Jon Erickson: The economic case for divestment

Editor’s note: This commentary is by Jon D. Erickson, of South Burlington, who is professor of ecological economics at the Rubenstein School of Environment and Natural Resources at the University of Vermont.

Gov. Peter Shumlin and a majority in Vermont’s House and Senate have called for divestment of state pension funds from coal and ExxonMobil.

The environment and economy are so often seen in conflict, that it may be shocking for many to learn that on divestment, our ecological and economic bottom lines are in full alignment. Coal becomes a worse investment every day.

The environmental case for divestment is clear. The Intergovernmental Panel on Climate Change estimates $30 billion per year would need to be divested from fossil fuels worldwide over the coming decades in order to meet climate stability goals. Given recent revelations that ExxonMobil executives knew the human causes and consequences of climate change for decades, even the fossil fuel industry can no longer deny the environmental benefits of divestment.

But for many, divestment is an economic issue. If we want to talk about the risk of fossil fuel stocks losing value as the global community moves away from burning carbon, coal is exhibit A.

In recent years, some generous UVM donors have made their support conditional on investing in a portfolio free of fossil fuel or nuclear power corporations.

 

President Barack Obama has halted new coal mining on federal lands, and coal’s share of electric generation nationwide has plummeted. Many large coal companies have gone belly up, and last week the world’s largest, Peabody, filed for bankruptcy. The Dow Jones Coal Index has free-fallen from nearly 750 eight years ago to the low 30s today. Even China is closing thousands of coal mines.

Chiza Vitta, a metals and mining analyst with the credit rating firm Standard & Poor’s, noted in a March 20 New York Times article that: “There are always going to be periods of boom and bust. But what is happening in coal is a downward shift that is permanent.” Norway has dumped at least $1 billion in coal stocks from the largest sovereign wealth fund in the world. Even the Rockefeller Family Fund announced last month a plan to fully divest from fossil fuels, with specific reference to “eliminate holdings” of ExxonMobil stocks, the source of the family’s fortune, for the company’s “morally reprehensible conduct.”

The other economic argument used against divestment by some members of Vermont’s Pension Investment Committee is a fear of exorbitant fees to sell ExxonMobil and our few coal stocks. Our experience at the University of Vermont tells a different story. In recent years, some generous UVM donors have made their support conditional on investing in a portfolio free of fossil fuel or nuclear power corporations. Not only did fund managers identify a Green Fund at normal costs, but it has far outperformed the university’s broader portfolio.

The good news is that following action in the Legislature, VPIC and state Treasurer Beth Pearce have agreed to revisit these issues since rejecting earlier appeals for broad divestment. At the University of Vermont, we had a similar movement for broad fossil fuel divestment that was ultimately rejected. Recently, Gov. Peter Shumlin visited UVM to talk with students, staff, and faculty about the merits of divesting the state pension fund, and pledged to use his position on the UVM Board of Trustees to push for our state university to do the same.

As someone who works with students daily, I fear they see our leaders speak to the crisis of climate change in one breath, but delay taking action in the next. With divestment we have the opportunity to show our children, the nation – and indeed the world – that Vermont takes climate change seriously by putting our money where our mouth is. This targeted divestment is a modest step in the right direction.

Our state treasurer’s recommendations on divestment are due to the Legislature on May 3. I trust that Treasurer Pearce and Vermont’s Pension Investment Committee will rise to the occasion and protect the value of public pension funds, uphold our commitment to transition away from fossil fuels, and send a message to other states and nations that it’s high time to divest.

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  • Tom Grout

    It would seem the writer has stiffed some Bernie gas up there in UVM territory and wants the rest of us Vermonters to walk around the rest of our lives like Tiberian monks.
    The writer would have you believe Exxon Mobil and Shell are those big nasty oil giants polluting the environment every day beyond repair.
    For every petroleum product there is a user and buyer. Try living your lives without fuel, plastics, neopremes, computer shrouds, phone casings, lexon, windshieds, moldings, dashboards, brackets, toilet seats, Dewalt tools, totes and garbage bags etc.

