Lawmakers ask state to divest from fossil fuel companies

Lawmakers ask state to divest from fossil fuel companies

Rep. Chris Pearson. VTD/Josh Larkin

Rep. Chris Pearson. VTD File Photo/Josh Larkin

Two House lawmakers from Burlington, Rep. Chris Pearson and Rep. Kesha Ram, will introduce legislation later this week that would require the state to stop investing in the fossil fuel industry over a number of years.

Pearson, a Progressive, told VTDigger that the bill instructs a board which handles the state’s retirement savings investments, to devise a plan to divest from fossil fuel companies over three years. The bill requires the board to draft the plan within a year.

“We spend a lot of money as a state combating the impacts of climate change,” said Pearson, who pointed to Tropical Storm Irene and record-high Lake Champlain levels in 2011 as examples of climate-related destruction.

“It doesn’t make a lot of sense to put a lot of pressure on our budget from climate change, at the same time as we’re investing in the businesses that are perpetuating climate change,” he said.

The bill, which has about a dozen co-sponsors, is likely to be introduced on Tuesday or Wednesday.

Ram, a Democrat, said the bill targets a broad swath of fossil fuel companies because sponsors haven’t agreed on whether to boycott companies who produce tar sands oil, coal, or whether to focus on another subset of fossil fuel-related businesses, like’s list of 200 public companies who hold the vast majority of fossil fuel reserves.

“The idea is being a little more aggressive and looking at our investments,” said Ram, who added that already existing policies of the key investment council haven’t necessarily made a big impact on the state’s investment portfolio. Those policies include following the Kyoto Protocol and pursuing environmentally friendly options where possible.

“A lot of our investments are buried in larger management funds, so I don’t think we’ve been able to have as much impact we could have,” Ram said. “In larger management funds, that we empower a manager to oversee, we mostly give them the bottom line on what kind of investment return we’d like to see. We don’t get much say in what we’d like them to invest in.”

The board that oversees investment decisions has representatives from the state Treasurer’s Office, as well as unions like the Vermont State Employees Association.

JP Isabelle, state Treasurer Beth Pearce’s spokesman, said Pearce would reserve comment until the bill is formally introduced.

Isabelle said the Treasurer’s Office, which is responsible for overseeing pensions for state workers, municipal employees and teachers, does not track the proportion of state investment tied up in fossil fuels. The state’s pensions are invested in so-called “co-mingled funds,” which mirror financial indices.

Doug Gibson, spokesman for the Vermont State Employees Association, said his union hasn’t taken a position on the bill yet.

Ram said that according to conversations with Deputy State Treasurer Steve Wisloski, fossil fuels make up a large portion of the state’s investment in commodities, but a small portion of the state’s overall investment.

One concern, Ram said, is ensuring that these external management funds, which are very stable and reliable funds, can be modified in way that doesn’t make the state’s overall portfolio more volatile.

“We don’t want to do anything that jeopardizes people’s hard-earned retirement,” Ram emphasized.

Shumlin’s office didn’t respond to a request for comment. Although Shumlin often speaks about the importance of fighting climate change, his personal investment portfolio, disclosed in 2010, contains oil company stocks. One of the companies has been repeatedly fined for environmental violations.

The proposal comes as climate change activists lead a nationwide campaign of fossil fuel divestment at colleges. Last week, Sterling College became the first Vermont college to distance itself from fossil fuel investments, and the third college in the nation to do so.

Pearson co-chairs the newly formed 22-member House Climate Caucus, along with Rep. Margaret Cheney, D-Norwich.

Nat Rudarakanchana

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  • Julie Hansen

    This kind of action helped end apartheid in South Africa; it could work on fossil fuels.

  • This is a really interesting subject because it is rare to see enviro-rhetoric get a chance to learn from real world consequences.

