Yifan (Freda) Fang

Research

Do Market Forces Reduce Carbon Leakage? Evidence from the U.S. Electric Utility Sector

Presentations: Rotman School of Management (2023), MFA Regular Session (2024), NFA PhD Session (2024), Rotman Sustainable Finance Research Roundtable (2025), EsFA (2025)

Abstract: I use the setting of U.S. power plant divestitures to test whether customer demand for green products affects a firm’s environmental performance. Leveraging divestitures from 2004 to 2020, I show that firms, on average, divest more carbon-intensive plants, and divested plants experience a 17% rise in total emissions post-transaction. However, this leakage effect is mitigated when plants face both heightened demand for low-carbon energy and competition. The demand channel is also reflected in prices: power producers operating in deregulated markets gain pricing power by selling renewable energy, with higher prices associated with stronger demand. Overall, my results suggest a potential role for green energy demand in improving power producers’ environmental performance.