Are Pollution Control Bonds and Public Ownership Really Blessing for Utility Firms?

The purpose of this study is to extend the existing literature on the relationship between green financing and carbon footprints in utility firms. We specifically examine the connection between pollution control bonds (PCBs) and carbon efficiency (CE), as well as whether public ownership moderates this relationship. This study is based on the Data Envelopment Analysis (DEA) method with Variable Returns to Scale to measure CE in firms by optimizing inputs while considering both desirable and undesirable outputs. Specifically, the study uses three key input variables: labor, defined by the effective labor time of employees; capital input, calculated using the perpetual inventory method; and energy use, which refers to the final energy consumption. We include good outputs (represented by net sales revenue) and bad outputs (quantified by carbon emissions). Using a sample of 86 US utility firms that use PCBs, matched with an equivalent number of firms from 2011 to 2020, our findings indicate that PCBs increase CE. Furthermore, we observe that public ownership strengthens this relationship, suggesting that utility firms have to consider the role of public ownership when addressing environmental challenges. Sensitivity analysis, taking into account significant reforms such as the Clean Power Plan (CPP) and Affordable Clean Energy (ACE), yields interesting results. The findings during the application periods of both the CPP and ACE align with our primary conclusions, though with some variations. Specifically, the ACE period demonstrates more pronounced effects than the CPP, largely due to ACE's flexible framework, which alleviates financial and regulatory pressures on utility companies. Conversely, the suspension of the CPP yielded contrasting results, with PCBs reducing CE. This result is primarily because many firms continued to depend on traditional energy sources in the absence of new mandatory regulations.