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Fossil Fuel Divestment / Carbon Bubble Discussion

What is your stance on fossil fuel divestment?

  • I support fossil fuel divestment and have divested myself.

    Votes: 13 59.1%
  • I support fossil fuel divestment but have not divested.

    Votes: 6 27.3%
  • I am unsure, neutral, waiting on more information.

    Votes: 0 0.0%
  • I do not support fossil fuel divestment but don't own fossil fuel stocks.

    Votes: 1 4.5%
  • I don't support divestment and own fossil fuel stocks.

    Votes: 2 9.1%

  • Total voters
    22
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This a thread for discussion on dealing with the carbon bubble, and addressing the question of Fossil Fuel divestment.

First, a very brief discussion of what the carbon bubble is. My personal definition is that the carbon bubble is the enormous amount of money invested in future fossil fuel exploration and extraction, with the expectation that those reserves will be consumed. This of course assumes that the status quo remains in place, and that governments do nothing to curb fossil fuel use, that the market doesn't shift toward clean energy technologies, and that carbon capture and storage does not come to realization. The current fossil fuel reserves amount to about three times higher than the amount of carbon that can be warmed to keep the world below 2C of warming.

So that presents a few possible outcomes: 1. Status quo, fossil fuel investment stays in place, gov'ts do nothing, world burns exponentially more carbon. 2. The world acts on climate change and restricts fossil fuel use, the carbon bubble bursts dramatically, millions of investors lose their shirts, possible severe economic recession ensues. 3. There is a more gradual, steady divestment in fossil fuels, investors get out of unburnable carbon, the carbon bubble is deflated and becomes smaller in size, the carbon bubble bursts and has a less consequential impact than option 2.

I really don't know what will happen, but I have gone ahead and personally divested from fossil fuels. Not only because I see serious future risk in these stocks, but also because I agree that if it's wrong to ruin the climate, it's wrong to profit off it as well. I cannot try to make money on something that I don't personally agree with. If I learned a company I had stock in was doing something abhorrent, I would act accordingly and sell the stock. I try to invest in companies that not only can get a profit but also make the world a better place. I suppose that fits me in the category of activist investor. Anyway, I would really love to hear your thoughts on the carbon bubble and fossil fuel divestment. Please also vote in the poll, if you would.

Here are some links you may find helpful:

This is a very nice widget showing you the placement of fossil fuel investments:

Carbon Bubble Interactive | Carbon Tracker Initiative

Here is an article from the Economist that sums it up. Either governments won't do anything about climate change, or fossil fuel companies are overvalued.

Energy firms and climate change: Unburnable fuel | The Economist

A Motley Fool article bringing up that Energy investors should keep the carbon bubble on your mind:

http://www.fool.ca/2014/04/02/warning-1-risk-energy-investors-should-worry-about/?utm_source=rss&utm_medium=rss&utm_campaign=warning-1-risk-energy-investors-should-worry-about

From a Bloomberg article:
Bloomberg LP Launches First Tool That Measures Risk of Assets | InsideClimate News

"People are getting the idea that one of the main risks—perhaps the main risk—from climate change for investors and pension funds relates to hydrocarbon investment," said Craig Mackenzie, head of sustainability at the Scottish Widows Investment Partnership, which manages $234 billion in assets and is a part of Lloyds Banking Group. "The fact that 20 percent of [investment] portfolios are invested in oil, gas and mining companies, and that those companies could be a lot less valuable in the future, has sort of brought it all home."

