America is on the verge of energy independence. We now pump as much oil as Saudi Arabia. Investments in new technologies are paying off, buoying our economy with new jobs and lower energy prices. What’s not to like?
Well plenty, if you are an activist who takes your lead from an organization called 350.org that wants to end the use of oil, gas and coal. The “350” comes from the group’s goal of reducing the amount of carbon dioxide (CO2) in the atmosphere from its present level of 400 parts per million to 350. Its unclear what good such a reduction would do. CO2 is naturally occurring and is always present in the atmosphere. It’s what we exhale.
When you are promoting a cause, however, it’s good to have a numerical goal no matter how arbitrary or unachievable. In fact, the more unachievable it is, the better in order to create a permanent campaign. And every cause needs a vehicle for action. In this case, it’s a demand that cities, universities and other institutions “divest” themselves of investments in companies involved with oil, natural gas and coal.
Divestment became a celebrated activist tool in the 1980s when the target was companies that did business in South Africa. On the 350.org board advisory board is former White House “green jobs czar” Van Jones, who was forced out after his involvement with Marxist and 9/11 “Truther” groups came out. Reclaiming the glory days of the South Africa divestment campaign may quicken the pulse of the Van Joneses of the world, but fossil fuels are not the same thing as apartheid.
In fact, if there is a moral case, it is in defense of fossil fuels. Prior to the discovery of the concentrated energy stored in fossil fuels, the human race relied on burning wood, what Jones might call a “renewable.” Never able to move beyond a primitive state, the human race remained mired for millennia in regular cycles of disease and starvation.
Fossil fuels made possible the industrial revolution and the modern age. They also made possible the original “green” revolution, whereby the production and widespread use of fertilizer and pesticides in agriculture ended regular mass starvation in many parts of the world.
The case against divestment is not only moral but also economic and practical. Selling shares of Exxon or Chevron only makes them more affordable to other potential buyers. The share price will seek its natural level in the market based on the companies’ earnings regardless of who the particular shareholders are.
Energy is such a large part of our economy, and the shares of energy companies are so widely held, that divestment is likely to have no impact. According to a 2013 study by the University of Oxford, “The maximum possible capital that might be divested from the fossil fuel companies represents a relatively small pool of funds.”
Over the years, energy companies have outperformed the market as a whole. Energy companies, especially the big integrated oil companies, also produce a stable and predictable cash flow. That is why their dividends are so high, and why their stock is so popular with pension funds. Municipal and college pension funds have a fiduciary responsibility to their beneficiaries to get the best possible return on their investments, so that their obligations to retirees may be met.
In recognition of these realities, the divestment call has been rejected by the City of San Francisco and Harvard University, institutions usually open to the “progressive” cause du jour. But it has caught on elsewhere. On its website, 350.org claims that it is active in 188 countries. Even applying the usual discount to activist claims about their own accomplishments, it is obvious that this campaign is not going away.
Recently, Tom DiNapoli, the Comptroller of New York State who oversees $176 billion in the state’s pension fund would not reject divestment outright in a campaign debate with his Republican challenger Bob Antonacci. Although he indicated no immediate policy shift, the episode was instructive on the strategic influence activists can apply, and how an outlier idea can suddenly be taken seriously.
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