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Paul Hodgson: how to pop the carbon bubble

Paul Hodgson: how to pop the carbon bubble

So…how are funds going about divesting fossil fuels?

In his seminal July 2012 article for Rolling Stone 350.org founder Bill McKibben wrote: “Say something so big finally happens (a giant hurricane swamps Manhattan…) that even the political power of the industry is inadequate to restrain legislators, who manage to regulate carbon.”

Prescient, given that Hurricane Sandy’s storm surge hit New York City on October 29 that year. An activist with that kind of predictive ability is perhaps someone that we should listen to.
McKibben has been warning us that the carbon bubble is going to have a much more disastrous effect on our economies than the housing bubble. The carbon bubble is based on the assumption that the stock prices of fossil fuel companies are artificially inflated because they are based on the value of those companies’ entire reserves, and the likelihood of exploration producing greater reserves.
However, some four fifths of those reserves are unburnable if we are to keep to the “no more than 2oC” increase in average global temperatures that has been agreed upon.
You’d think this fact alone would encourage fossil fuel companies to diversify, but as Naomi Klein was quoted saying: “… with the fossil-fuel industry, wrecking the planet is their business model. It’s what they do.”
So what does McKibben want us to do in response? 350.org’s campaign Fossil Free believes that educational and religious institutions, city and state governments, and other institutions “that serve the public good” should divest from fossil fuels. In other words, it wants funds and foundations to sell their shares in fossil fuel companies through a process of immediately freezing any new investment in such companies, and divesting from direct and indirect ownership within five years.
So far in the US, nine colleges, 22 towns and cities, two counties, 22 church foundations, and 25 private foundations and other organisations have committed to owning no fossil fuel equities. But 350.org colleges (including my son’s very “right on” university UC Santa Cruz’s “Go Fossil Free!” campaign) and nine states are considering it.

There is substantial expansion of the campaign in Australia and New Zealand, and a large amount of interest in Europe, including from organisations like Operation Noah’s Bright Now (Churches for a Fossil Free Future) campaign.

Just down the road from me, the citizens of Hope, Maine, are running a campaign to persuade their board of selectmen to divest the town of fossil fuel investments. This is all as a result of 350.org “Do the Math” campaign.

But hold on a minute, just how is this going to be achieved? Clearly, funds can begin by looking at their portfolios and deciding which companies to divest. But are they divesting all fossil fuel companies at once, or one by one as they go through a screening process? Is it more effective if all funds divest at the same time? Or would a piecemeal approach be better, with each fund divesting as it adopts the policy? There are fairly obvious problems here.
For example, if divestment is a fund-by-fund process, funds which have not yet divested – but maybe plan to – could have their stakes devalued.
And then there’s the question of who’s going to buy all these stocks as funds sell them? As Revd. Professor Richard Burridge, Deputy Chair of the Church’s Ethical Investments Advisory Group said: “I understand why some are calling for divestment [of fossil fuels]. But it’s not as simple as that.”
What if (hypothetically) Japan’s Government Pension Investment Fund, Norway’s Government Pension Fund, the Netherlands’ ABP and Korea’s National Pension Service, the four largest pension funds in the world, decided en masse to exit fossil fuel stocks? What would the ramifications be for any long-term investors not in on the trade?
Although espoused by 350.org, fund-by-fund divestment is not the only way to achieve the end. What if funds combined and decided to divest themselves of individual companies one by one? Take ExxonMobil, just because it is one of the largest oil companies in the world. If you burned everything ExxonMobil had in its reserves, both above ground and below, for instance, that would release more than 40 gigatons of carbon dioxide into the atmosphere. That’s only around 7% of the 565 gigatons it might be safe to burn to stay within the 2oC limit, but then it is only one company, so it is a step on the path. And if 350.org and others are to be believed, Exxon has no long-term future. Even in the short term, despite ExxonMobil’s focus on certain sustainability metrics, it was subject to more than 30 prosecutions in 2013 for health and safety and environmental accidents: spills, injuries, leaks, pollution and so on.

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