    • If the spelling errors in this response aren’t enough to undermine it’s efficacy, the leaps of logic and simple ignorance of basic concepts should do the trick nicely. The article very openly discusses how divesting from coal is a win for economics. How does that translate into living like a monk? And when did the article discuss ridding ourselves of the items listed? Also, I’d be interested in learning how coal produces petroleum. When was Shell mentioned? And anyway, aren’t Exxon and Shell polluting the environment, even by their own admission? (Tom seems to recognize this point but chalks it up to the cost of doing business in a material society, i.e. “there is a user and a buyer,” who is responsible for the pollution.) I could go on with what is wrong with this response, but the real problem is simple. For some reason, supporters of fossil fuel companies assume that those who are critical of the industry want to return to the stone age and denigrate progress. In a time when we face real problems, it would behoove Tom Grout to spend some time studying logic, economics, energy, systems dynamics, and thermodynamics before he contribute his ill-aimed diatribe at a genuine thought leader.

    • No one is suggesting that we should do without fuel and energy (or products made from petroleum, either, as that type of manufacturing is not a primary source of greenhouse gases). See “The Solutions Project” as just one example of how current technologies can be used to begin the transition to energy sources which will not ruin our planet’s ability to nurture our well-being.

      Fossil-fuel companies *are* polluting our environment beyond repair with their products, as the major companies have known to be the case for decades. If we do not take action soon to set ourselves on another course, Vermont’s pensioners, their descendants and the rest of humanity will be suffering very negative consequences, the first of which are now manifesting all around the globe.

  • Kathy Callaghan

    “Our state treasurer’s recommendations on divestment are due to the Legislature on May 3. I trust that Treasurer Pearce and Vermont’s Pension Investment Committee will rise to the occasion and protect the value of public pension funds, uphold our commitment to transition away from fossil fuels, and send a message to other states and nations that it’s high time to divest.”

    I do think that Treasurer Pearce and VPIC will rise to the occasion and protect the value of public pension funds by taking a measured approach to investigating the pros and cons of energy divestment. This issue cannot and should not be an overnight decision. Kudos to Beth and the VPIC Committee for taking their time to do a careful analysis of the entire issue from all angles. Public pensions are not political footballs and should not be used as such. Many Vermont seniors have paid into these funds for 30 years, and rely on the money for a living. They need to be assured that their financial security is not subject to political partisanship.

    • Paul Richards

      “Public pensions are not political footballs and should not be used as such.”
      “Public”? Why are they referred to as public? I’m part of the public, the paying public that helps fund these discriminatory plans but I receive no funds in return.
      “They need to be assured that their financial security is not subject to political partisanship.”
      The only way to do that is to put the pensions in complete control of the pension holders just like anyone else lucky enough to have a pension plan. They can control who manages it, what they put in to it, what it gets invested in and when they take it out. Why should I have to help fund it, manage it and take complete responsibility for it? These are all results of prior Democrats making promises on my behalf, kicking the can down the road and rubber stamping these elaborate pay, benefit and retirement plans for the unions that support them. There is NO reason why the general public, the ones forced into paying for these elaborate, discriminatory pension plans, should be involved at all in these plans. Give them the entire plan including ALL of the responsibility and control of it. I want out of it. Stop the discrimination and the forced taxation.
      If social security is good enough for me it is good enough for them. Stop wasting our time and money on this fleecing and stop the endless circle of paybacks between the public sector unions and the Democrats, I can no longer afford it. I have my own family to take care of.

    • Kim Fried

      While we’re at it let’s show the other states how high taxes can be, how to pollute our Lake Champlain, how to destroy lives and environment with industrial ridge line wind developments, the correct way to monitor programs like EB5, how to attempt to destroy important state E-Mails…………yep no question the other states and the world will use Vermont as a good example on how to have a positive impact on their citizens.

    • The Rockefeller Brothers Fund is just one example of many which demonstrate that very good fossil-free investment returns are achievable. We do not need to endorse the destruction of planetary habitability with our money.

  • Bob Zeliff

    In the last few days it has become public knowledge that Saudi Arabia is planning for a future that does not rely on Oil for their primary income! They are moving their money to other non oil investment..2 Trillion dollars.

    I think our State Investment strategy must also recognize this new reality. We have seen the value of coal stocks fall drastically in the last few years. It is only a matter of time that we will be seeing other fossil fuel stocks deline as well. (yes there will be likely be a blip in the next year or two)…but the long term trend is down.

    I hope Vermont can get infront of this movement out of fossil fuel investments.

  • Jim Christiansen

    I had hoped that the author would call for full funding of the States pension plans.

    Chronic pension under funding (kicking the can and living high today on the backs of the next generation) is a far greater threat to the economic welfare of Vermonters.

    Stop stealing from your children’s future for your wants today.

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