The Carlyle Group stands out among large diversified private equity firms as having one of the largest energy portfolios, with most of it devoted to fossil fuels.

Carlyle’s lopsided energy portfolio has approximately $22.4 billion in carbon-based energy, and $1.4 billion (less than 1 percent of assets under management) committed to renewable and sustainable energy companies.

In other words, for every dollar it invested in renewable energy sources, Carlyle invested $16 in fossil fuels.

Exploiting regulatory exemptions and loopholes, private equity firms like Carlyle have become major greenhouse gas polluters, far away from public scrutiny and with minimal regulatory oversight. Private equity firms stand ready to swoop in and acquire polluting assets sold by publicly-listed companies under public and investor pressure to cut emissions from their operations. Furthermore, large institutional investors such as university endowments, philanthropic foundations, and public pension funds that have set ambitious decarbonization goals to mitigate climate risks in their portfolios are still heavily invested in private equity firms financing polluting assets.

Operating in the most opaque corners of the market, private equity firms have become a significant source of capital for companies engaged in the exploration, extraction, transportation, storage, processing and burning of oil, coal, and natural gas. 

Energy investments did some heavy lifting for Carlyle’s profits in 2022, generating around half of the firm’s overall net income, mainly from over $660 million in investment income from NGP Energy, an oil and gas subsidiary.

This study pierces through the private equity veil of secrecy and finds that Carlyle invested billions of dollars in fossil fuel assets which have dumped at least 277 million metric tons of CO2 and other greenhouse gasses into the atmosphere from 2011 to 2021, contributing to the global climate crisis, and harming low-income communities and communities of color on a disproportionate basis.  

Key findings over the ten-year period include: 

From 2011 to 2021, Carlyle has invested in 91 energy companies owning 972 energy-related assets. Of those totals, 90 percent of the companies (82 companies) and 90 percent of the assets (872 assets) were fossil fuel investments. Renewable energy only accounted for a fraction of energy investments.

Carlyle’s fossil fuel investments across all energy sectors emitted an estimated 277 million metric tons of carbon dioxide equivalent (CO2e)—a measure that includes methane emissions and other powerful global-warming gasses—from 2011 to 2021.  It would take 4.6 billion newly planted trees ten years to remove that much carbon.

Carlyle’s fossil fuel emissions increased at an average annual growth rate of 95 percent per year between 2011 and 2021.  

Carlyle’s electricity generation is significantly dirtier than the US national production. Carlyle produced roughly ten times more electricity from fossil-fuels burning plants (146 megawatt-hours) than from renewable sources (15 megawatt-hours) from 2011 to 2021. During this same period, the US as a whole produced only four times more electricity from fossil fuels than from renewable sources. 

Carlyle is currently a major owner of utility-scale electric power plants in the United States (US), with 11,240 megawatts (MW) of total capacity from a fleet of 17 natural gas plants (9,874 MW); two oil plants (42 MW); 66 solar facilities (712 MW); and six wind facilities (612 MW). Its natural gas fleet makes Carlyle one of the largest owners of gas-fired power capacity in the US, rivaling giants like Berkshire Hathaway Energy, NRG Energy, and the Tennessee Valley Authority.

Pollution from Carlyle’s current fossil fuel-burning power plants are emitted overwhelmingly in communities where residents of color and/or low-income residents live in higher concentrations than the respective state averages.

Close to half (47 percent) of Carlyle’s fossil fuel power plants have a record of environmental violations under its ownership, including facilities with repeated violations of the Clean Water Act, the Resource Conservation and Recovery Act, and the Clean Air Act.

Between 2011 and 2021, Carlyle-backed companies produced close to 1,300 million barrels of oil equivalent (mmboe) worth of oil and gas from upstream assets—mostly through oil and gas subsidiary NGP Energy. Of the total production, 65 percent was oil-based, while the remaining 35 percent was gas-based. This total production is equivalent to one-fifth of the yearly oil consumption in the US. 

Private equity financial extraction poses additional risks for energy companies 

Private equity firms manage funds from wealthy individuals and institutional investors, using this capital and high levels of debt to take over companies across various industries. These firms operate with limited regulation and transparency, making it difficult to assess the risks and impacts of their holdings. They exploit regulatory loopholes to generate high returns for executives, often at the expense of the target companies. By imposing fees, cutting costs, and engaging in aggressive risk-taking, private equity firms can jeopardize the financial stability of their portfolio companies. This often leads to an increased probability of bankruptcy, as seen during the 2020 oil price disruptions. Furthermore, private equity firms use complex legal structures to shield themselves from responsibility for financial, environmental, and community harm resulting from their short-term profit-driven practices.

Private equity: the only game in town for divested assets

Private equity’s stealth expansion in the fossil fuel sector has become an additional, unique obstacle to achieving emissions reductions. As public, investor and regulatory pressure tightens in public markets, utilities and major public companies are increasingly migrating their fossil fuel assets to less regulated ownership. These facilities continue operating, pumping warming gasses into the atmosphere away from public scrutiny and with minimal regulatory oversight.

“We ask ourselves, who’s going to own that stuff,” a Carlyle executive said.  “By default, private equity is kind of the only game in town.”

Selling off their highest-polluting assets—instead of discontinuing them or phasing them out—to quickly wipe out tons of CO2 from their footprint allows the sellers to greenwash the public and peddle their “evolution as clean energy” companies or as “leader[s] in the zero-carbon transition,” as CEOs of major utilities have put it, while their emissions are merely transferred, not removed from the system entirely. “Yes, we finally unloaded that piece of crap in Denmark we’ve been trying to sell for decades,” a Shell executive wrote in an email about a refinery sold to a private equity firm, an exchange which Shell touted in a press release as “support[ing] our ambition to be a net-zero emissions energy business by 2050 or sooner.”

Private equity firms have emerged as “pollution financiers of last resort,” acquiring divested dirty assets. Divestment promises are also gaining momentum in academic endowments, philanthropic foundations, and state and local governments. But many of these institutional investors are still heavily invested in private equity, including in companies deep in polluting assets—like Carlyle.

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