The movement to divest from the fossil fuel industry has grown rapidly over recent years in tandem with the urgent need to decarbonise the global economy. In Australia, divestment commitments have been made by local councils, charitable trusts, super funds and the Australian Capital Territory.
Universities have been a central focus of the campaign. Leading global universities such as Yale, Stanford and Stockholm have undertaken partial or complete divestment. In Australia, La Trobe and the Queensland University of Technology have made comprehensive divestment commitments, while others including the Australian National University, Monash and Sydney have taken substantial steps towards this goal.
While this progress is remarkable, only a minority of universities have so far adopted a policy of divestment. In some respects, indeed, global banks, driven by a mixture of concern for long-term image and the real prospect of losing their money in stranded assets, have gone further than the non-profit sector. The long list of banks that have withdrawn funding from Adani’s proposed Carmichael mine illustrates this point.
As 2017 begins, the urgency of the case for divestment has only increased. The capitulation of the Turnbull government to the climate science denialists within its ranks means that little new action can be expected from the government in the short run, despite its endorsement of the Paris agreement.
The election of the Trump administration in the US implies even greater obstacles at the global level. Trump has already revoked Barack Obama’s ban on the environmentally destructive Keystone XL pipeline and will doubtless take further measures, perhaps including withdrawal from the Paris agreement.
There is every reason to hope that the next elections will see both Trump and Malcolm Turnbull thrown out of office and that their replacements will return the US and Australia to sanity on climate change issues.
In the meantime, however, the fact that our governments will, at best, do nothing leaves the job in the hands of civil society: institutions, businesses and ordinary people. In such a climate the case for divestment has never been stronger.
A core argument for divestment is that extracting and burning the known reserves of coal, oil and gas using current technologies would result in catastrophic climate change. This change would include, at a minimum, massive species extinction and the destruction or radical transformation of all nature and the planet as we know it.
This fact creates a powerful ethical argument for withdrawing investment from corporations engaged in extracting and burning fossil fuels. Investing in such corporations is not a defensible option for institutions, like universities, that expect to endure for centuries. An investment strategy for a university must be premised on a sustainable future.
Similarly, the whole point of charitable trusts is to work for a better future. So, as with universities, it is the ethical presentation of the argument that should be most compelling.
The argument can be rephrased in a way that appeals to the more immediate concerns of investors. Governments around the world have already agreed to take steps to reduce emissions of carbon dioxide. This must include leaving a great deal of carbon in the ground, which in turn must reduce the profitability of extracting the reduced amount of coal, oil and gas feasible under the limited carbon budget.
Ultimately, if we are to take climate change seriously, the value of fossil fuel resources and the companies that exploit them must fall, ultimately to zero. For many coalmining companies, this has already happened. A wave of bankruptcies in early 2016 claimed many of the leading US coal companies, including Peabody Energy, the world’s largest private-sector coalminer.
Coal prices recovered in the second half of 2016, leading to a resurgence in the market values of some coalmining companies. But this recovery wasn’t due to any improvement in long term demand for coal. On the contrary, the Chinese government, seeking an orderly restructuring of its domestic coal industry, ordered many mines to be closed and limited the operating days for others. The idea was to keep prices high enough to allow the more efficient mines to remain viable. But the job was done too well and reductions in supply ran ahead of the decline in demand. By late 2016, the policy was relaxed and prices were beginning to fall again.
Fluctuations like this, caused by policy errors or by supply disruptions such as floods, are bound to happen from time to time. But the inevitable future for coal-fired electricity, if governments take their commitments seriously, is one of inexorable decline towards zero. A number of jurisdictions have already reached this goal and many large countries (notably including the UK and Canada) are committed to achieve it by 2030 or even earlier.
Are there any counter arguments? The most plausible argument put forward by opponents of immediate action to mitigate global warming is that some form of “clean coal” technology will emerge that will obviate any need for costly changes in our current way of doing things – currently being forwarded zealously by Australia’s resources minister, Matt Canavan.
The term “clean coal” is a misnomer. Despite the impressive sounding description, these plants provide only a 30 to 40% reduction in emissions relative to standard coal-fired power plants. They aren’t as clean as gas-fired fossil fuel plants, let alone renewables. Other potential “clean coal” alternatives such as carbon capture and storage (CSS) have also been exposed as unviable.
After decades of work, there is exactly one operational power plant using CCS, the Boundary Dam project in Canada. Two more, both deeply troubled, are under construction in the United States. At a time when renewables are now cheaper than coal, investors are not going to stack up money for expensive, failed methods of coal generation.
The end of coal is already inevitable but divestment will help to accelerate the process. In particular, it’s important to stop the development of new coalmines, such as the potentially disastrous Adani mine proposed for Queensland’s Galilee Basin. Most commercial lenders have already backed away from this project but any bank that supports it must be included in a divestment policy.
Technological improvements have revolutionised renewables, driven by massive investment in China. And the flipside of divesting from fossil fuels is the option to invest in projects and corporations that help to stabilise the global climate, through renewable energy generation, improved energy efficiency or carbon sequestration in forests and agricultural land.
Such investments require more care than the purchase of shares in large mining corporations. When successful, however, they have often generated high returns, particularly in comparison to the losses that have been incurred by investments in coal mining and coal-fired power generation.
The failure of our political leaders and the diversion of the political debate into the morass of resentment-driven populism mean that we cannot rely on governments to do the work of stabilising the global environment.
We are all responsible for our own choices, as consumers and investors. Divesting from fossil fuel investments is more important than ever.
