What are the Realistic Implications of Fossil Fuel Divestment?

By Sam Irvine

3/20/2013

            On his do the math tour Bill McKibben and the organizers of 350.org outlined the need for anti climate change movements designed to promote policy that reduces the atmospheric concentration of Carbon Dioxide (Co2) to 350 ppm. Based on arguments established by atmospheric scientist James Hansen in 2008 a two-degree future can be achieved by reducing the current 396 ppm concentration of atmospheric Co2 to 350 ppm (4).

            For 350.org reducing atmospheric Co2 concentrations to 350 ppm “means building solar arrays instead of coal plants, it means planting trees instead of clear-cutting rainforests, it means increasing efficiency and decreasing our waste. Getting to 350 means developing a thousand different solutions… we need a movement of people who care enough about our shared global future to get involved and make their voices heard” (2). 350.org has also asked students to put pressure on their universities board of trusties and administration to “immediately freeze any new investment in fossil fuel companies, and divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within 5 years” (3).

“Led by big investment gains in 2011,  colleges have built investment behemoths and rainy day funds of more than $408 billion” (1). The aggregate endowments of all universities in the United States ads up to a fairly substantial sum of money, for this reason 350.org has made the organization of divestment campaigns on U.S universities a priority. However, despite the moral and financial goals of the campaign the question still remains: what will be the real impacts of divestment be if only few universities with endowments in the millions of dollars, with only fractions of their total portfolio in fossil fuels have on atmospheric concentrations of Co2 or the fossil fuel industry? And does divestment have to look the same on every college university or can compromises between students, administrations and fiduciaries be made?

Will Divestment have significant effects on the practices of fossil fuel companies?

According to 350.org “Divestment isn’t primarily an economic strategy, but a moral and political one…the more we can make climate change a deeply moral issue…We need to make it clear that if it’s wrong to wreck the planet, than it’s also wrong to profit from that wreckage” (3).

From 350.org’s argument the short answer to the question will divestment impact the practices of fossil fuel companies? Is probably no, but it could start a much needed conversation that influences climate change policy later.  This reality is especially apparent when the aggregate investments of all universities in the united stats are considered.

According to study conducted by USA today their are $408 billion currently accounted for in endowments (1).  To illustrate the impact of divestment, assume a very unlikely 100% divestment of all universities from fossil fuels and conservatively assume that 10% of  endowment investments are in fossil fuels-then divestment stands to free up only $40.8 billion from fossil fuel interests.  Small change considering the standing value of unexploited fossil fuel reserves are worth an estimated $20 trillion.

Will subsequent reinvestment help fund sustainable programs?

$40.8 billion may be a small amount to the fossil fuel industry, but not to developing sustainable initiatives. $40.8 could go a long way in helping develop and implement renewable energy, fund efficiency programs or develop the reforestation initiatives that 350.org sees as vital to reducing atmospheric concentrations of Co2. Such reinvestment of funds stands to be the largest investment in sustainable programs to date.

The scale of such reinvestment becomes clear when compared with current initiatives to fund renewable energy. “The Obama Administration plans to fund research and development in the renewable energy sector through the recently proposed Energy Security Trust. The Trust, which will be funded by the revenue from oil and gas development, is expected to provide $2 billion over a 10 year period”(6). The total amount of funds that will be reinvestments if divestment is successful is yet to be known, but if even 1% of universities’ aggregate endowments where reinvested in sustainable assets twice the funding offered by Energy Security Trust would be provided in half the time.

 Will the pursuit of divestment create a valuable dialog about climate change?

While divestment may not have large direct impacts on the fossil fuel industry, or on the atmospheric Co2 Content, the conversation that starts when students approach their schools administration may have impacts on other efforts to curtail climate change. Divestment, As a primarily student led movement creates a unique educational opportunity and forum for discussion.  The movement creates a network between students and faculty, and provides opportunities to connect movements between different campuses and with experts in the fields of community organization, climate change, financial investment, and policy.

Case study of the University of Redlands divestment campaign shows that this dialoged spreads quickly on a college campus and extends outside its academic walls. In one week student leaders organized to gain the support of 700 petition signatures from there peers. Student efforts over a three-month time period have also led to hosting organizational workshops from 350.org representatives, created networks between students at Pomona, Claremont and the college of the Atlantic and resulted in preliminary discussions with the Universities President and CFO.  Meetings with sustainable investors from the working world are also on schedule as students gather support and profession expertise to back the movement.  Students at over 300 universities in the U.S are also spearheading similar movements indicating a much larger national movement.

As students  matriculated from universities who have attempted to divest from fossil fuels the likeness that they will have been exposed to climate issues greatly increases, increasing the sensitivity of tomorrow’s workforce to climate issues and decision-making.

Dealing with mobile targets:

The argument can be made that divesting from fossil fuels may be difficult due to the ever fluctuating nature of investment brokering.  The total amount of funds invested in fossil fuels may be dramatically different day to day or even hour-to-hour as fund managers move their assets in accordance with market variability.  However this issue is easily solved if university administration simply asks their fiduciaries blacklist the top 200 listed coal, oil and gas companies based on the carbon implications of their estimated carbon reserves.

