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Divestment is shifting the geopolitics of fossil fuels

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Image: Wikimedia Commons/Guido van Nispen

Last December, the Divest-Invest campaign announced that "fossil fuel divestment funds doubled to $5 trillion in a year."

"The fossil fuel divestment campaign began on university campuses in 2011 but the new report reveals that concerns over investments in coal, oil and gas have now entered the financial mainstream, with more than 80 per cent of the funds now committed to divest being managed by commercial investment and pension funds..."

What? Pension funds are pulling out of oil and gas stocks? Sure, oil stocks are more volatile than bank stocks, but most balanced portfolios include energy stocks of some kind. Institutional investors have usually liked oil companies' long term stability, and the absolutely essential nature of oil to almost every other commodity on the market. Oil drives the industrialized world.  

As Jeremy Warner wrote in The Telegraph in 2013, "oil is the basic feedstock, or energy source, for much of today's economic prosperity and wealth...Without it, we would still be manually drawing water from well and stream, or riding to market in a horse and cart. For all the well-intentioned talk of decarbonisation, oil remains the lifeblood of most gainful economic activity."

More than that, as a 2016 Newsweek article put it: "oil is part of a general strategy to maintain and exercise global power, and it's a central part of the U.S.-centered global system...arguably the central geopolitical story of our times."

Take the 2003 U.S. attack on Iraq. Please! Many see George W. Bush's justification -- fear that Iraqi leader Saddam Hussein might attack the U.S. with so-called "weapons of mass destruction" -- as a cover for the U.S. and British oil companies' lust for Iraq's light sweet crude. British and American Big Oil did profit from the takeover. 

The Paris 2015 agreement was supposed to change everything. The world united to fend off the homegrown terror of endless wild, unpredictable weather. One hundred and ninty-five nations agreed to set national targets for reducing overall carbon emissions nationally. Each nation develops its own programs, setting different goals and targeting different sectors (home comfort, transportation, industry), and everyone reports back every five years on how well they are progressing. 

Almost everyone is targeting fossil fuel consumption and, by extension, Big Oil. Most of us see the oil business as gas stations, or as mammoth corporations, or as roughnecks wrestling with oil rig hoses. Actually, says a dear friend who's spent his career examining and investing in the oil business, actually the heart of the fossil fuel business is exploring. Exploring is the economic engine that drives everything else.

Up to now, most governments have provided tax incentives for explorations. Under the Paris agreement, environmentalists urgently want to restrict exploring, on grounds that the climate can't absorb emissions from the reserves we already know about.  

Some financial analysts are on the same page. Carbon Tracker says that it is "an independent financial think tank which provides in-depth analysis on the impact of climate change on capital markets and investment in fossil fuels, mapping risk, opportunity and the route to a low carbon future."

Carbon Tracker warned investors that Big Oil companies may soon become poor investments due to potential international intervention to halt climate change. "Fossil fuel companies risk wasting up to $2.2 trillion in the next decade, threatening substantially lower investor returns by pursuing projects that could be uneconomic..." warns one report.     

"Carbon Majors" started as a historical scientific study -- to identify which corporations dumped the most carbon emissions into the atmosphere from 1854 to 2010 -- that went on for eight years. The scholars involved published reports in 2013 and 2017 that pinpoint 100 fossil fuel companies -- a third of which are publicly traded -- responsible for 71 per cent of the world's industrial greenhouse gas emissions. 

Some oil companies have recognized the urgency of climate change. Exxon-Mobil endorsed a carbon tax in 2009, under Chief Executive Rex Tillerson, now Secretary of Energy. On the other hand, the major oil and gas companies have doubled their output since the world established the Intergovernmental Panel on Climate Change (IPCC) in 1988.

There are specific heavy emitters: "From 1988 to 2015," says Carbon Majors, "just 25 fossil fuel producers are linked to 51 per cent of global industrial GHG emissions." Most of these are state-owned companies, such as Russia's Rosneft and Gazprom. Russia is a "petrostate."

"Petrostates" are nations that rely heavily on oil and gas to drive their economies. In business terms, says a Bloomberg article, "Petrostates, which depend on oil for large percentages of their exports, are a notoriously dysfunctional bunch of countries. A few, such as Norway, Qatar and Kuwait, are rich. Most, like Nigeria, Russia and Iran, are much less so."

