For decades, climate change action has focused on carbon emissions, looking at how we could reduce or mitigate the impact of burning fossil fuels. About four or five years ago, emerging out of a post-Copenhagen silence, campaigners began talking about the other end of the supply chain. Rather than reducing emissions, let’s cut to the source of the problem and never burn those fossil fuels in the first place.
George Marshall calls these two angles the tailpipe and the wellhead, and the shift from the former to the latter is one of the more successful ideas in climate change campaigning in recent years. It underpins the Guardian’s ‘keep it in the ground‘ campaign, the Keystone XL protests, and most importantly, the divestment movement.
Divestment has been in the news again this week after a report from Arabella Advisors found that divestment has doubled in the last year or so, and that total divested funds now add up to over $5 trillion.
Having started with universities, many philanthropic trusts have taken a decision to divest. So have faith based organisations, and a growing number of local governments and cities. Funds run purely for profit are clearly harder to convince than mission-driven groups. Out of over 600 major institutions to have divested, 12% are pension funds and just 3% of them are for-profit asset managed funds.
However, there is a second big reason for divesting that is more likely to convince big investors: the risk of fossil fuels becoming stranded assets. This has gone from a novel and slightly esoteric concern to a mainstream discussion point. Banks have issued guidance, the governor of the Bank of England has talked about it in speeches. Simply put, the big fossil fuel companies are valued by the reserves that they control. That oil, gas and coal on their books could end up worthless if climate agreements forbid their use. In which case those big energy companies are vastly overvalued. One day the market will realise that, and their share price will nosedive.
At the same time, the falling price of renewable energy is slowly eroding the value of fossil fuels. What would you rather be investing in right now, the future or the past? Solar or coal? There’s still money to be made in fossil fuels, but we can also look ahead and see that they are eventually going to be obsolete. Why not divest now, avoid the risk, and help speed the transition to renewable energy?
That last point is important. Just divesting is largely symbolic. If you’re selling your fossil fuel shares, someone else is buying them. There is a cumulative impact on how fossil fuel companies can raise funds, but to be really powerful the divested funds could be redirected to renewable energy. About a quarter of those divesting are building on the decision by supporting clean energy instead.
Rightly so. Global investment in energy is still dominated by fossil fuels, despite the gradual de-legitimisation of their business model and the low oil price. 55% of energy investment still goes to fossil fuels. According to the IEA, $583 billion went towards upstream oil and gas in 2015 – that’s investment aimed at bringing new resources to market, exactly what we need to avoid. $78 billion went towards coal. Renewable energy, by contrast, attracted $313 billion.
Those are depressingly large numbers, but investment in upstream oil and gas fell by a quarter in 2015, and is expected to fall by a similar percentage in 2016. That’s a dramatic tumble. Renewable energy investment has been static for a couple of years, but because wind and solar are getting so much more efficient, it’s buying more power for the same funds. Change is afoot in the energy markets, but it’s too slow. Technology is moving forward. Science is moving forward. The money needs to catch up.