Morals Arguments Aside: The Financial Case for Fossil Fuel Divestment in Higher Education
Fossil fuel divestment has been charged largely as a moral movement. Depending on your point of view, this is absolutely true. Divestment alongside the Keystone XL pipeline have become rallying cries for the environmental movement, generating substantial political capital. When this new found political capital is combined with favorable economics, you begin to see regulatory action like Obamas’ Clean Power Plan. While I am primarily concerned with tackling climate change, my interest in divestment in higher education is much more down to earth. Worldwide financial markets carry a dangerous carbon bubble, and this threatens the endowments of institutions I cherish.
Merrimack College is a small liberal arts school in Massachusetts. It prides itself on providing a well-rounded education, excellent training for STEM students, and provided a place for me to grow up. My parents both graduated from Merrimack, they even got married there. My mother worked there on and off for over a decade. Its’ there I completed my B.S. in biology, where is I met many good friends. I had professors who had my parents, and it that brought me a small sense of joy.
Fossil fuel companies represent a major bubble in the existing financial markets. We’ve already begun to see what such a financial bubble may look like with coal companies. The total market value of publicly-traded U.S. coal companies between April 2011 and April 2014 dropped 63%. While this is largely attributable to the expansion of shale gas, it may be a general warning sign. The expansion of shale gas and subsequent drop in price has provided the political cover necessary for coal plants to be targeted for a new set of regulations (the Clean Power Plan). Renewables are getting ever closer to price parity with natural gas (granted with subsidies), and when that begins to happen we may begin to see natural gas give way as well.
Small colleges across the United States are closing their doors; which is hardly news. As my generation faces down their school loans, our younger members are moving away from costly small private colleges. Still the classic American liberal arts education helps to develop well rounded citizens. While I certainly felt a little bored my senior year being at a small school, I knew from experience at UMass Lowell that I go the attention I needed at a smaller school. I’m not even religious, and I thoroughly enjoyed the opportunity to discuss organic chemistry and theology in the same day.
According to Carbon Tracker fossil fuel companies carry stranded assets. Fossil fuel companies are valued with the assumption they will sell all of their product (oil, gas, etc). Regulatory action such as an agreement at the 2015 Paris talks that restricts CO2 emissions would inevitably require these companies not to sell all of their product. Thus if humanity takes serious action on climate change, barring a technological stop-gap, fossil fuel companies will lose their value. The potential for a rapid devaluation of fossil fuel companies creates financial risk.
In my graduate work I’ve attended schools whose endowments that I’m sure could take a blow from the perceived carbon bubble. Harvard has an endowment around 31 billion dollars. I do not know the details of the endowment for Indiana University, but it is a large university system that I assume could withstand the shock. I imagine the UMass system is in a similar position. Likewise I don’t know how the endowment is doing over at Merrimack. I do know that it’s a great school that I’m very happy I attended. I hope they’re doing their homework.
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Christopher Round is a doctoral candidate at George Mason University studying information technology and climate policy.