Tuesday, May 29, 2018

Fossil Fuel Divestment Fails - Profit is more important than ethics

Fossil fuels divestment my not be an effective strategy in tackling climate change according to a newly released study by the Political Economy Research Institute (PERI) at the University of Massachusetts at Amherst which suggests that this strategy is not sufficient on its own in affecting the global battle against climate change . Robert Pollin, a distinguished professor of economics at the University of Massachusetts, Amherst, co-director of PERI and co-author of the study explained:

" There is, rather, one fundamental reason why policy makers in most countries throughout the world are unwilling to cut their CO2 emissions sufficiently, notwithstanding the ever-mounting ecological threat. It is because the only way countries can achieve serious CO2 emissions cuts is to stop burning so much oil, coal and natural gas to produce energy.  Confronting this reality in turn creates three problems that are distinct but interrelated. The first is that workers and communities throughout the world whose livelihoods depend on people consuming fossil fuel energy will face major losses -- layoffs, falling incomes and declining public-sector budgets to support schools, health clinics and public safety. The second is that profits will fall sharply and permanently for the colossal fossil fuel companies, such as Exxon-Mobil, Shell and the range of energy-based businesses owned by the US mega-billionaires David and Charles Koch. The world's publicly owned energy companies -- such as Saudi Aramco, Gazprom in Russia and Petrobras in Brazil, which together control about 90 percent of the world's total oil reserves -- will take still larger hits to their revenues. The third problem pushes us beyond the fossil fuel industry itself and into broader issues of jobs and prospects for economic growth. According to most analysts, economies will face higher energy costs when they are forced to slash their fossil fuel supplies. It will therefore become more expensive to operate the full gamut of buildings, machines and transportation equipment that drive all economies forward...

...Tyler Hansen and I concluded that divestment campaigns have not been especially effective as a means of significantly reducing CO2 emissions, and they are not likely to become more effective over time. Our study includes both an analysis of the available data on global divestment patterns as well as a formal statistical modeling exercise that evaluates the impact of divestment events -- such as when the New York City pension fund decided last January to sell off all of their fossil fuel company holdings -- on the stock market prices of fossil fuel companies. We found two basic things from this research. First, to date, we found the total level of divestment commitments to be at about 0.7 percent of total global private fossil fuel assets (assets committed to divestment are at about $36 billion while total global private fossil fuel assets are at $4.9 trillion). Second, we found no evidence that any divestment actions, including the recent New York City pension fund decision, has had any significant negative effect on the stock prices of fossil fuel companies.

negative effect on the stock prices of fossil fuel companies.
The basic problem with the strategy is straightforward. Ethically motivated owners of fossil fuel stocks and bonds -- such as the New York City Council -- do certainly have the power to sell these assets as a statement of principle and act of protest. But this act of protest will have no direct impact on the operations of the fossil fuel companies as long as investors who are profit-seekers, as opposed to being motivated ethically, are willing to purchase the stocks and bonds that ethically motivated investors have put up for sale. Indeed, the core divestment strategy of selling fossil fuel assets is, at best, incomplete until one addresses this question: Is there somebody out there still willing to purchase these fossil fuel assets, and if so, and at what price?   The answer is, yes, there are plenty of people ready to purchase shares of fossil fuel companies as long as they can profit by owning these shares.
In addition, the profit opportunities from owning oil, gas and coal company stocks are not diminished through the divestment-led sales per se. This is because divestment per se does not affect either how much it costs to produce fossil fuel energy or how much consumers are willing to buy. In theory, divestments might be capable of pushing down stock market prices of fossil fuel companies. But it is also likely that any such impact on stock prices is going to remain negligible as long as profit-seeking investors continue to make money. And they will continue to make money unless we succeed in either raising costs of producing fossil fuels or limiting how much fossil fuel energy consumers can buy...."
Full interview here

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