Going Green: Incentives For The Electric Power Industry

The electric power industry finds itself at a critical juncture—increased regulation of its emissions combined with a shift in U.S. energy policy to emphasize renewable energy. Industry executives must determine the timing and the extent of their investments in clean technology to preserve the use of coal as a viable option. It is time for those executives to question whether they should make investments merely to comply with new regulations or to go beyond meeting regulations to enhance the industry’s environmental (green) performance and reputation. We argue that an industry with a poor reputation in some areas (e.g., emissions) should want to improve its reputation. This could lead to enhanced profits for the industry, reduced pressure from regulatory bodies, and enhanced goodwill in the community. We investigate the company and industry-wide profit incentives for firms in the electric power industry to use clean versus dirty coal technology. Our model provides equations to show the total industry profit as a function of the participation percentage of players in the industry. We conclude with managerial implications and suggestions for future research.