The Impact of Cross-ownership on the Value of a Clean Technology in the Energy Market

This paper examines how corporate cross-ownership in a polluting fossil fuel oligopoly affects the value of a clean energy substitute with a given capacity in different environmental scenarios. When environmental damages are large enough, an increased cross-ownership among polluting firms reduces the gains from investment in the clean energy sector. However, if environmental damages are small enough, a non-marginal increase in cross-ownership may increase the value of a clean technology. The main intuition behind this result is that an increased cross-ownership results in a decrease of environmental damages due to an overall decrease of quantity of energy supplied by the polluting firms, and therefore, if environmental damages are large enough, there will be substantial gains from reduced pollution damages associated with it, thus decreasing the need for clean energy. However, if environmental damages are small enough, the welfare loss from a less intensified competition due to increased cross-ownership outweighs the possible benefits of reduced pollution, thereby increasing the value of a clean technology. Our qualitative conclusions hold true under different demand specifications.