From a Guardian article:
'Unburnable' carbon fuels investment concerns | Guardian Sustainable Business | Guardian Professional

For the last decade, the energy industry has been convinced that demand for oil, gas and coal will keep growing quickly for the next 20 years; oil prices will remain high, and China will continue to build two coal power stations a week. The profits for oil and mining companies will keep flooding in.
The investment community has largely accepted this view and backed companies' investment of hundreds of billions of dollars a year in finding and developing new reserves.
Of course, rampant growth in demand for coal and oil is depressing for those worried about climate change. If this demand growth continues, it seems unlikely that we can avoid dangerous climate change. But what if the energy industry's bullish forecasts are wrong? In the past 12 months a counter argument has been gaining momentum in the investment community.
The side of this story that has captured the imagination focuses on "carbon bubbles", as experts argue that there is already more carbon embedded in the reserves of the fossil fuel companies than the world can burn if we are going to keep below a 2-degree temperature rise. These reserves may be "unburnable" and company share prices may be overinflated. The latest warning came a few days ago from Al Gore.
But there is an even more urgent story to tell: demand for coal in the US has fallen by 20% or so over the past five years. New air pollution regulations are making coal increasingly expensive, so power companies are burning cheap shale gas instead. US carbon emissions are also down – to levels last seen in the mid-1990s.




Seven_Reasons_Sell_Coal_Oil_Gas_Stocks.jpg
 
I support divestment in-so-far as people don't confuse it with an actual solution... Exxon stock could be worth $0 but as long as people keep buying oil they will continue to drill for it. A boycott on their products is far more effective than a boycott on their stock. There may be some fringe benefits to divestment since capital may be a little more difficult to raise but most of these companies have $Billions in cash reserves so they probably don't need a loan.
 
I totally support this and think it's making a great impact. 350.org started the divestment campaign to grab the oil industry's attention because nothing was being done about getting off of fossil fuel. Check out the site, 350.org
 
Skeptics about the power of divestment should read the history of divestment in companies doing business in South Africa.

The real argument for divesting is about your​ return on equity. If you believe that Tesla is going to revolutionize the world of personal transportation, then it also follows that the big oil companies are in for a world of hurt.

Ok... now I'm a little confused... is the primary purpose here to protect your capital by not investing in a doomed company like Exxon or is it to get Exxon to stop drilling for oil by devaluing the company... I agree with the first; not so much the second. Only one thing can reduce the amount of oil Exxon drills and that's how much is bought and burned.

Comparing fossil fuel divestment to South Africa and apartheid is a little disengenuous for many reasons... not the least of which being the fact that South Africa didn't have a business model that defined apartheid as their sole reason for their existence.
 
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Ok... now I'm a little confused... is the primary purpose here to protect your capital by not investing in a doomed company like Exxon or is it to get Exxon to stop drilling for oil by devaluing the company... I agree with the first; not so much the second. Only one thing can reduce the amount of oil Exxon drills and that's how much is bought and burned.

Comparing fossil fuel divestment to South Africa and apartheid is a little disengenuous for many reasons... not the least of which being the fact that South Africa didn't have a business model that defined apartheid as their sole reason for their existence.
I think the concept of a social license may help to bridge this gap. The fossil fuel business model relies implicitly on a social license to dump unlimited amounts of carbon pollution into the environment without the costs or consequences being borne by the polluters. Divestment can contribute to the public and corporate recognition that the social license granted in the past can and should be brought to an end (through, for example, a revenue neutral pollution levy). See: http://www.teslamotorsclub.com/showthread.php/28339-Carbon-Tax/page5?p=607172#post607172
 
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Norway is considering divesting from fossil fuels:
Oil-rich Norway may divest from fossil fuels

Oil-rich Norway said Friday in an ironic twist that it would consider pulling its enormous state oil fund out of overseas investments in fossil fuels.

Norway, where oil revenue accounts for nearly a quarter of the economy, has the world's largest sovereign wealth fund, which has invested the nation's oil wealth in a range of stocks, bonds and other vehicles—including major oil and gas companies.
An independent panel of experts will report back to parliament in 2015 on the likely consequences of the fund—which is worth almost $840 billion (610 billion euros)—divesting from coal, oil and gas businesses, the rightwing ruling coalition said Friday.
It was not clear whether any pull-out would affect all fossil fuel extraction companies, or whether it would also include power companies.
"It is important to look at this issue from every angle before going ahead with changes," said Svein Flaatten, finance spokesman for the conservative party.
 