    Despite the current Ben Bernanke Magic Show underwriting the entire US stock and bond market, the 2010-2020 investment climate offers no alternatives for institutional funds to match the kind of yield and security of fossil fuel equity. Anyone who has been holding stock in ExxonMobil and divests for reasons of principle is taking an unambiguous loss in real terms.

    This is what I mean by “interesting” because those same funds are expected to provide a first world quality of life for many thousands of Vermonters who are incapable of self-sufficiency, and in Bruce Lisman’s memorable words, “financial prosperity.” They are already strapped, taking this step will only serve strap them further. Will it still be worth it then?

    Making decisions based on conscience is not a viable policy for investment returns. For the most part, this truth has been hidden behind a wall of CFA nomenclature, but more and more Vermonters are learning how the sausage gets made.

    Rather than shooting our finances in the toes with a symbolic action that will look good on HuffPo, let’s take a really radical step and incorporate a state bank, monetize our own debt, and stop letting multinationals and NYC investment advisors make our sausage for us.

    Just a pipe dream for now, but stranger things will happen in the decades to come.

    • John Greenberg

      “the 2010-2020 investment climate offers no alternatives for institutional funds to match the kind of yield and security of fossil fuel equity. Anyone who has been holding stock in ExxonMobil and divests for reasons of principle is taking an unambiguous loss in real terms.”

      Not so fast.

      There are actually plenty of companies offering higher yields in today’s market than ExxonMobil. Indeed, since Exxon’s dividend yield is quite close to the market’s average, almost half of dividend yielding stocks pay more than Exxon. In a world beset by environmental concerns, many centered around fossil fuel production, Exxon’s financial “security” may also be less clear than generally assumed.

      In short, there are plenty of ways to divest from these companies without sacrificing yield, even in today’s markets (which won’t last forever, in any case) and depending on both definitions of and tolerance for financial risk, without sacrificing safety either.

      At the very least, Mr. Boland needs to clarify the many assumptions behind his authoritative-sounding blanket generalization.

      • Sure: note that most infrastructure and industry stock is “fossil fuel equity” because petroleum remains the core input. Multinationals with a controlling stake in that core input are a better long-term bet than the multinationals who rely on this increasingly expensive, price point volatile and strictly finite commodity.

        Your price about P/E is completely true, and in the current climate of QE Infinity, Vermont institutional funds could just as easily dump all their incoming captial into SPY and go on vacation for the remainder of the year. However, divestment has costs:

        And more to the point, once the Federal Reserve starts to unwind, that SPY wave comes to an end. Meanwhile, our hypothetical XOM stock is not only holding steady but continuing to appreciate.

        Renewables will never affect XOM profitability for reasons of sunk costs, subsidies and infrastructure. “US Energy Independence” is a myth and our domestic shale plays are already seeing diminishing returns, as was predicted by honest analysts. I’m not seeing how the smart money doesn’t stay in fossil fuel this decade and into the next, but I am far more interested in conflicting ideas than my “authoritative” tone may suggest. If you’d like to talk shop in a more readable environment, you can reach me at [email protected] — Cheers.

        • John Greenberg

          Once again, Justin, not so fast.

          You write: “most infrastructure and industry stock is “fossil fuel equity” because petroleum remains the core input.” It’s true that fossil fuels are at the base of just about everything in our current economy. But the bill we’re discussing asks for divestment from “fossil fuel companies,” which I take to mean companies which produce and market fuels from fossil deposits: i.e, coal, oil and gas companies, not other companies however dependent on fossil fuel inputs.

          As to whether controlling these fossil fuel resources is “a better long-term bet” than investing in “multinationals who rely on this increasingly expensive, price point volatile and strictly finite commodity,” I would suggest that you’ve vastly oversimplified a very complicated issue. It is true that the world economy has depended on fossil fuels for the last 125 or so years, but acknowledging this does not imply that the same will be true in the future.

