Green activists are getting schooled in fossil fuel divestment. Despite environmentalists’ best efforts, New York University and the University of Cambridge just rejected pleas to stop investing in fossil fuels.
The green push for institutions to scrap all oil, natural gas, and coal investments is several years old. Campaigners insist that starving fossil fuel producers of capital will leave energy in the ground, save the climate, and thus rescue the earth.
But carbon rationing via investor revolt against fossil fuels is both intellectually and politically misplaced. It is incontrovertible that our modern way of life depends on mineral energies. Fossil fuels are the stock of energy that is portable and storable, quite unlike the diluted flow of energy that comes from solar or wind. Chemistry and physics cannot be changed by altering a few high-profile investment portfolios.
What could change is the health of our nation’s colleges. Any large-scale divestment effort would be enormously expensive for college endowments — and have next-to-no effect on the intended target. It’s no surprise that more than 99 percent of the world’s colleges and universities are taking a pass.
One of the divestment movement’s main assumptions goes as follows: if only we left fossil fuels in the ground, the need for these resources would disappear. Such thinking, however, ignores the essential role oil and gas play in powering our nation.
The United States gets more than 80 percent of its energy from fossil fuels. The average American motorist uses more than 440 gallons of gasoline each year. And last year, the United States used more than 27 trillion cubic feet of natural gas.
There’s a simple reason why fossil fuels remain America’s default energy source: they’re reliable, affordable, and abundant. This isn’t true of renewables like wind and solar, which is why these technologies accounted for only 5 percent of U.S. electricity in 2015 despite $176 billion of subsidies for wind power alone.
Fortunately, the fossil fuel divestment movement has not harmed producers.
A recent study by the University of Chicago’s Daniel R. Fischel found “no evidence of any discernable impact on the companies being targeted by the policy.” As UCLA economist Ivo Welch has written, “Individual divestments…have never succeeded in getting companies or countries to change.”
So much for faux activism.
On the other hand, the fossil fuel divestment campaign will do considerable financial harm to institutions that comply with the protesters’ demands.
A recent study from Arizona State University’s Carey School of Business finds that the costs associated with divesting from energy firms would be substantial. Over the next 20 years, a typical large institution could lose $7 billion by deliberately excluding fossil fuel investments from its portfolio.
A similar analysis by Caltech economist Bradford Cornell finds that the endowments of the Massachusetts Institute of Technology, Harvard, Yale, Columbia, and New York University would lose a total of $195 million for each year that they remain divested.
That’s a prohibitive price to pay for feel-good, misplaced symbolism. It’s not hard to see why dozens of leading colleges and universities — including MIT, Brown, and Stanford — have said “no” to divestment activists. Even administrators at Swarthmore, where the divestment movement originated, have refused to indulge its campus activists on this issue.
Institutions are rebelling about fossil fuel divestment. That activists are willing to harm their own colleges and universities to accomplish their deplorable goal is discouraging indeed.
Robert L. Bradley Jr.
Institute for Energy Research.
