Next week, I am presenting the Student Divestment Committee’s proposal to the Board of Trustees. The financial industry’s response to the social and political fight against the fossil fuel industry is the focus of my half of the presentation. Since over half of the school has signed our petition, I feel obligated to lay out what I will say. Here it is.
In 2007, the Department of Defense conducted a study called “National Security and the Threat of Climate Change,” assessing how detrimental climate change would actually be for national security. The contributing advisory board consisted entirely of high ranking retired military personnel. They concluded that anthropogenic global warming’s threat to American security was so great that “the US should commit to a stronger national and international role to help stabilize climate change.”
Around the same time, the Environmental Protection Agency (EPA) gained the power to take unilateral action against climate change. In 2007, the state of Massachusetts sued the EPA for not regulating Massachusetts’ carbon emissions strongly enough. The case went all the way to the Supreme Court, where it was decided that the EPA was guilty of neglecting its regulatory duties and that it had a responsibility to pass carbon emission regulations.
Since then, the EPA has declared that it will take action, successfully defended its declaration of action against an attack in Congress, passed new regulations on coal power plant emissions, and vowed to do more in the near future. As of today, the EPA is legally empowered and obligated to act to reduce carbon emissions to mitigate climate change with or without Congressional approval.
Since these developments, President Obama has announced that climate change policy would be a focus of his second term, 40,000 people marched on Washington to protest government inaction on the issue and a series of oil spills from Louisiana to Arkansas further strengthened protest of fossil fuels. Furthermore, nations worldwide agreed to take actions to mitigate climate change at Copenhagen in 2010.
Think tanks have noticed this growing social and governmental antipathy towards oil. In 2012, Chatham House published a report called, “What’s Next for the Oil and Gas Industry?” Their answer, ultimately, was upheaval and investor uncertainty. Fossil fuel companies, they said, are “now under pressures that will transform [them] as profoundly as the changes of the 1970s.” Chatham House, one of the most respected think tanks in the world, thinks that a policy push against fossil fuel consumption and a growing shift of consumer demand away from fossil fuels will impel this upheaval.
Finance industry analysts have picked up on this trend as well. Identifying the same shift away from fossil fuel demand as Chatham House, Deutsche Bank analysts determined that electric and hybrid vehicles are a “disruptive technology” which will, in the next few years, decrease demand for fossil fuels. In this 2009 report titled, “The Peak Oil Market: Price Dynamics at the End of the Oil Age,” they also concluded that consolidation of oil into government hands coupled with decreased consumer demand will lead to chronic underinvestment in oil development, which will cripple the private sector.
HSBC’s Global Research division released a study this past January that came to similar conclusions. As consumer demand begins to decline and new government policies regulate carbon emissions, the value of fossil fuel company holdings will be in jeopardy, according to their analysis. They concluded that the fossil fuel industry is operating closer and closer to its break-even point, and social and governmental actions could soon tip oil companies away from profitability.
Beyond major investment banks, the ratings service of Standard & Poors has also decided that government regulation and higher efficiency vehicles undermine the fossil fuel industry’s business model. Their report, bluntly titled, “What a Carbon-Constrained Future Could Mean for Oil Companies’ Creditworthiness,” implies that coming social and political actions threaten the fossil fuel industry’s credit rating.
Despite all of this hard-hitting analysis from the some of the biggest players in the financial industry, some skeptics claim that oil companies will research and develop their way out of the predicament. However, as identified in the Deutsche Bank report, R&D budgets for Toyota and Google outstrip those of Exxon Mobil or British Petroleum tenfold. Oil companies aren’t trying to adapt. Instead, the research budgets of the world’s biggest corporations are actively working against them, developing hybrid cars, electric cars, and driver-less cars, all of which promise to continually reduce our fossil fuel consumption.
In the light of this professional analysis, it is clear that Colorado College should minimize fossil fuel holdings in its endowment in the long run. Presently, we have a unique opportunity to invest in a solar array on our campus, a proposal that would zero our energy bill and provide a steady rate of return over the coming years. Construction of this solar array would bring our school closer to our carbon neutrality goal. As a real asset investment, it could also replace one of our current fossil fuel real asset holdings, preserving CC’s asset allocation strategy. The fossil fuel holding is not only a bad future investment by the analysis above, it has been the one of the lowest performing investments in CC’s portfolio since we bought it, consistently producing negative returns.
With over half the student body’s signatures on the divestment petition and the student government resolved to support our cause, I felt that I owed it to the student body to lay out exactly what I am going to say when I represent them in my half of the Student Divestment Committee’s presentation to the Board of Trustees on May 2. I would like to see CC eventually divest completely from fossil fuels, and I think that over the next few years, we can reach that goal. Right now, however, this is the first step towards a greener future for Colorado College.
David Cully
Commentary and Debate Editor