The Carbon Tracker initiative has listed the top 100 coal and top 100 oil and gas companies based on known reserves and estimated their combined “value of $7.32 trillion as of February 2011”(7). In the stock market these top 200 companies “represent potential emissions of 745 GtCo2. This exceeds the remaining carbon budget of 565 GtCo2 by 180 GtCo2”(7).  Carbon Tracker also states that these upper limits will be “reached in just 16 years if energy consumption continues unfettered”(7). By divesting in these top 200 companies the nations universities are make a strong statement in defense of the well being of future generations and students.

Does divestment have to look the same on all campus?

By pursing divestment of all investments in fossil fuels students may be stacking the odds of success against them.  The political climate of each university will vary dramatically. For example, at the University of Redlands the board of trusties has members who held careers in the natural gas industry.  If students wish to see divestment happen at the University of Redlands compromises may be made between students and administration especially on the topic of using natural gas as a bridge fuel to a clean energy future, due to its lower carbon dioxide implication when compared to coal or petroleum.

It may also be prudent to recommend to universities with large political barriers to divestment to consider requesting that a percentage of the endowment be set aside for sustainable investments.  This strategy has some benefits.  First, it comes to terms with the reality that divestment of a few endowments will not have large impacts on the practices of the fossil fuel industry. Second, it still creates a conversation between students, faculty and administration about sustainability and climate change.  Third, setting aside funds for sustainable investments still moves money into the hands of programs designed to reduce atmospheric concentrations of Co2.

Conclusions:

Divesting endowments from fossil fuels may only have a small direct impact on the fossil fuel industry, but the contribution of the resulting conversation from the pursuit of divestment still make the effort worthwhile.  If enough schools pledge to reinvest money currently invested in fossil fuels into sustainable assets the resulting financial multiplier stands to create a ripple affect that benefits sustainable business and practices working towards a 2-degree future.

Student led initiatives should consider the need to adapt to the political climate of their individual universities.  The success of campus divestment campaigns should not be judged on their ability to achieve a 100% divestment goal. The merits of their achievements can take many forms, especially if their actions catalyze a dialog and create channels of communication between students, faculty and administrators. Students shouldn’t be hesitant to ultimately make compromises that lead to timely climate solutions if the political climate of their university deems divestment as impractical.

 

Sources:

1) http://usatoday30.usatoday.com/NEWS/usaedition/2012-09-10-Endowment_ST_U.htm

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Table 1: Top 100 listed companies by estimated carbon reserves

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One thought on “What are the Realistic Implications of Fossil Fuel Divestment?

  1. Hey Sam Irvine and the UpStream Ideas Team —

    The goal is a 2°C rise in temperature above pre-industrial temperatures by reducing from our 2008 level of 396 ppm CO2 in our atmosphere to a future level of 350 ppm, correct?

    First a few offhand, and maybe humorous comments, and then the big UpStream Ideas take-home messages from this blog for me.

    Had James Hansen set his target levels at 360 ppm then it would be easier to market to the public as something like, “Close the loop at 360” or something catchy along those lines. Similar catchy and memorable slogans could be made for 365 ppm correlating with 365 days in an Earth-year, or for nerds like me with a two-decimal sense of humor 365.25 to include the leap year. And, yes, I know we super nerdy are laughing about leap seconds and more decimals precision already. But my nerdy humor makes me digress a bit off topic.

    Here’s what I got directly from your blog as the big take home messages:

    1. 350.org promotes a general transition from investment in corporations that promote burning carbon-based fuels for our energy needs to reinvestment in solar and other sustainable technologies.
    2. 350.org says divest from carbon-based energy and reinvest in more sustainable energy sources, divest from deforestation and reinvest in reforestation, divest from inefficient energy usage and reinvest in efficient technologies to more productively use available energy.
    3. Even divesting a fraction from carbon-based energy and reinvesting in sustainable energy will fund these technologies at historical highs and be the start that we all need to rebalance the scales and begin to tip them towards a more sustainable future for us all.
    4. 350.org makes the following statements, and when you think about it this way we should all join in: “No one shouldn’t even accidentally wreck the planet, it’s just wrong to knowingly wreck the planet, and it’s really wrong to make profits or even share in profits from knowingly wrecking the planet.”
    5. Carbon divestment and sustainable reinvestment may not immediately impact policy but it does educate everyone involved for future policy initiatives and advances.
    6. It’s so complicated, where do we start? Yes, it is complicated, and if it weren’t we’d have the answers already and have little to think about. 350.org says think about divesting from the top 200 companies with negative implication for leveling CO2 in our atmosphere to 350.ppm, and that list is provided.
    7. I’ll need some good places to reinvest my money. Can 350.org publish a list of the top 200 companies for for leveling CO2 in our atmosphere to 350.ppm?
    8. You give sound advice on being prudent and patient as practical middle ways forward. If you cannot see a way too divest, set aside funds for sustainable development. Accept bridge technologies as at least better and to allow time for sustainable technologies to become more developed.
    9. And your main conclusion bears repeating again and again. Even divesting a fraction from carbon-based energy and reinvesting in sustainable energy will fund these technologies at historical highs and be the start that we all need to rebalance the scales and begin to tip them towards a more sustainable future for us all.

    And to show how urgent the work of 350.org really is, take a look at this Yale Forum on Climate Change and the Media by Bruce Lieberman from December 5, 2012.

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