Recently, New York City hopped on the anti-fossil fuel bandwagon, joining a number of other cities and colleges in a campaign to withdraw billions of dollars invested in companies like Exxon Mobil and Chevron. The goal: hold oil, gas, and coal companies accountable for the consequences of climate change.
But the most preposterous thing about this attack is the pretense that divestment in energy companies will curb carbon emissions. The notion that withholding pension funds from investment in Big Oil is great soap opera. It is in the same league as New York Gov. Andrew Cuomo’s promise to cease New York State’s investments in entities “with significant fossil-fuel activities” and “develop a decarbonization road map.” Or the pledge by celebrities like Leonardo DiCaprio to divest from oil, gas, and coal companies.
Hard as it may be for some politicians to accept, divestment is tantamount to not using fossil fuels at all, which is not feasible. Some have suggested that we use renewable energy sources instead, but solar and wind combined currently supply only 3.2 percent of the nation’s energy.
Besides, climate change is a global phenomenon. The assumption that divestment would reduce the market price for a share in a major oil, gas, or coal company is boneheaded. If New York City sells its shares, thousands of other investors will happily buy the stock. Hence, the market price of energy stocks remains the same, the company’s market capitalization is unaffected, and nothing changes.
Also, divestment offers nothing to force change at national fossil-fuel companies such as those in China and other Asian countries with fast-growing economies. Global carbon emissions would continue to rise. The attack against the American fossil-fuel industry promises only the worst of two worlds.
But the most destructive effect of the divestment movement – similar lawsuits were filed last year by San Francisco, Oakland and several counties in California – is its adverse impact on the financial well-being of state and local governments. For example, New York City has an estimated $5 billion invested in fossil-fuel companies. Divesting billions of dollars in city pension funds would have a potentially adverse effect on pension-holders who stand to lose money.
New York City also plans to take legal action against five major oil companies, seeking to collect billions of dollars in damages from having to deal with the effects of climate change. But the lawsuits against Big Oil – Exxon Mobil, Chevron, BP, Royal Dutch Shell, and Conoco Phillips — are based on the spurious argument that the companies benefited financially from polluting.
Leaving entirely aside the fact that until recent decades greenhouse emissions were not understood, much less a concern, the lawsuits unfairly place the blame for climate change on the five companies. If these companies were relatively large polluters in the global scheme of things, New York City’s lawsuit could be rationalized. But the suit says the five companies contributed about 11 percent of the greenhouse gases since the industrial age began. Are developing countries that generate more than half of the world’s greenhouse emissions any less culpable? The awkward fact is that today China and India are two of the largest emitters of greenhouse gases.
Besides, the lawsuits would impose potentially heavy costs and risk large job losses for oil and gas companies, but without affecting worldwide greenhouse emissions.
It’s no coincidence that New York City’s attack on Big Oil coincides with opposition to the Trump administration’s decision to open up for offshore drilling untapped areas in the Atlantic, Pacific, Gulf of Mexico, and the Arctic. These deposits contain an estimated 90 billion barrels of oil and 327 trillion cubic feet of natural gas.
Divestment campaigns and the suit against Big Oil would create the illusion of reducing climate emissions with little or no impact on share prices. It is bad enough for an attack on fossil fuels to be inordinately expensive or to be ineffective – it certainly shouldn’t be both.
Mark J. Perry (@Mark_J_Perry) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.
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