Future climate adaptation opportunities and the financing of US investor-owned electric utilities

Martin Ellison, Frederick van der Ploeg and Kexin Wu

No 22155, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a theoretical framework in which the financing of adaptation depends on the prospect of future adaptation opportunities. Firms finance the upfront costs of adaptation through debt and equity, creating opposing financing frictions. Excessive debt raises default risk and weakens incentives for future adaptation, while low reliance on debt increases reliance on costly equity issuance. Our model shows how opposing financing frictions can generate an inverted-U relationship between bond financing and adaptation investment. Using a panel of US investor-owned electric utilities from 2001–2019, we construct measures of adaptation capital and financing capacity from regulatory filings and find an inverted-U relationship between them, consistent with this mechanism.

Keywords: climate adaptation; Corporate finance; Financing constraints; Debt overhang; Future investment opportunities; Electric utilities (search for similar items in EconPapers)
JEL-codes: D92 G31 G32 Q54 (search for similar items in EconPapers)
Date: 2026-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP22155 (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:22155

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP22155

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 ().