Flaring, the practice of burning excess natural gas obtained during oil extraction, is common across oil producing countries. Several multilateral agencies are working to ban routine flaring and economically important jurisdictions have proposed new regulations on the activity. We develop a price-theoretic model demonstrating that routine flaring fundamentally results from economic incentives, specifically, insufficient demand for a lower-valued by-product in a joint production process. This interpretation contrasts with prevailing engineering-based explanations of the practice built into regulatory assessments. Using rich battery-level data from Alberta, Canada, we test the model's predictions and find that a 10% increase in oil prices leads to a 3.1% increase in flaring, while a 10% increase in gas prices reduces flaring by 3.6%. We then exploit a natural experiment, where venting and flaring regulations were imposed on a small region in Alberta, to estimate the causal effects of flaring restrictions. We demonstrate that regulations effectively reduced local emissions; however, we find virtually 100% leakage to unregulated areas. More importantly, we show that the regulations, although nominally on natural gas emissions, primarily impact oil production rather than gas output. This conclusion has important implications for understanding the costs
and benefits of regulating methane in the oil and gas sector.