Carbon Bubble and Divestment Around the World

A Committee of the UK Parliament has been investigating the carbon bubble and has held hearings addressing, among other issues the risks associated with the valuation of fossil fuel assets which will have to be left unburned. As noted in the summary of that report:

Responding to climate change is perhaps the biggest global challenge of the 21[SUP]st[/SUP] Century, and the transition to a low-carbon economy will require investors to take account of the reality of a carbon-constrained world. This shift is happening, but there are obstacles to overcome—stock markets are currently over-valuing companies that produce and use carbon (a 'carbon bubble' consisting of fossil fuel assets which will have to be left unburned in order to cut emissions to the levels required to limit climate change), and there is a green finance gap with investments currently running at less than half of the level needed to deliver the decarbonisation implicit in national and international emissions reduction targets.
See: http://www.publications.parliament.uk/pa/cm201314/cmselect/cmenvaud/191/19103.htm
http://blueandgreentomorrow.com/201...ubble-warning-to-investors-and-finance-world/

Members of the European Parliament have also investigated the carbon exposure of the top 43 European banks and pension funds.They found out that in order to limit the risks posed by the ‘carbon bubble’ that countries should quickly shift towards a clean, low-carbon economy. The report also found that UK pension funds are among the financial institutions at greatest risk.

Reinhard Bütikofer, spokesperson for the Greens-EFA in the European parliament, said:

With over €1 trillion in high-carbon assets, we have identified that the carbon bubble is a significant risk particularly for a number of EU member states and EU financial institutions.
Investments in fossil fuel companies could therefore quickly turn into fool’s gold. The EU’s business-as-usual strategy entails greater risks and costs to our financial system.
See: http://reinhardbuetikofer.eu/wp-content/uploads/2014/03/GND-Carbon-Bubble-web1.pdf
http://blueandgreentomorrow.com/201...inforces-the-case-for-fossil-fuel-divestment/

On the other side of the planet, the Australia Institute has prepared a report called Climate proofing your investments: Moving funds out of fossil fuels, which examines the risks of investing in fossil fuel companies.

The report suggests that investors that move funds away from these firms do not risk lower returns, because most of the reserves the companies rely on are in fact “unburnable, as they are incompatible with global climate agreements.
See: https://s3.amazonaws.com/s3.350.org/images/Climate_Proofing_Your_Investments_final.pdf
http://blueandgreentomorrow.com/201...inforces-the-case-for-fossil-fuel-divestment/
 
WSJ journal article address the risk in the carbon bubble:

A Warning For Oil Investors: Is Carbon Riskier Than You Think? - Corporate Intelligence - WSJ

For oil executives there are few things more exciting than expensive, large-scale projects aimed at pumping more of the black gold. That doesn’t mean investors in oil majors should approve.
Large oil companies are betting up to $1.1 trillion on “high-risk” oil projects over the next decade, according to London-based think tank The Carbon Tracker Initiative. Investors, it says, should question the assumptions underpinning that spending.
“Many oil companies are betting on a high demand and price scenario,” said James Leaton, research director at the CTI, a group that lobbies to change the evaluation of carbon-intensive projects. “Investors need get ahead of the carbon supply cost curve to ensure capital is not being wasted.”
The CTI said it was especially concerned about projects which need oil prices to stay above $95 per barrel in order to remain profitable.
 
Slide 7. We've burned 321, can burn 565 more? (Sorry, I can't read the units).

We burned 321 over 150 years, but are burning faster than at the start. Widely guessing, we have another century of burning to get through the 565, and still stay within "safe" limits? That can't be right, can it? I'm surprised the amount we can still safely burn is so high.

(Really of course, we should burn zero more, not 565 - and to politicians the 565 looks like a goal to reach.)