Schulich Research Highlights the Social Trade-Offs of Cleaner Energy
A new study sheds light on an unexpected consequence of environmental compliance in the U.S. power sector: while tougher pollution controls lead to meaningful emissions reductions, they can also make electricity more expensive for the very communities regulators aim to protect.
The research, published in the Journal of Business Ethics, is titled “Environmental Violations in the Power Sector: Accountability and Community Welfare.” It was co-authored by Pouyan Foroughi, Assistant Professor of Finance at Schulich, Lilian Ng, Scotiabank Chair in International Finance at Schulich, and Hosein Hamisheh Bahar, a former Schulich doctoral student and now a Finance Fellow at Harvard Law School.
Analyzing two decades of data from U.S. power plants, the study examines how firms respond to enforcement actions by the Environmental Protection Agency (EPA). The authors found that, after receiving environmental violations, affected firms took significant steps to reduce pollution — including lowering coal use, improving fuel quality, cutting electricity generation, and investing in new emissions control technologies.
However, the research also reveals a troubling side effect. While production costs and capital expenditures rise sharply after violations, profits remain steady — a sign that utilities may be passing these compliance costs on to consumers through higher electricity prices. This cost shift, the authors argue, poses challenges for environmental justice and social equity.
“Our findings show that firms respond to environmental violations in a substantive way – not just symbolically – by making real operational and technological changes,” says Professor Foroughi. “But these improvements come with financial trade-offs that can unintentionally hurt the very communities that environmental regulation is meant to protect.”
“The ethical challenge lies in ensuring that the costs of cleaner production are not borne disproportionately by vulnerable populations,” adds Professor Ng. “A truly just transition requires regulatory safeguards that promote environmental accountability while protecting community welfare.”
The authors suggest that policymakers and regulators may need to strengthen oversight of rate-setting practices and design better-targeted public subsidies to ensure that sustainability efforts do not deepen social inequities. The study ultimately calls for a more balanced approach — one that aligns environmental accountability with fairness and inclusivity.
