Private Equity and Gas Emissions: Evidence from Electric Power Plants

Youchang Wu and Xuanyu Bai

♦ We examine the effect of private equity buyouts on environmental performance of U.S. fossil fuel power plants. Output-scaled CO2 emissions are, on average, 4.2% lower after buyouts, predominantly because of fuel-saving improvements in production efficiency. Emission intensities decline more significantly following buyouts backed by pro-ESG private equity, due to not only greater efficiency gains but also enhanced emission control. Our results suggest that while private equity firms are effective at implementing environmentally beneficial operational changes that also increase profitability, they do not have strong incentives to undertake environmentally beneficial changes that are privately costly, except for those with pro-ESG preferences.

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