ff-divestment

Fossil fuel divestment shows some wisdom from an investing standpoint. Fossil fuels are now more expensive on a unsubsidized basis1 than wind or solar. More expensive commodities always lose market share to less expensive commodities, all else being equal. What’s more, solar only became less expensive than natural gas in 2015. Yet, years before that, the growth rate of clean energy generation had been outstripping coal and natural gas growth on a year over year percentage basis. Now that both wind and solar are cheaper than fossil fuels, the likelihood is that they will take market share even more quickly.

2015-net-elec-gen-by-source

The above chart from the U.S. Energy Information Administration shows the percentage increase of various electricity generation sources since 2007. Coal generation has dropped, offset by an increase in natural gas generation. Renewables on the other hand, increased by nearly 200%. We can’t be sure what the future holds, but wind and solar made up 67% of all new electricity generation sources in 2015.2

People and institutions that have money invested in traditional fossil fuel energy sources (oil and natural gas) will likely lose most of their money. It will probably happen in a similar fashion to the spectacular collapse of coal. According to Bloomberg, 99% of money invested in the 4 largest coal companies evaporated over the last 5 years.3

None of the items mentioned so far seem to be the impetus for the fossil fuel divestment movement though. Somehow, the divestment movement is seen as a protest of fossil fuels, or perhaps a means of reducing global warming. To illustrate my take on the divestment movement, here’s a paragraph on hamburgers. Juicy stuff, I know.

Bob’s Burgers

Bob owns a restaurant that sells burgers. It makes money because Bob eats there along with a lot of other people. Then, one day, Bob goes to the doctor and she says, “Those burgers are killing you. Your cholesterol is through the roof. You really need to do something about the way you live.” As soon as he hears that, Bob pledges to himself that he will make a change! That very afternoon, he sells the burger joint and vows, “Never to make money selling burgers again!” After the sale of the restaurant, he gets in line to buy a supersize burger and fries, just like he’s done every day for as long as he can remember. As Bob waits for his greasy goodness, he thinks, “I’m glad I made a change!”

Fossil fuel divestment sounds a little silly if you look at it that way, but that is exactly the way lots of institutions are approaching divestment, Ivy League universities included.

So far it sounds like my objective is to throw cold water on the divestment movement. That’s not the case. I would simply like to redirect that enthusiasm for divestment in a slightly different direction.

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

~Sam Walton

We buy fossil fuels. We are the customer. It doesn’t matter if you own the fossil fuel company or not. The customer is the boss. As long as we continue to buy gasoline for our cars and natural gas for our homes, we will continue to keep fossil fuel companies in business.

How is the U.S. doing on it’s quest to reduce fossil fuel usage?

Market share of electric cars sold in 2015: 0.66%4
Driving an electric car is the number one thing that most Americans can do to reduce their CO2 emissions. For anyone concerned about global warming, getting an electric car should be a top goal.

Percent of homes with solar panels: less than 1%5
This is the only way that most of us can move to zero emissions. The nice thing is that it also saves money.

Percent of all electric homes: less than 30%6
This doesn’t sound too bad, but most of the all electric houses are located in the southern U.S. where heating is not required. Electrifying everything is the first step to reducing your carbon emissions. If it isn’t electric, then it can’t be clean. Even if you get all your electricity from the grid, that is still better than heating with oil or natural gas. The grid is supplied by a greater percentage of clean energy every year.

Percent of people who plan to buy an LED as their next light bulb replacement: 38%7
That is a shockingly low percentage. When people know the facts about LEDs, the usage of LED lights will approach 100%.

Percent of people who own a smart thermostat: 13%8
This also is surprising since smart thermostats save energy, typically pay for themselves in under 2 years, and make life more convenient.

Conclusion:

Okay, here is the take away. Divest or don’t divest. Either way it doesn’t affect climate change. The only thing with an environmental impact is your fossil fuel consumption. The customer is the boss. You can fire the fossil fuel CEOs any time you want.

Caveats:

I understand that access to the financial markets does have an impact on companies. For instance, many more fracking companies would have gone out of business over the past two years if no private equity was willing to buy additional shares in supplemental offerings. However, the only reason private equity chooses to invest is because they think investing in natural gas and oil will be profitable. If the usage of natural gas and oil were plummeting, no one would invest in fossil fuels. No one would think they could still make money at it.

Another way to look at it would be from an influence perspective. To me, this one makes the most sense and is the best reason for encouraging institutional divestment. Big institutions have lots of power. They influence elections and they nudge powerful decision makers one way or another. If most large investors were to divest from fossil fuels, there wouldn’t be as many voices advocating for oil, coal and natural gas. Once individuals and small investors are the only ones to own fossil fuel companies, the only groups lobbying on the behalf of fossil fuels are the fossil fuel companies themselves.

So, after having read this, if you still feel strongly about fossil fuel divestment, go for it. It is slightly better than doing nothing.

The Next Step

Want to learn how to switch to clean energy even if you live in an apartment? This article shares an ideal way for anyone to access clean energy. If you are inspired to learn about other ways you can increase your clean energy usage, check out the how-to pages: Easy, Intermediate, and Total Commitment.

At ButItJustMightWork, we strive to make your life more fun, more convenient and more affordable with clean energy.

Footnotes and References:

Fossil Fuel Divestment, Bob’s Burgers and a Better Way to Change
  1. Lazard Levelized Cost of Energy (page 2)
    https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf
  2. U.S. Energy Information Administration
    http://www.eia.gov/todayinenergy/detail.php?id=25492
  3. Bloomberg
    https://www.bloomberg.com/view/articles/2016-06-17/coal-isn-t-dying-because-there-s-a-war-on-it
  4. Wikipedia
    https://en.wikipedia.org/wiki/Electric_car_use_by_country
  5. Solar Energy Industries Association
    http://www.seia.org/research-resources/solar-industry-data
  6. U.S. Energy Information Administration
    http://www.eia.gov/todayinenergy/detail.php?id=18131
  7. 2016 Sylvania Socket Survey
    https://www.sylvania.com/en-us/tools-and-resources/surveys/Pages/socket-survey.aspx
  8. 2016 Sylvania Socket Survey
    https://www.sylvania.com/en-us/tools-and-resources/surveys/Pages/socket-survey.aspx

Leave a Reply

Your email address will not be published. Required fields are marked *