Fossil Free protest at UC Berkeley in October 2013, (photo: Arya Aliabadi)
Down goes coal. Down goes coal. Supporters of the fossil fuel divestment movement received good news last week when the University of California announced it was selling $200 million worth of coal and tar sands investments.
That leaves about 10% of the university’s $98.2 billion worth of investments in other forms of non-sustainable energy, like oil and natural gas, according to the Los Angeles Times.
Mother Jones said “environmentalists are celebrating.” Jake Soiffer, a junior and representative of Fossil Free UC, told the UC Berkeley Daily Californian that the decision to sell holdings was a “powerful victory” for the campaign.
But coal and tar sands stocks were an easy sell for UC. They have been big money losers all year. Chief Investment Officer Jagdeep Bachher told Reuters that slowing demand for dirty coal and even dirtier tar sands, and growing hostility from regulators dims the prospects for improvement. So he bailed.
Coal production in the United States has dropped pretty steadily for the past 15 years, and the number of coal mines operating equals the late eighteenth century. Production worldwide declined 0.7% in 2014, but consumption grew by 0.4%. According to the World Coal Association, “Coal provides around 30.1% of global primary energy needs, generates over 40% of the world's electricity and is used in the production of 70% of the world's steel.”
The financial impact on the university or the coal and tar sands industries is negligible. According to a 2013 report (pdf) on global divestiture by Oxford’s Smith School of Enterprise and Environment, “Direct impacts of fossil fuel divestment on equity or debt are likely to be limited,” although the crippled coal industry is more vulnerable than oil and gas.
The real value in almost all divestment at this fairly early stage of the movement is in “stigmatization.” If an industry looks weak, the public will have a more jaundiced view of it, regulators will be emboldened and investors will be more wary. It’s a strategy used to battle munitions manufacturers, the tobacco industry and apartheid in South Africa.
So there is value in the pronouncement by UC spokesperson Dianne Klein that the decision is influenced by, “environmental sustainability, social responsibility and prudent governance risks.” That last one may be a reference to UC having one of the worst returns on investments among the nation’s wealthiest schools between 2004 and 2013.
Fossil fuel divestiture first got going in 2011 and, according to Arabella Advisors, grew to include 181 institutions and local governments (pdf) by September 2014, an increase of 107 since January of that year. They calculated divestiture pledges at $50 billion. Fossil fuel companies have an estimated market capitalization of $4 trillion.
The tobacco divestiture, ongoing since the 1980’s, has led to $5 billion in outflow in a $500-billion industry where there are no shortage of investors to pick up the slack, and in a world with no shortage of smokers.