Big oil a big mistake: a $50 billion kick-off to the carbon divest-invest movement
The real news is not that there’s been a recent downturn in oil prices, with some resulting stock shocks. It’s that the divestment movement is finally picking up steam.
Mr. Carney has added his voice in support of the “carbon bubble” theory, which warns that fossil-fuel assets will be significantly devalued if a global deal to tackle climate change is reached. Such a deal seems closer every day, with the United States and China recently announcing a “historic” climate change agreement that will curb carbon emissions.
The oil and gas industry appears stronger than it is, in part because of public subsidies. In Canada alone, the International Monetary Fund (IMF) estimates $2 trillion in subsidies if you include externalized costs to the environment, society and health borne by taxpayers. Setting aside externalized costs, direct government support in Canada comes to over $1 billion a year, including $840 million in early-stage tax breaks and $211 million in direct subsidies.
Include breaks to tar sands companies on their massive natural gas usage (estimated at about 1 billion cubic feet a day, without which the oil could not be extracted) and one industry critic estimates you can add another $1.7 billion every year.
That’s a lot of public money. But such subsidies are decreasing. Even without the current market downturn, the industry is living on borrowed time.
Time to send a new market signal
Providing artificial stimulus to a declining industry does not just create financial risks; it holds our economy back. Governments and markets should be signalling to entrepreneurs that it’s time for innovation. At a minimum, stimulus should be incrementally shifted to support clean technology and associated infrastructure changes.
The recent crash in oil prices further demonstrates that Canada should be diversifying its economy. The status quo is untenable, and pumping money into fossil fuel companies will only lead the industry to become more complacent. The fossil fuel industry is being incentivized to stick their heads in the proverbial sand, unwilling to take the risks necessary for innovation.
And they will continue recklessly to assert that fossil fuel reserves will never run out, they are the only economically viable energy option and that climate change is not influenced by their products.
Fossil fuels are not the future; they belong in the past. It is highly likely we will see higher taxes and fines applied to the industry, to offset the social and environmental costs of fossil fuels. As governments shift to future-friendly technologies, fossil fuels will become unattractive. Investment capital will pivot to fund cleaner, safer energy alternatives.
Not if, but when
As Valerie Rockefeller Wayne put it in Rolling Stone: "If you look back, when John D. Rockefeller Sr. got into the business, we got our oil from whales. It's preposterous, right? His big breakthrough was to get oil out of the ground. The breakthrough now is going to be in clean energy. You should be there at the forefront. Those are the investors who are going to make the most money."
These companies will provide investors a lower risk and more sustainable return in the long run. It’s not a question of “if,” but “when.” Today, the smart money is on resource efficiency, smarter production, clean transportation and a healthy environment.
While some major institutions have come around to the fact that future-friendly investments can be profitable and responsible, others have been remarkably short-sighted. Harvard University, the keepers of the largest academic endowment in the United States, have flat-out rejected it, claiming their $32-billion stockpile is “not an instrument to impel social or political change.”
Harvard is missing the point, but their student body isn’t: one of the most effective student-led divestment campaigns recently filed suit against the university for “mismanaging endowment funds and endangering future generations.” As the divestment movement grows and fossil fuel profitability declines, such institutions will find themselves not only on the wrong side of history, but on the wrong side of the market as well.
It’s becoming increasingly clear just how much damage climate change will inflict on our environment and society – and how much it’s going to cost us. Investors will do the math, and we will see capital flee from fossil fuels to cleaner, more efficient and profitable industries.
All of this will be obvious within the next decade. But many investors see it coming already. They’re the ones dropping fossil fuels right now.
Editor’s note: Joel Solomon is the brother of Linda Solomon Wood, who is The Vancouver Observer’s founder and editor in chief.
A version of this essay appeared in The Globe and Mail.