The call for divesting from fossil companies is getting louder by the day with more environmental activists, celebrities, religious organizations, universities, pension funds managers, institutional investors and legislatures joining in the chorus. The fossil fuel divestment movement, which began in the early 2010s, seeks to encourage individuals and institutions to remove their investments from companies that are involved in the production and use of fossil fuels, such as coal, oil, and natural gas. Though I agree with the goal of transitioning away from fossil energy, I believe that the disinvestment is misguided. Not only does it not reduce carbon emissions, it also exacerbates social injustice. Let me explain.
The movement believes that climate change, which is largely being caused by our use of fossil fuels, is an existential threat and argues for a quick transition to clean fuels. The logic behind divestment goes something like this. It would send a strong signal to fossil fuel companies that there is growing concern in the public about the impacts of their activities, which would send a message to governments and other investors that the risks associated with fossil fuel investments are increasing. It would pressure them into adopting more sustainable practices or transition to cleaner energy sources or face the financial risk of holding stranded assets. Divestment can help reduce this financial risk for investors. For individuals and organizations that are committed to environmental and social responsibility, divestment from fossil fuels can be a way to align their investments with their values.
The environmental activists have influenced several states in the United States into considering legislation for divestment from fossil fuel companies. In 2015, California passed a law that requires the state's public employee pension funds to divest from coal companies. This was followed by New York, which in 2020 introduced legislation that would require the state pension fund to divest from fossil fuels by 2023. After that, many states like Massachusetts, Maryland, Oregon, and Vermont introduced similar legislation. The divestment has had the effect of making it harder for the oil and gas companies to raise funds for projects as lenders are viewing the loans riskier. As a result, the industry has cut back on drilling and used its earnings to buy back stock.
About 3 billion people in the world today are living with energy poverty,
which results in low life-expectancy, high infant mortality, high death rates
during childbirth, malnutrition, unsanitary conditions, inadequate
infrastructure, and general impoverishment. Children, mostly girls, spend their
days collecting fuel and fetching water from distant wells or ponds. The loss of human potential is staggering. How many of these children could have grown up to be teachers, engineers, doctors, leaders, entrepreneurs, lawyers, etc.
Indoor cooking over animal dung or wood exposes children to more pollutants and further impacts their health. The health benefits for them in switching to gas are enormous, and efforts should be made to furnish them with steady supplies of pipelined gas or LPG cylinders.
The lack of investments in drilling has made this task more difficult, particularly in view of the global disruptions in the supply of natural gas following the invasion of Ukraine by Russia. The US could be in a better place to supply the world with liquefied natural gas and ensure energy security. The situation in Europe could have been much dire the past winter but for the mild weather. We have time to gear up for the next winter. It is ironic that in view of rapidly changing climate we are rushing to install climate-dependent energy sources.
I recognize that natural gas is still a fossil fuel, whose burning leads to carbon emissions. I would just point out that the reason US greenhouse gas emissions have declined is basically a result of switching from coal to natural gas. We could have reduced the emissions even further, if instead of investing in wind and solar projects (20% availability), which we back up with natural gas fired plants of 30% efficiency, we had installed fewer, base-load, combined-cycle natural gas power plants with efficiencies of 55% or higher. It would also have saved us the hassle of integrating intermittent wind and solar power with the grid.
This is not the time to cut investments in oil and gas production. Unless the demand for their use comes down, greenhouse gas emissions will not decrease. Calls for divestment only assuage one’s guilt for using products and services made possible with fossil energy.
My concern about divestment in general, and specifically with energy companies is more around the idea of what is divestment really trying to accomplish. It seems to me (and perhaps I am naive?) that if an entity divests in fossil fuel companies' assets, that somebody else is going to come in and buy that asset. So all that entities that are divesting in fossil fuel companies are doing is essentially virtue signaling. I don't think there's anything wrong with virtue signaling but I think you have to ask what is the unattended consequence here?
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