          In particular, it is worth noting that since the oil shocks of the 1970s, world GDP has grown at a much faster clip than fossil fuel consumption, such that each unit of GDP now requires far less fossil fuel input than it did in the decades preceding the oil shocks. Put differently, for the past 3+ decades, the world economy has been slowly detaching itself from its dependency on fossil fuels. (This has been substantially masked by the rise of China, India and Brazil into world economic relevance, representing a more or less doubled population of players in the world economic marketplace during the same timeframe.)

          Many companies, confronted with an “increasingly expensive, price point volatile and strictly finite commodity” are opting to find new and different ways of conducting their businesses. Some of these ways will involve ongoing efficiencies in resource use. Others will evolve completely different ways of doing what used to be done with cheap energy resources. Consider, for example, Intel, whose latest chips deliver far greater speed and performance than those made a decade ago, while consuming less and less power.

          I see no reason why this trend will not continue. Indeed, it seems highly probable that it will pick up momentum precisely as cost and volatility make hitherto cheap resources less and less dependable.

          In short, the economic evidence does not support the either/or choice you present.

          Your blanket statement that “divestment has costs” with a link to an article explaining the notion of opportunity costs takes us back to the point I made in my previous post: namely, it isn’t clear at all what, if any, opportunity is being missed by divesting from fossil fuel companies. Repeatedly asserting that this is the case doesn’t make it so. Your original formulation spoke to yield and risk, but yields are only average and I would argue that risks are actually growing.

          Finally, your assertion that “Renewables will never affect XOM [Exxon-Mobil] profitability for reasons of sunk costs, subsidies and infrastructure” is clearly wrong in the long term. As you point out yourself, oil is a finite resource. Sooner or later, petroleum WILL be replaced. The real question is not whether, but when.

          If sooner, we might be able to avoid the most catastrophic consequences of global environmental collapse and maintain some semblance of the lifestyles to which the world has grown accustomed. If we delay long enough, the earth itself will dictate its terms, and humans are not likely to find them very pleasant.

          Which, of course, gets us back to divestment ….

          P.S. Thanks for the kind offer of an offsite discussion, but I find VT Digger a very “readable environment” and write here precisely because I think intelligent public dialogue is a fundamental necessity for free and open government.

          • John, thank you so much for a thoughtful reply. I will focus on two core issues: the economic evidence for divestment costs and the logic of long-term bets on evil, stupid things like fossil fuel equity.

            (Upfront, for anyone keeping score, I’m going to start by admitting my core point might be wrong, beside the point, or both.)

            First, you’re quite right that the wiki link was only tangentially related – I thought I was pasting a different URL, this one:


            It’s a paper that I was passed in an earlier conversation about divestment (in a college endowment context) and it’s one of the only actual data points that can get invoked outside of the simple A/B’ing of returns we’ve been doing. It both supports and complicates my argument.

            They found an unambiguous cost for every additional level of “screening” for assets, a loss of alpha return – with the caveat, of course, that any additional screening also reduces risk because you’re creating more opportunities for human pattern recognition to find potential problems. So to be clear, that is the return that is being lost: actual returns on investment.

            I’m open to the bigger question of whether that matters, though: perhaps it doesn’t.

            Most of the other “documentation” I’ve gotten from divestment proponents is advertising from firms who make money doing divestment consultation. However, I would also expect that the PR tentacles of the carbon cartels would have funded a flurry of white papers if there was anything quantifiable to prove that funds were putting themselves at a measurable, consistent risk. My own conclusions were drawn doing back-regressions on endowment portfolios, so I’m happy to concede this point for lack of data, since making future predictions off past performance is the Original Sin. The increased risk protection may well offset the loss of return and result in divestment as a cost-neutral activity. Whether that is true for Vermont, I leave to Doug Hoffer (and sincerely hope he takes a look into it.)

            (Although considering where Vermont demographics are headed, even “cost-neutral” activity still presents a real problem…we need that alpha more than ever.)

