business Aspects
030600 - Natural Gas- Economic
Industrial
& Business Aspects
290500 - Energy Planning & Policy- Research
Development
Demonstration
& Commercialization
294000 - Energy Planning & Policy- Fossil Fuels
290200 - Energy Planning & Policy- Economics & Sociology