Brown Capital (Re)Allocation

Olivier Darmouni and Yuqi Zhang

No 19155, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies capital reallocation in the fossil fuel industry by investigating who owns coal power plants -- the largest single source of global greenhouse gas emissions. We build a bottom-up measure of the ownership of these brown assets by merging asset-level data on firms' plant ownership (real capital) in Europe with firms' shareholder data (financial capital). We document a sharp increase in private firms' coal ownership since 2015, accompanied by a large decline in public equity ownership. A formal decomposition shows that the large decline in public equity ownership was however not due to capital reallocation ("exit") but to capital utilization: these investors scaled down plants, not sold them. Instead, state investors played a crucial role: they sold to private firms, while being the slowest at scaling down their plants. We illustrate the economics of brown capital allocation by calibrating a model in which asset owners vary in how they value externalities. The possibility of nationalization of coal plants by state investors that value social factors (e.g. jobs, "energy security") is an important limit to the ability of "green finance" to decrease aggregate emissions, in line with recent episodes in Germany and Poland.

Keywords: Energy transition; Capital reallocation; Climate finance; State ownership; Private equity; Energy security (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2024-06
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19155 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19155

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19155

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().