            Second, the macro picture. I would suggest that you’re complicating a very simple issue. Global trade runs on shipping and shipping runs on petroleum fuel. Even Intel needs to ship their magic chips, right? The major brick wall facing renewables is that nothing can come close to the EROI of burning carbon. You’re not going to hurtle E-Class vessels across the Atlantic off solar.

            Renewables will not effect XOM profitablilty, but you’re quite right that peak oil will. Specifically, it will increase the value of their core product. Bear in mind that they also own much of the infrastructure that will need to be retro-fitted and re-engineered for renewables, so they will be at the negotiating table and making money every step of the way. I agree with you 100% that petroleum WILL be replaced. It will be replaced by less powerful & reliable sources of energy and human civilization will never be the same: a blessing and a curse.

            A tangent: I found your point about GDP diverging from fossil inputs very interesting. Moore’s Law is strictly about semiconductors, and not strictly true, either. I suspect, that if we were having this conversation in the context of Globalization, you would join me in pointing out that this divergence is principally the result of “financial growth,” which is simply debt creation. If we were having this conversation in the context of Wall Street’s contribution to social prosperity, I suspect you would join me in pointing out that there is not much evidence that this wealth inequality leads to rising tides or trickle down effects, and historically, most of these gains turn out to be illusory once the bubble inevitably pops.

            Yet, in this context, it becomes grounds for optimism.

            That said, the core takeaway here is that I cannot conclusively prove, or even support, my contention that divestment has inherent costs that would be high enough to actually jeopardize Vermont’s institutional funds. Hopefully society can forgive me for taking 10,000 paragraphs to explain why. Thanks again for the synthesis.

          • John Greenberg


            Thanks for the interesting reply.

            You’ve conceded all that I was really trying to show by admitting that “I cannot conclusively prove, or even support, my contention that divestment has inherent costs that would be high enough to actually jeopardize Vermont’s institutional funds.”

            That said, just to be perfectly clear, neither of us is asserting that the opposite is true either: there MAY be some costs associated with divestment. We both suspect that there is at least some truth in that statement.

            Before leaving this part of the issue entirely, here’s a parting thought. We know that the environmental costs of producing and burning fossil fuels are largely externalized so that neither the oil producers nor oil consumers actually pay them. Instead, they become socialized costs borne by taxpayers (at various levels) and by individuals (through lost health and even lost life).

            When discussing investments for public trusts – such as pension plans – it might behoove us to give some consideration to these hidden costs. Fossil fuel production and use is associated, for example, with statistical increases in cancers and other diseases, some of which are known to lead to mortality. (If I’m not mistaken, EPA has estimates for coal, oil, and probably for natural gas as well). As is the case with tobacco use and other environmental harms, it is impossible to prove in any particular case that fossil fuels are THE cause of THIS particular case of an illness. But in considering the issue at the macro level of large social groups, there’s no need for this kind of proof.

            So here’s a proposition to ponder. Even if we assume that divestment DOES diminish financial returns, the groups for whom these funds are invested might STILL be better off overall if their lives are lengthened and/or their health is improved by virtue of lessened fossil fuel use. (I’m assuming that is the goal of divestment and that it actually achieves its goal). Indeed, overall, the beneficiaries of the investments may well be better off even FINANCIALLY since their costs (medical, lost health, lost life) might drop MORE than whatever is lost by way of return by divesting.

            Clearly, I can’t prove this point, but I don’t think it’s anywhere near as far-fetched as it might sound either.

            Moving on to the point which you say I have over-complicated, I am unmoved by your arguments.

            First, without doing the research needed to document the point, I’m fairly certain that the improvement in the energy to GDP ratio is NOT simply a matter of the financial growth of GDP as you appear to suggest. To the contrary, I’m fairly certain that the energy component of goods has declined.

