Tuesday, February 17, 2015

The coal divestment and oil divestment arguments are the same

Some people make a qualitative distinction between divesting from coal businesses versus divesting from oil. I'll concede at the start that coal is the worst, so if you choose to only divest from one sector then it should be coal. That doesn't serve as a reason to oppose oil divestment.

The main reason I hear for distinguishing coal and oil is that we can live semi-normally without coal but not without oil. Depending on the time frames, though, we arguably can't live without coal and we can live without oil.

Two hypotheticals:

First, the one thing that changes tomorrow is that the political willpower suddenly exists worldwide to stop using coal, completely, and the question you get to decide is when to implement that decision to maximize human benefit. I think it's pretty clear that while immediately ramping down coal use is a good idea, ending all coal use literally tomorrow would not be a good idea. The energy grid would collapse in many countries and take months and years to reconstruct, causing a deep global recession.

Instead you'd want to use a time frame - I'd guess the best balance of reducing emissions with minimizing economic disruption would mean 5 to 15 years for eliminating coal use in developed countries, and add five years for developing countries.

Second hypothetical is the same as the first except the political willpower also suddenly exists worldwide to stop using oil, and you get to choose whether and when to get to zero. In this case an appropriate time frame does allow us to live without oil. We switch the power grid to near-zero emission sources and switch transportation systems to electricity, maybe with some use of biofuels (managing land use impacts) and hydrogen. Maybe very limited, continued use of oil balanced by carbon-negative practices. All you need is time, maybe 30-50 years.

So no, we can't live semi-normally without coal tomorrow, but if that doesn't keep you from supporting coal divestment then it shouldn't stop you from supporting oil divestment. We can get to a point of living without oil, so it's not wrong to use oil divestment to push us in that direction.

I haven't talked about natural gas divestment, which is a little trickier. While the time frame arguments apply to it, there's also the fact that natural gas competes with coal at the same time that it competes with renewables. I think it's a close argument and I'd welcome the natural gas industry reaching a deal with renewable energy, but in the absence of that deal then I'd rather pressure the natural gas industry as well through divestment.

Finally, some other folks may lump in tar sand oil with coal divestment. I agree that tar sands are the worst oil option so it's a start, but not the place to stop.

UPDATE:  thought I'd add that Palo Alto City Council unanimously passed a resolution calling on the state agency CalPERS, which manages Palo Alto pensions, to divest from fossil fuels. Palo Alto has done some pretty good work on limiting their own emissions, so that's evidence that divestment is compatible with direct emission reductions.


Fernando Leanme said...

"We switch the power grid to near-zero emission sources and switch transportation systems to electricity, maybe with some use of biofuels (managing land use impacts) and hydrogen."

That's a cop out.

Returning to the divestment topic: the majority of coal reserves are located in the USA, China, India, Russia, Australia and Colombia.

The majority of conventional oil reserves are in the Middle East, and the former Soviet Union countries.

The entities controlling the majority of oil reserves are state owned corporations. Publicly held corporations (Exxon to BHP to Repsol) are reducing their crude and condensate production. Their share of worldwide production is shrinking. They offset these losses by shifting to produce natural gas and NGL.

The divestment effort doesn't solve much. It's a feel good movement, caused by sheer impotence.

By the way, I see another looming problem: we are running out oil and condensate. The current price drop will be short lived. This means selling oil stocks would be foolish. Fund managers won't sell.

My suggestion would be to buy oil service company stocks. Oil service companies work for both the listed stock companies as well as state owned corporations. On the other hand, if you wish to suggest a divestment target then try these oil service companies. It's a foolish move, but it makes more sense.

Elena said...

Our society must give up the fossil resources like oil and coal, otherwise the environment will not forgive us very soon.
Already many habitats, birds and wild animals were destroyed, how many must disappear before we do something? we expect the Ice Age to come sooner? If it will comes too soon our society will switch back to the stone age period in just a few years.
Besides this, NASA warns of massive droughts in the U.S. http://www.alternative-energies.net/n-a-s-a-warns-with-major-droughts-in-the-u-s-if-the-pollution-continues/ massive droughts can produce famine in many areas even before any other environmental changes.

