The United States is facing an orphan and uncapped oil well crisis. Orphaned wells are those that have no known owner to assume liability. Uncapped wells are oil wells open to the elements and can potentially leak methane, contaminate groundwater, and threaten public health. The Interstate Oil and Gas Compact Commission puts the number of undocumented orphaned wells at between 310,000 and 800,000—these are wells that are thought to exist but haven’t even been positively identified yet and thus may or may not be capped. The Environmental Defense Fund has assembled a map of more than 120,000 identified uncapped orphaned wells.
Course of trade in the oil industry often leaves the public on the hook for nonproductive well cleanup costs, including capping. Capping a well is expensive and, as it entails filling the well with cement, more or less permanent. Oil companies are thus incentivized to leave nearly-depleted wells uncapped in case a surge in oil prices or new use renders them profitable again.
At the same time, low-production wells are often sold to smaller entities than those that handled the initial drilling. These smaller entities, existing on the economic margins and on the edge of profitability, operate in precarity. If they disappear or go bankrupt, there is no one left to foot the bill for capping the well and handling any necessary remediation. The damage is done, the clean-up bill has come due, and there is no one there to pay it.
The solution is clear, a robust environmental liability tax (ELT) on every barrel of oil extracted—levied at the state or federal level. By requiring oil and gas extraction companies to pay cleanup costs upfront, we can ensure the public isn’t left holding the bill and that would-be polluters bear the true cost of their operations. Further, the tax, levied at extraction, would be borne by the entity enjoying the economic benefit of the well—rather than trying to chase down some marginal entity that never turned a profit or may have existed purely to be bankrupted and evade liability.
Scale and Danger of Orphaned and Uncapped Wells
The scale of the orphaned and uncapped well crisis is staggering—according to the Environmental Defense Fund, more than 14 million Americans live within one mile of an uncapped well. The environmental consequences form these wells can be dire; methane, a greenhouse gas 25 times more potent than carbon dioxide, escapes from uncapped wells. The Department of the Interior undertook efforts to plug more than 9,000 wells in 2024, which reduced an estimated 155,000 metric tons of carbon dioxide emissions annually—but this represents only a small fraction of the larger problem.
The reasons why wells remain unplugged stem from cost-shifting to systemic regulatory failures. Companies regularly sell aging, low-producing wells to smaller operators. When production grinds to a halt, these operators declare bankruptcy or otherwise go out of business. Existing bonding requirements are inadequate as, according to an analysis by ProPublica and Capital & Main, bonds intended to ensure funds are set aside for cleanup typically cover less than 2% of the actual cost of plugging and remediating a well. This shortfall creates a perverse incentive for companies to simply offload liabilities and forego the bond, potentially enjoying a 98% off coupon for cleanup.
Economically, the burden of these wells may increasingly fall on taxpayers as oil reserves in the United States retreat to the Permian Basin, leaving behind nearly dry wells which may remain uncapped and in the hands of entities without the financial resources to cap them or pay for cleanup.
Cleanup costs can range from tens of thousands to millions per well, depending on location and condition. The Bipartisan Infrastructure Law allocated $4.7 billion to address the issue, but the funding is a drop in the barrel compared to the potential cost of plugging millions of existing and future orphaned wells.
Without systemic reform, the orphaned well crisis will continue to drain public resources as oil reserves dwindle. As we approach peak oil, we’ll begin to face peak environmental mess—precisely when the industry, both writ large and at the individual entity level, will have the fewest resources to address it.
Environmental Liability Tax as a Solution
An ELT offers a straightforward and, importantly, enforceable solution to the orphan well crisis. By taxing oil and gas companies at the point of extraction, an ELT ensures that funds for well cleanup are collected upfront—before liabilities can be shifted or abandoned.
The ELT would be structured as a per-barrel fee, scaled to reflect the environmental risk inherent in each well. Funds collected could be placed in a federal or state-managed trust, earmarked exclusively for plugging orphaned wells, remediating sites, and restoring affected lands.
Companies that proactively plug wells or maintain higher environmental standards could qualify for tax credits that offset their ELT obligations. Good actors would be rewarded while neglect and liability-dodging is mitigated.
By collecting cleanup costs through taxation, an ELT would eliminate the need to chase bankrupt companies or navigate a maze of shell corporations shielding executives from liability. It would create a predictable funding stream and enable governments to plan and prioritize cleanup efforts more efficiently.
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