            There are certainly some obvious examples. For example, today’s computers are not only considerably more powerful than those of 3-decades ago; they’re also considerably smaller and lighter. There’s a lot more energy embedded in my first computer – a “portable” Osborne 1 which weighed a bit more than 40 pounds — than in today’s tablets and smart phones. Similarly, car and airplane manufacturers have substituted plastics for metals, and their weights have also declined substantially as a result. As a broad generalization about all goods and GDP, this is a factual question for which there is no doubt an answer on the web. Accordingly, someone with the time and energy to do the research could probably prove or disprove my point, but I’ll leave it there for now.

            More importantly, I do not accept your description of what you call the “macro picture.” You’re certainly correct that, in today’s world at least, “Global trade runs on shipping and shipping runs on petroleum fuel.” But that’s where our agreement ends.

            The last three decades have seen the rise of globalization and the “offshoring” of manufacturing in part BECAUSE energy prices have been low. Manufacturers, even of heavy goods, were able to chase cheap labor abroad in part because the added costs of shipping their goods added less to their total costs than the additional labor needed to make them at home.

            But that’s a calculus for today, not for all times. Manufacturing labor in places like China already costs substantially more than it did a few decades ago, and the price of oil has risen. Both trends are likely to persist over time. At least partially as a consequence (there are MANY factors at play, not just one or two), during the last few years, there has been renewed growth in the American manufacturing sector as American companies have begun to bring their production back home.

            Your example of computer chips might well be an excellent counterexample: chips are light and relatively expensive, so the ratio of shipping costs to total costs is pretty inconsequential at almost any price of energy. But many basic goods – metals, forest products, etc. are heavy and relatively cheap. As oil prices rise, I would expect that at least some of the boom we’ve seen in global trading will reverse itself. With more certainty, it’s clear that the NATURE of what is traded WILL change over time, and energy costs will be an important factor in that change.

            In a similar “big view” vein, it’s worth considering a bit of history before you make statements like “nothing can come close to the EROI of burning carbon.” A few centuries ago, global trade depended on wind, not oil. The energy source was actually free, if far less speedy, reliable, and convenient than oil.

            Your assumption that oil will be at the basis of global trade forever ignores not just this history, but also the very real possibility that shipping in the future will depend either on better, lighter batteries (on which billions are currently being expended) and/or on biofuels from sources like algae, which is the subject of intense research as well (among other possibilities).

            I think it’s exceedingly important to resist the temptation to assume that because things are as they are now, they will remain so forever. It’s really just another example of what you termed “the Original Sin,” that is, “making future predictions off past performance.”

  • The people of Vermont want clean air and support realistic actions that will produce tangible results in improving air quality.

    On the other hand, the people of Vermont do not like stunts that take the Legislature’s and State Treasurer’s time, jeopardize state employee retirement funds, waste tax payers’ money and produce no tangible results in improving air quality.

    The Pearson/Ram considered legislation to require the State to stop investing in the fossil fuel industry, unfortunately falls in to the latter category. What ever the specific legislation ultimately requires, you can be assured it will not result in one cup less of fossil fuels being burned.

    There is no need for Vermont to send a message to the rest of the world letting everyone know where the state stands on “Green Issues”.

    If this legislation is put aside, maybe the Legislature can tend to more serious business and go home a day earlier this year and thus save tens of thousands of dollars. The money saved can then be put into one of the state funds to improve energy efficiency.

    Additionally, eliminating one day of the legislative session will curtail the need for 180 legislators to make the round trip (driving to & from) Montpelier. Just think of the fossil fuel saved, I bet its more than a cup.

  • Brent Kay

    I would hope our elected officials would focus their time on real issues facing Vermonters. This amounts to nothing more than a political stunt that will serve to further jeopardize the fiscal stability of Vermont pension funds.

    The cost impact of legislation like this would be millions of dollars. Where would the money come from, especially at a time where Vermont is running tens of millions of dollars in the red each year? Moreover, it is essential we do not tie our Treasurer’s Office hands when it comes to managing our pension funds – too many Vermont’s lives depend on their performance!

