Existing measures to cajole companies to decarbonize, with subsidies for renewable energy and carbon taxes, have failed to prevent global emissions rising. Does state ownership, particularly in the energy sector, make this process easier?

State-owned energy firms that search for, produce and refine fossil fuels are among the most polluting organizations in the world. But because governments have a big say in how they operate, it might be considered easier for their emissions to be rapidly phased out by treating them as extensions of the government, without needing to rely on the incentives, fines or sanctions usually necessary to make private firms act.

So far, however, things have not proved to be so simple.

A blessing or a curse?

When it comes to climate change, ownership of a polluting company creates a dilemma for a government. On the one hand, state-owned firms are better equipped to bear the costs of decarbonization as they can draw from a tax base (a more reliable revenue source) to subsidize green measures.

But ownership of a polluting, state-owned firm also creates conflicting incentives within and across different branches of a government. Some ministries may rely on the income generated from these industries (such as the Saudi Arabian Oil Group) to finance public services or support pensions. Other ministries, perhaps responsible for environmental protection, will be tasked with curtailing the activities of these firms to cut pollution.

This conflict indicates that state-owned firms are not simply "instruments of the state" that can be easily directed to cut emissions quickly. The ability of governments to use state-owned firms to tackle climate change depends on various governance issues within the state bureaucracy.

Governments attempting to reform state-owned entities can face resistance from various stakeholders—ranging from the workers and managers of these firms to the users of subsidized services, who may object to higher tariffs to fund a transition to renewable energy.

State-owned utilities such as the Federal Electricity Commission in Mexico and Eskom in South Africa have previously defended their energy market monopolies against smaller competitors—in some cases, preventing more decentralized renewable energy generation. State-owned firms can exploit their close contact with policymakers to do this, and may even refuse to sign purchasing agreements with independent power generators.

State-owned firms and emissions

Our research showed that for some countries with high CO₂ emissions per capita, the state played a big role in their major polluting industries. Countries such as China, India, Russia, Japan, Iran and Saudi Arabia, where state ownership is extensive in the energy sector, are among the world's ten biggest emitters.

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