Brown Capital (Re)Allocation

Abstract

We study capital allocation in the coal power sector - the largest single source of carbon emissions. Using a novel dataset, we find public equity ownership of European coal plants has declined significantly, while  state ownership has risen steadily and soared after recent episodes of nationalization. We calibrate a model of brown capital (re)allocation with externalities to understand how "green finance'' and competing government objectives shape the energy transition. Tighter financial frictions incentivize coal plant closures but state investors who value social factors (jobs, "energy security'') endogenously respond to mitigate pressure from green finance, especially during energy shortages.

Keywords: Energy transition, capital reallocation, state ownership, climate finance, energy security, private equity JEL codes: G32, G11, E440, H54, Q40

JEL Classification: G32, G11, E440, H54, Q40