  • Brian Buckley

    1. Vermont once again leading by example. Congrats.

    2. Our House Rep. Peter Welch (who is in the House Energy Efficiency caucus) needs to introduce legislation opening the “master limited partnership” loophole to energy service/renewable generation companies. Fossil fuel stocks are so attractive because that loophole, which exempts publicly traded fossil fuel companies from the double taxation that all other types of publicly traded companies face (roughly 15% more).

    3. Vermont should divest the state pension funds from fossil fuel companies and instead invest in energy services companies (ConEd Solutions, Siemens, Johnson Controls, Ameresco, Honeywell, etc.)

    • Point 2 is a very, very awesome idea — surprised it hasn’t been implemented already.

  • Jim Barrett

    The effort to reduce Vermont investments in private companies that have helped us to live in a comfortable fashion for decades is not unexpected in this hostile government. A government run by people who hate private enterprise except when it fits the liberal mold…..example: Ben and Jerry’s. We now have people directly blaming certain storms as being caused by global warming when that has never been determined…… other words a lot of hot air. Not one person can point to anything we have done after spending billions on controlling the climate where we have benefitted……….all BS!

  • Justin Boland

    John, good reading, thank you. I doubt you’ll be surprised to learn I don’t agree with you on most of that. I am a little confused as to where you got the impression I said that anything “will be the basis of global trade forever,” which is downright Friedmanesque. My point is simply that massive change involves long timetables, and scarce commodities involve increasing profits for those who control them. Still, let me wrap up on where I agree:

    I don’t dispute the “ephemeralization” of technology, as Bucky coined it, I just think it’s important to recognize that this innovation is driven by infrastructure. “On the shoulders of giants,” as well as the shoulders of power grids, interstate highways and subsidized global trade. I do not buy the techno-utopian notion that you can remove that foundation and still have the top layer remain functional. I’m sure you’re familiar with the coming rare earth crunch and the implications for semiconductor tech, just one of a dozen looming constraints.

    I agree completely that global trade has been driven by the historically-unprecedented cheap energy of the petroleum fuel bubble, and we both agree that bubbles pop. I think we might be seeing this transition play out differently: where you see manufacturing coming back to America, I see factories full of robots being managed by first-generation immigrants from nations with stronger STEM education. Where you see renewables upsetting energy cartels, I see these upstarts being bought up by existing cartels once they can demonstrate profitability and market share – you know, just like what happens in the tech sector. (I also still think burning carbon delivers a higher EROI than a sailing ship, but I suspect that one is a matter of physics more than opinion.)

    Finally, I agree completely about your point on Externalization of Cost. That was an excellent riff. I think it’s the biggest accounting fraud in conventional economics, and one that many corporate balance sheets depend upon for profitability – even liquidity, in many cases!

    Honest accounting would bring about some profound changes, but I don’t see Moody’s or PWC leading that charge anytime soon.

  • John Greenberg


    A few quick replies and we can leave it where it is:

    1) “I am a little confused as to where you got the impression I said that anything “will be the basis of global trade forever,”” You didn’t say it; I inferred it from what you wrote, obviously incorrectly. My apologies.

    2) “… where you see manufacturing coming back to America, I see factories full of robots being managed by first-generation immigrants from nations with stronger STEM education.” These two notions do not conflict as far as our energy discussion is concerned. I simply said that manufacturing is coming back. To be brief, I have little idea of the form that will take, and am not prepared to dispute the version you suggest. It’s certainly well within the realm of possibility. Capital investment is replacing human labor in manufacturing everywhere, including in China.

    3) “Where you see renewables upsetting energy cartels, I see these upstarts being bought up by existing cartels once they can demonstrate profitability and market share ….” I never said anything about renewables upsetting energy cartels. The oil companies started buying into solar decades ago. (Without following it in detail, however, my impression is that they’ve divested a good deal of what they previously bought.) In any case, if they’re smart, big fossil fuel companies WILL buy up renewables technologies once they’re proven. Bill Clinton’s been hammering at this idea with the Arab oil nations for years.

    Good discussion. Thanks!

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