Fossil Fuel Divestment in a Nutshell

The following informal analytical summary is based on secondary research conducted for Chicago 350. I  reviewed a variety of academic and media articles, and have cited select accessible sources.

A great deal of information about fossil fuel divestment is available on environmental activist sites.  Divestment campaigns are not ultimately targeted to the converted, however.  Almost everything published betrays a bias.  And the financial stakes for governments and institutions seem high, in the wake of the 2008 economic crisis.  While conducting fresh research to orient myself to this still  controversial issue, I found articles that supported the financial case for divestment and articles that argued against it. For this reason I concluded that short-term investment arguments are not the most persuasive. More compelling are the long-term economic arguments and projections. On one hand, investing is all “speculation,” but on the other hand, public opinion and policy will likely stigmatize fossil fuel industries and affect their market value. Technological and economic trends also suggest that alternative energy will soon replace fossil fuels as a primary source of the world’s energy.

Alternative energy costs are declining steadily, as technology progresses and market share increases, and these costs are already competitive with fossil fuel costs in some contexts. The long-range outlook for fossil fuels, conversely, is grim and most experts are confident that the fossil fuel market is peaking.[1] A large portion of existing reserves will become “unburnable” “stranded assets,” due to government policies and market factors influenced by climate change.[2] Indeed, government policies that count on exploiting all existing reserves clearly contradict existing climate-change goals and commitments.[3] Some experts argue that investment banks are blind to the risk, and less concerned than fossil fuel companies, because they are primarily interested in generating fees.[4]

Number Image – Fossil Fuel Subsidies 5x more than Renewables  by Alisa Singer

From a broader perspective, legislators and citizens should be informed about and concerned with the various economic implications of continuing to invest in fossil fuels. The fossil fuel industry is much more heavily subsidized than the renewable energy industry, which makes it less economically efficient.[5] Continuing to invest in fossil fuels thus drains national and regional resources in general. Also governments should invest in clean energy jobs and training before the “carbon bubble” bursts, to ensure a smooth transition in terms of education, employment, and infrastructure adaptation, all of which have short- and long-term economic implications.[6] As in most environmental debates, citizens and legislators tend to be shortsighted. If our current economic woes are a result of previous shortsighted policies, then reacting in the same manner now only passes the buck to the next generation and increases the problem.

Image and image data sources:
http://www.environmentalgraphiti.org/art-in-numbers-and-words/
http://www.environmentalgraphiti.org/data-sources/

[1] “The World Nears Peak Fossil Fuels for Electricity”http://www.bloomberg.com/news/articles/2016-06-13/we-ve-almost-reached-peak-fossil-fuels-for-electricity

[2]“Carbon Bubble & Divestment Trouble: An Analysis | The JEI” http://www.thejei.com/carbon-bubble-divestment-trouble-investor-reactions-an-analysis/ ; “Most Fossil Fuels ‘Unburnable’ Under 2C Climate Target” http://www.bbc.com/news/science-environment-30709211

[3] “Most Fossil Fuels ‘Unburnable’ Under 2C Climate Target” http://www.bbc.com/news/science-environment-30709211

[4] “How Should Investors Manage Climate-Change Risk?”http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2497514&download=yes ; “Investment Bank Blindness to Risk in Fossil-Fuel Sector” http://ieefa.org/banker-blindness-fossil-fuel-sector-risk/

[5] “Energy Subsidies” http://www.worldenergyoutlook.org/resources/energysubsidies/

[6] “Divesting from Fossil Fuels: How Cities can Help Solve the Climate Crisis”
http://localprogress.org/wp-content/uploads/2013/09/Divesting-From-Fossil-Fuels.pdf

 

Advertisement