There are compelling reasons, both moral and economic, against investing money in a fossil fuel industry that promises to continue threatening our health, our environment and ultimately the future of life as we know it on this planet. Our current fossil fuel energy policy promises us a pyramid scheme, under which our children sit waiting to be crushed by the weight of our own nearsightedness. Pyramids are homes for the dead. But there is hope for the living on the horizon. Since the divestment from fossil fuels movement began, over 70 colleges, universities, city governments, foundations and pension funds have pledged to divest from fossil fuels, and movements to divest are currently going on at over 300 institutions of higher education across our country.
Moral arguments aside, there are some compelling economic reasons to avoid investing in fossil fuels. In a recent interview, President Obama indicated that we can’t allow more than 1/3 of our known reserves to be developed if we hope to have any sort of a livable future. That means that fossil fuel companies will eventually have to write off a large portion of these unrecoverable assets on their balance sheets. Robert Litterman, an executive at Goldman Sachs, is advising university endowment managers that many carbon based assets are “stranded” and they must hedge against losses, disinvestment being one way to hedge. The point is that these are no longer economic theories; the market is already reacting to the risks of carbon-based energy. But has the market factored in the full potential of all of the risks? Former SEC Commissioner Bevis Longstreth saw the handwriting on the wall when he concluded his argument for divesting from fossil fuels, and predicted that there will soon be a time when for a fiduciary ” .continuing to hold equities in fossil fuel companies will be ruled negligence.”
While the cost of locating, recovering and transporting fossil fuels increases every year, the cost of renewables has been going down dramatically. They will continue to drop as new technologies are developed. A case in point: in Texas, Austin Energy recently signed a 25-year power purchase agreement with Sun Edison for 150 megawatts of solar power at slightly less than $.05 per kilowatt-hour. It is estimated that the same amount of energy from natural gas would have cost $.07, $.10 from coal, and $.13 from nuclear.
Hardly a week goes by when we don’t hear of another oil spill, pipeline rupture, tank car explosion or other environmental disaster related to fossil fuels. These companies have avoided paying the full cost of these disasters for too long and that is beginning to change. Look at the billions that the BP oil spill cost, and they will be litigating civil suits in this case for years to come. Taxpayer bailouts are decreasing rapidly and more regulation and stiffer penalties are likely coming along with diminishing government subsidies and benefits.
There is growing support for carbon tax on fossil fuels. There are a lot of good proposals for putting a price on carbon - such as the fee and dividend that the Citizens Climate Lobby advocates. Their initiative would put a fee on carbon at its source and refund the money to the citizens making it revenue neutral.
These are only a few of the many reasons why continuing to invest in fossil fuels is a bad idea. Abandoning carbon-based energy is a conservative investment strategy that matches Utah’s wise conservative financial character. Utahn’s believe that unnecessary debt and risk taking is inappropriate for the investment of public funds. It is time the Utah citizens live up to the ideals of our own conservative financial principles. For the sake of prudent financial management, it is time for Utah to divest from companies whose primary business consists of fossil fuel production.
Mark Molen is a retired investment professional and a member of Citizens Climate Lobby.