Fossil fuel divestment campaigns: Universities can do much better.

Divestment From Fossil Fuels Isn’t the Best Path for Eco-Conscious Universities

Divestment From Fossil Fuels Isn’t the Best Path for Eco-Conscious Universities

Moneybox
Commentary about business and finance.
Sept. 22 2014 12:07 PM

Divestment Isn’t the Answer

To destroy demand for fossil fuels, universities can do a lot better than just selling some stocks.

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Demonstrators promote the Divest Harvard movement on Oct. 26, 2013, at Harvard University. Universities can do more good on the climate front by investing, however, than divesting.

Photo courtesy Divest Harvard/Facebook

There’s a nationwide movement afoot on college campuses to have endowments and other pools of philanthropic money divest from fossil fuels—i.e., to sell stocks in companies that mine coal or drill for oil. In May, Stanford decided to dump coal-mining stocks from its endowment. Divest Harvard is urging the Stanford of the East to do the same. Over the weekend, hundreds of thousands of people attending the People’s Climate March in New York City added their voices to the rising chorus. And on Monday—irony alert—a fund controlled by the Rockefeller family, heirs to the Standard Oil fortune, announced it would join the fossil-fuel divestment movement.

Students at Berkeley have urged the University of California to follow suit with its $91 billion endowment. “In the tradition of successful divestment campaigns against the South African apartheid, Sudan, and tobacco, we are targeting the UC Regents and asking for divestment,” the Fossil Free UC campaign urges. “Specifically, Fossil Free UC is asking the university to adopt a five-year plan to freeze new fossil fuel investments, implement a negative screen for the top 194 companies and roll out investment alternatives that address climate-risk and sustainability.” On Sept. 17, however, a committee of the university system’s Board of Regents rejected the call for divestment.

As a kid reporter at the Cornell Daily Sun in the mid-1980s, I covered the heady South Africa divestment protests. The moral case was quite clear: Universities and the people who studied and worked there wanted to reject the repressive apartheid regime. But it’s more complicated with fossil fuels. Pressuring a company to leave a country is a much less complicated proposition—and an easier ask—than asking a company to leave a global industry. And simply selling stock doesn’t actually punish a company much these days. Push a button and sell some shares of Peabody Energy or Exxon Mobil, and they will very likely be snapped up by another investor: an index fund, a mutual fund, perhaps even another college endowment. In the 1980s, it was very easy for individuals to boycott South Africa personally. But even if your university divests its shares in oil and coal companies, it—and you—will continue to provide revenues to many of those exact same companies. Fill up your gas tank at a Mobil station, ride a gasoline-powered university bus, fly home for the holidays, or turn on the university-provided air conditioning or heating, and you’ll be paying companies to find and consume fossil fuels.

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Divesting from fossil fuels also poses a complicated investment question. In the 1980s it was very clear which companies were operating plants and factories in South Africa and which were effectively boycotting this small market. Today, it’s harder to clearly identify the fossil-fuel bad guys. Many oil and coal-mining companies are also in the renewable energy business. And what about the utility companies that buy all that coal and burn it? Power producer NRG is one of America’s single largest consumers of coal. But it’s also working on new carbon-capture technology, owns enough solar capacity to run 1 million homes, agreed this spring to buy America’s largest wind farm, and sent employees to the climate march.

Fortunately, there’s a path for universities and their denizens that is more morally consistent, and more socially and economically useful, than just dumping the shares. Because they are huge economic forces, universities can have a greater influence when they invest (or promise to buy) than when they divest or boycott. Socially conscious consumption can displace the demand for the stuff you don’t like and create demand for the stuff you do like. Institutional purchasing activities and policies help create economic facts on the ground, set standards, and send important market signals. For example, if a university is the dominant employer in a small town and establishes a higher minimum wage, that would likely push the wage floor up throughout the area.

Though it resisted divestment, the University of California is pursuing this more difficult path with energy. It’s a giant system, with 10 campuses and five medical centers, 233,000 students, about 190,000 employees, and thousands of buildings. Powering these facilities and people takes about 250 megawatts of electricity generating capacity, roughly that of a “medium size city,” as the university notes.

Right now, the system’s electricity supply is largely free of coal, if not fossil fuels. It gets about 73 percent of its power supply from natural gas sources. But the University of California is seeking to slash its emissions to 1990 levels and wants to become “carbon neutral” by 2025, which, it says, would it make it the first research university to do so. (Here’s the plan.) That’s an ambitious goal—one that the town of Palo Alto has already achieved. And like Palo Alto, which owns a big chunk of a hydroelectric plant, the University of California is becoming more directly involved with energy markets.

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Earlier this year, the system became an “Electric Service Provider,” which lets it function something like a utility: It can buy or generate electricity and then sell it directly to certain large customers. The system plans to act as a centralized purchaser and provider of electricity to several of its units, including the campuses and medical centers in Irvine, San Diego, Santa Cruz, and San Francisco.

Earlier this month, the University of California announced a transaction that it described as “the largest solar energy purchase by any U.S. higher education institution.” It struck a deal with Frontier Renewables to purchase the output of two large solar farms—with a combined capacity of about 80 megawatts—that are currently under development and should be up and running in 2016.

Once those plants come online, several UC campuses and medical centers will get about 60 percent of their electricity from renewable sources, displacing a huge chunk of power generated by fossil fuels. What’s more, virtually every UC campus has its own local program to add renewable energy. “Across the university’s 10 campuses, 11.4 MW of solar photovoltaic (PV) technology has been installed, with an additional 22.9 MW of solar PV planned or in construction within the upcoming year,” the University of California notes. The San Diego campus, for one, has lots of solar panels and a 2.8-megawatt fuel cell, “the largest on any college campus,” that runs on waste methane gas.

By using its financial muscle and consumption power, the University of California is helping to build an industry and create a market, and it’s contributing to the growth of a carbon-free economy. These moves will have a much greater real-world impact than selling off shares of Exxon Mobil. Universities should go ahead and divest if it makes them feel better. But they should realize that it’s a poor use of their financial muscle.

There’s much more that other universities can do. Harvard currently gets about 17 percent of its electricity from renewable sources. Given its resources—an endowment well over $30 billion, the huge growth of renewables in Massachusetts—Harvard could easily do much, much better. Jacking the proportion of renewable electricity up to 60 percent or 70 percent would have a far greater impact on the economy and climate than the divestment strategy advocated by Divest Harvard.

After destroying the demand for fossil fuels to create electricity, universities should work on destroying the demand for fossil fuels to move vehicles. No, Berkeley administrators shouldn’t go out and purchase a fleet of Teslas (and many of them probably own Priuses already). But they might consider investing in electric buses made by Proterra, for example. The purchasing power of universities is a much more powerful force than the moral opprobrium they unleash by selling stocks. I’ll even make a first stab at a snappy slogan, which activists should feel free to improve upon: Don’t demur! Procure!