A global campaign encouraging individuals, organisations and institutional investors to sell off investments in fossil fuel companies is gathering pace. According to 350.org, US$11 trillion has already been divested worldwide.
But, while it may seem a logical strategy, divestment will not lower demand for fossil fuels, which is the key to reducing greenhouse gas emissions. In fact, it may even cause emissions to rise.
At first sight, the argument for divestment seems straightforward. Fossil fuel companies are the main contributors to the majority of CO₂ emissions causing global warming. Twenty fossil fuel companies alone have contributed 35% of all energy-related carbon dioxide and methane emissions since 1965.
The argument goes that squeezing the flow of investment into fossil fuel companies will either bring their demise, or force them to drastically transform their business models. It makes sense for investors, too, as they avoid the risk of holding “stranded assets” – fossil fuel reserves that will become worthless as they can no longer be exploited.
For companies heavily invested in coal – the most polluting fossil fuel – this rings true. Although new coal plants are still being constructed in countries such as China, India and Indonesia, predictions by major energy agencies and industry alike indicate a steep decline in its contribution to the global energy supply. With cleaner alternatives readily available, coal is no longer considered a safe long-term investment – and widespread divestment will only add to this sentiment.
When it comes to oil and natural gas, however, the picture looks quite different. Oil is used for a much wider range of products and processes than is coal, while the cleaner reputation of natural gas gives it significant appeal as a “bridge fuel” to a zero carbon economy, whether rightly or not. As a result, the push for oil and gas divestment is likely to have unintended consequences.
The primary targets of the divestment movement are international oil companies (IOCs) – private corporations that are headquartered in Western countries and listed on public stock exchanges. ExxonMobil, Chevron, Royal Dutch Shell, BP, and Total are among the private oil “supermajors”.
Recent research suggests that divestment can reduce the flow of investment into these companies. But even if the divestment movement were successful in reducing the economic power of these companies, IOCs currently only produce about 10% of the world’s oil.
The rest is mostly produced by national oil companies (NOCs) – state-owned behemoths such as Saudi Aramco, National Iranian Oil Company, China National Petroleum Corporation and Petroleos de Venezuela, located mostly in low and middle income countries.
Given that NOCs are less transparent about their operations than are IOCs, and that many of them are also headquartered in authoritarian countries, they are less exposed to pressure from civil society. As a result, they are “dangerously under-scrutinised”, according to the Natural Resource Governance Institute.
As they are state-owned, they are also not directly exposed to pressure from shareholders. Even the imminent public listing of Saudi Aramco will only offer 1.5% of the company, and this will mainly come from domestic and emerging markets, which tend to impose much less pressure to value environmental issues. Environmental groups have urged Western multinational banks not to invest in the Saudi company.
This means that while global demand for natural gas and oil is still rising, and investments are insufficient to meet future demand, divestment pressures are unlikely to impact the business plans of NOCs. As a result, instead of reducing global fossil fuel production, the divestment movement will simply force IOCs to cede market share to NOCs.
If anything, this would cause CO₂ emissions to rise. The carbon footprints of NOCs per unit of fuel produced are on average bigger than those of IOCs.
IOCs are also generally better placed and more willing than are NOCs to reduce the carbon intensity of their products and support the transition to renewable energy. They have, for example, led the way among oil companies in research into capturing and storing carbon, even if results have so far proven elusive.
In a nutshell, the divestment movement will not reduce demand for oil and gas. It will transfer the supply of fossil fuel to companies that are more polluting, less transparent, less sensitive to societal pressures, and less committed to addressing the climate crisis.
Missing the mark
The divestment movement is understandably enjoying widespread appeal in a time of climate emergency. But by targeting the low-hanging fruit that are IOCs, the movement misses the more complex question of how to actually reduce the global demand for fossil fuels.
To achieve that goal, we’d be better off creating a regulatory environment that forces both IOCs and NOCs to redirect their energies. For example, eliminating fossil fuel subsidies and putting a price on carbon would make heavily investing in renewables – already cheaper to produce than fossil fuels – more attractive for all energy companies.
Such changes could also generate nearly US$3 trillion by 2030 for governments worldwide. These funds could be used to massively scale up renewables, prioritise the development of energy storage to address the intermittent nature of such power, and improve energy efficiency in industry, transport and housing – which will make fossil fuels increasingly redundant.
While IOCs now produce much less fossil fuel than they used to, they still have a huge amount of expertise that could be applied to the energy transition. In my view, rather than transferring power to less environmentally conscious NOCs, we should make use of them.
As for those with shares in fossil fuel companies: exercise your powers as a shareholder to pressure them to support the energy transition as constructively and ethically as possible. Your influence matters.
About The Author
Stefan Andreasson, Senior Lecturer in Comparative Politics, Queen's University Belfast
Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming
by Paul Hawken and Tom Steyer
In the face of widespread fear and apathy, an international coalition of researchers, professionals, and scientists have come together to offer a set of realistic and bold solutions to climate change. One hundred techniques and practices are described here—some are well known; some you may have never heard of. They range from clean energy to educating girls in lower-income countries to land use practices that pull carbon out of the air. The solutions exist, are economically viable, and communities throughout the world are currently enacting them with skill and determination. Available On Amazon
Designing Climate Solutions: A Policy Guide for Low-Carbon Energy
by Hal Harvey, Robbie Orvis, Jeffrey Rissman
With the effects of climate change already upon us, the need to cut global greenhouse gas emissions is nothing less than urgent. It’s a daunting challenge, but the technologies and strategies to meet it exist today. A small set of energy policies, designed and implemented well, can put us on the path to a low carbon future. Energy systems are large and complex, so energy policy must be focused and cost-effective. One-size-fits-all approaches simply won’t get the job done. Policymakers need a clear, comprehensive resource that outlines the energy policies that will have the biggest impact on our climate future, and describes how to design these policies well. Available On Amazon
This Changes Everything: Capitalism vs. The Climate
by Naomi Klein
In This Changes Everything Naomi Klein argues that climate change isn’t just another issue to be neatly filed between taxes and health care. It’s an alarm that calls us to fix an economic system that is already failing us in many ways. Klein meticulously builds the case for how massively reducing our greenhouse emissions is our best chance to simultaneously reduce gaping inequalities, re-imagine our broken democracies, and rebuild our gutted local economies. She exposes the ideological desperation of the climate-change deniers, the messianic delusions of the would-be geoengineers, and the tragic defeatism of too many mainstream green initiatives. And she demonstrates precisely why the market has not—and cannot—fix the climate crisis but will instead make things worse, with ever more extreme and ecologically damaging extraction methods, accompanied by rampant disaster capitalism. Available On Amazon
From The Publisher:
Purchases on Amazon go to defray the cost of bringing you InnerSelf.comelf.com, MightyNatural.com, and ClimateImpactNews.com at no cost and without advertisers that track your browsing habits. Even if you click on a link but don't buy these selected products, anything else you buy in that same visit on Amazon pays us a small commission. There is no additional cost to you, so please contribute to the effort. You can also use this link to use to Amazon at any time so you can help support our efforts.