Working Paper: NBER ID: w31960
Authors: Harrison Hong; Jeffrey D. Kubik; Edward P. Shore
Abstract: Many US states have set ambitious renewable portfolio standards (RPS) that require utilities to switch from fossil fuels toward renewables. RPS increases the renewables capacity, bond issuance, maturity, and yield spreads of investor-owned utilities compared to municipal producers that are exempted from this climate policy. Contrary to stranded-asset concerns, the hit to overall firm financial health is moderate. Falling cost of renewables and passthrough of these costs to consumers mitigate the burden of RPS on firms. Using a Tobin’s q model, we show that, absent these mitigating factors, the impact of RPS on firm valuations would have been severe.
Keywords: climate policy; renewable portfolio standards; capital; financial health; investor-owned utilities
JEL Codes: G0; G18; G31; G35; H0; H23; H25; H41; Q42; Q50; Q54; Q56; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| RPS legislation (R28) | financial outcomes of treated utilities (L97) |
| RPS legislation (R28) | renewable capacity of treated utilities (L94) |
| RPS legislation (R28) | bond issuance by investor-owned utilities (L94) |
| RPS legislation (R28) | credit ratings of treated utilities (L95) |
| increased electricity prices (L97) | financial health impact of RPS on firms (G32) |
| declining costs of renewable energy installations (Q47) | financial health impact of RPS on firms (G32) |