Cost of Going Green: Renewable Energy Policies and Firm Performance Uncertainty

Abstract

Utilizing state-level annual electricity production data, we investigate how adopting renewable energy affects firm performance and performance uncertainty. With our novel measure of firm-level exposure to renewable energy, we find that a state’s heavy reliance on renewable energy sources has a notable adverse impact on the productivity and profitability of local firms. Moreover, year-to-year performance uncertainty increases as renewable energy exposure increases, indicating that the intermittent nature of renewable energy sources serves as an implicit cost for local firms. Our findings carry important policy implications, as policymakers should recognize that excessive dependence on renewable energy sources can undermine the financial stability of local firms, at least in the short term.

Keywords: Renewable energy, firm performance, performance volatility, government policies/incentives