Oilprice.com, an online industry publication, puts it this way: "Unlike other countries, which largely finance their governments through taxation, petro-states rely on their oil and natural gas revenues. Russia, for example, obtains about 50 per cent of government income that way; Nigeria, 60 per cent; and Saudi Arabia, a whopping 90 per cent." As Andrew Nikiforuk says, when oil companies become the government's main source of revenue, they also become the government's main constituency.

Under Stephen Harper, Canada seemed to pursue the nightmare goal of becoming a petrostate. We significantly increased oil production and export, specifically heavy oil. In 2012, wrote Bruce Campbell of the Canadian Centre for Policy Alternatives, Canada was the world's 6th largest oil producer and the world's 9th largest oil exporter.

Still, his figures show that Canada did not reach the benchmarks to become a petrostate. In 2012, oil and gas accounted for less than 10 per cent of Canada's GDP, and less than one-fifth of Canada's merchandise exports -- although that was double its GDP share in 2002.  

The province of Alberta has a different profile. Oil and gas make up nearly 30 per cent of Alberta's GDP, 70 per cent of its exports, and 28 percent of government own-source revenues. "Thus Alberta most definitely qualifies as a petro-state," he concluded, warning that petrostates get hurt when the price of oil drops -- the situation the new Alberta NDP government is dealing with now.

Financing a country mainly through one industry has several problems, including economic instability due to price fluctuations, a narrow economic base (lack of diversity), and usually, undue industry political influence -- which on the national level sometimes includes pressure to go to war. After all, the Pentagon is the world's largest customer for oil.     
Since 2011, the Divest[Invest campaign has grown dramatically; 350.org built the student protest into a national "Divest!" program, urging institutions to sell off their stocks in energy companies. At least one stockbroker now offers investors a Divest-Invest Index to ease the transition from high to low carbon investments.

Cities like Seattle, Berkeley and Boulder have pledged to divest; so have Harvard and Stanford Universities, the British Medical Association, and even the Rockefeller Foundation -- both as a statement about climate change, and also as a statement of the future limited profitability of fossil fuels.

As of December 2016, 350.org said that "688 institutions and more than 58,000 individuals across 76 countries are now committed to divestment, including major financial institutions such as the world’s biggest sovereign wealth fund, owned by Norway, and Allianz and Aegon..."

And the momentum is growing. Last May 5 to 13 was International Divest Week, with 260 events reported in 45 countries, including states and nations making divestment pledges, along with the largest ever Catholic divestment from fossil fuels.

Priceofoil.com also found that the world's largest banks reduced their loans to dirty energy industries like coal. The "Banking on Climate Change: Fossil Fuel Finance Report Card 2017" report found that, collectively, banks lent "extreme fossil fuel" companies less money in 2016 ($87 billion), one fifth less than the $111 billion they lent in 2015.  

Now, the oil business has seen ups and downs before this. There have been other years when banks didn't want to lend money to some energy sectors. And, says my dear friend, oil company profits are down because oil prices have been below $50 a barrel for several months. Saudi Arabia keeps pumping oil even as prices drop, perhaps hoping to undercut the US.. shale oil market.
The big change is that there's even a discussion about whether oil companies should stop exploring for more exploitable resources. Stop? That's not a popular thing to say about what investment wisdom considers the engine that drives the economy.

On the other hand, many of the world's tensions can be traced back to territorial conflict over oil, exploration, or shipping (pipelines) -- constant dynamic forces for the last century. Remove that pressure, that driving force, and people at least have a chance to choose dialogue and political solutions rather than smash and grab.  

But we need to seize the moment, and make the transition to an economy that emphasizes co-operation instead of dog-eat-dog competition. Changing from fossil fuels to emission-free fuels is not enough to save us.

As Van Jones told the 2009 Powershift conference , "If we don't deal with the way we treat each other, if that's not part of this movement, let me tell you what you'll have. This is all you'll have.

"You'll have solar-powered bulldozers, solar-powered buzz saws, biofueled bombers, and we'll be fighting wars over the lithium for batteries instead of oil for the engines, and we'll still have a dead planet."

Image: Wikimedia Commons/Guido van Nispen

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