Aaron said...

I do think that we should stop burning anything that comes out of the ground, but am a bit conflicted over whether we have to immediately stop using oil/gas to produce synthetic chemicals and fibers.

Is using oil/gas to produce synthetic chemicals and fibers different from burning it?


It has been some time since US per capita CO2 emission was last compatible with keeping global atmospheric increase under one part per million per year.

Would Brian enlighten us as to how semi-normal Californians would get by if the state divested back to the ~ 22 ounce per day total carbon fuel ration prevailing in the 1870's?

PhilScadden said...

One thing that I cant really understand is how divestment is supposed to make oil go away? Suppose everyone except the management of oil companies sold all their shares. Company management is able to buy them at 0.00001c share or something. Now to me, that sound like a very good deal. Profit from oil sales is unchanged and with company cash reserves, who needs investor capital among the big six? Divestment would seem to more effective for coal where external investment looks necessary.

EliRabett said...

Divestment decreases available capital for expansion

Jim Eager said...

Sigh, even Eli doesn't get it.

As with obstructing and delaying tar sands syncrude oil pipelines, economics is not the correct lens to view the divestment movement through.

Divestment is not intended to be an economic tool to make oil, or coal, go away. It simply can't do that, as has been pointed out.

Rather, divestment, and delaying pipelines, are primarily tools to raise awareness of the role of fossil fuels in driving climate change, and thus to change social attitudes towards the fossil fuel industry and build popular support for imposing a price on carbon emissions.

EliRabett said...

wrt S. Africa, divestment driving capital away played an important role in breaking apartheid, however I am not going to deny your point either.

Brian said...

I think the carbon bubble for fossil fuel asset valuation is well established. Divestment could help pop the bubble and to that extent have direct economic impact on the fossil fuel business, but I think the main effect is accelerating political action to support carbon reduction.

Russel - electrifying the transportation grid, making it all or nearly all low-GHG emission, and add carbon negative activities. California is pretty well positioned to do this over the next 40-50 years.

Aaron said...

As the Saudi Oil Minister said, " The stone age did not end because they ran out of stones, the stone age ended when they found something better. The age of oil will end when we find something better."

Fossil fuels reserves and processing infrastructure has been over valued considering that "Oil Age" will end long before we run out of oil.

Divestment is also about getting out of the fossil fuel financial bubble (irrational exuberance) before it bursts.

Smart money with long term planning horizons has been moving money out of fossil fuels, leaving the bubble for the chumps. And the folks who won fossil fuels are still touting it as an investment. However, we are near a tipping point where wind and solar power will fall under Moore's Law. The value of fossil fuel will fall at a similar rate. Smart folks with long planning horizons should think about fundamentals.


Brian, please get back to us when the ten millionth Prius hits the road in California, and coal power ceases to pump most of its water and condition most of its air.

Brian said...

Hi Russel, California now gets 8% of its power grid from coal, down from 21% a decade ago:


(To be fair, 8% is higher than I would've guessed.)

It'll be a while before we get 10m hybrids and EVs in California, but California in effect set the mileage standard that the whole country adopted, and they're looking to do it again. I'll guess that's already the equivalent of 10m hybrids in terms of reduced emissions (assuming somewhat enthusiastically that the mileage standards drove the switch to higher mpg vehicles).

Aaron said...

In 1900, horses, buggy whips, horse harnesses, and hay/oats were still essential industries. Twenty years later, not so much so.

Large industries were done in by the internal combustion engines they sneered at only 20 years earlier.

We forget how quickly large industries have changed in the past. People who do not see how we can stop using fossil fuels in 20 years are not looking.

PhilScadden said...

Eli, I dont see why the oil companies actually need other peoples capital investment to expand. They can do it from their profits alone. Not so for coal companies.Divestment only works if external capital investment is actually needed for expansion.

EliRabett said...

Phil, EINAE but one of the least expensive ways to raise capital is to issue stock and oil and gas exploration are capital intensive activities.