Lawmakers Are Firing Back At Fossil Fuel Divestors

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Yves here. Never underestimate the feral impulses of the red team. The fact that West Virginia is one of the leaders of the fossil fuel state retaliation strategy guarantees what was already pretty likely: that Senator Manchin will be demanding energy carveouts that at a minimum favor his state as a condition for his support of any climate change legislation.

How effective are these punitive efforts likely to be? Are these states willing to yank the authority to provide banking services in their state, or perhaps alternatively to restrict them to low profit retail banking? This effort is a lot of hot air unless its leaders know how to inflict pain without creating a lot of voter upset. Merely withdrawing state funding sounds nice but isn’t enough dough to have an impact.

By Haley Zaremba, a writer and journalist based in Mexico City. Originally published at OilPrice

As divestment from emissions-heavy fossil fuels and boycotting of the oil sector gain traction in both the public and private sector, a major backlash is brewing around the United States. Lawmakers in more than a dozen red states around the nation are attempting to push through laws that would pull funding from state-run and large financial institutions that take steps to decarbonize their own investment portfolios. In short, the message is simple: “if you divest from coal and oil, we divest from you.”

While there are many economies and communities reliant on fossil fuels in the United States whose current livelihoods are under threat from divestment trends, the latest movement to keep it in the ground may in fact be too little, too late according to experts. Just a couple of weeks ago, the International Energy Agency (IEA) issued yet another warning that if the world has any chance of avoiding the most devastating effects of climate change, the world’s remaining fossil fuels need to remain unextracted. “The pathway to net zero is narrow but still achievable,” Fatih Birol, the executive director of the IEA was quoted by Reuters last month. “If we want to reach net zero by 2050 we do not need any more investments in new oil, gas and coal projects.”

These calculations are built on the baseline as agreed upon by the Intergovernmental Panel on Climate Change (IPCC), the world’s premiere body of experts on global warming, as well as the 2015 Paris Agreement on climate change. According to experts, avoiding the very worst effects of catastrophic climate change will necessitate capping the Earth’s rising temperatures to 1.5 degrees Celsius above pre-industrial averages. Keeping warming to 1.5 degrees (ideally) or 2 degrees (unfortunately more realistically) will require the global community to reach net zero greenhouse gas emissions by just 2050.

All of this is to say that divestment, while divisive, is urgently necessary to reach that goal. “To achieve net zero, global investment in fossil fuel supply should fall from $575 billion on average over the past five years to $110 billion in 2050, with upstream fossil fuel investment restricted to maintaining production at existing oil and natural gas fields,” a Reuters report summarized.

The Biden administration, which has centered climate change as a foundational part of its platform with prominent climate-change advocate John Kerry at the helm, has put a lot of pressure on U.S. banking institutions to help reduce greenhouse gas emissions and decarbonize their lending and investment portfolios. Republican state treasurers, on the other hand, have vocally criticized this approach and have now galvanized to divest from divestors. Altogether, the republican treasurers leading this charge “collectively control hundreds of billions worth of assets,” Axios recently reported.

One of the most vocal state treasurers among the 15 that are ready to put their weight behind defending fossil fuels from divestment is that of West Virginia, a state that still relies on coal, one of the most emissions-intensive fossil fuels and therefore public enemy number one for climate activists, for a huge portion of the state economy. Other states included in the movement include North Dakota, Kentucky, Pennsylvania and Oklahoma, all of which depend on fossil fuels to a large degree to keep their economies afloat. These 15 state officials sent an open letter to John Kerry last Tuesday stating their intention to pull state funding from fossil fuel divestors and their overall stance against the federal government’s efforts to downsize the domestic fossil fuel industry.

While President Biden has made no shortage of enemies in coal and oil country, however, his presidency has overall been surprisingly good for the oil and gas sector. And while the clean energy transition will be anything but smooth and painless for states like Texas and West Virginia, the shift is inevitable. The world is heading in a cleaner, greener direction, peak oil is likely already upon us, and the sooner the United States gets on board, the better. While it must be acknowledged that coal and oil country deserve jobs as much as any of us, holding onto fossil fuels will not guarantee job security for much longer.

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22 comments

  1. a different chris

    >While it must be acknowledged that coal and oil country deserve jobs as much as any of us

    Well why don’t we just pension the coal people off for a start? If you are over, say 40 years old you get your current salary inflation adjusted until SS kicks in. If you are less than 40, you get a year for every year you’ve been in the industry. Go write poetry or something. And no complicated tax bills, you can get a job the next day if you want and it doesn’t change anything. If you become a zillionaire due to day trading, you still get the money. Give it to charity if you want.

    We can spend billions building crap airplanes (cough, F35 cough) but we can’t show a group of people, that don’t even fill an average NFL stadium, that worked hard in the wrong industry that we did appreciate it.

    It’s 50,000 people. We can have some sliding scale for people that already left, too. This shouldn’t be a big deal.

    Yeah oil’s harder. Plastic is actually a really great thing if we can stop throwing it away. Can we make housing or something with it?

    Reply
    1. JohnnySacks

      Nope, cutting out the corporate middleman is a non-starter.

      Your thoughts are the same as mine regarding the military industrial complex – just pay the workers to stay home and cut out the corporate middleman for a net win, the useless product all those wasted lives produce isn’t required for anything meaningful anyways.

      Reply
    2. topcat

      When the Postal system was privatised in Germany back in the mid 90’s this is basically what happened. Everyone over 45 (I think) was offered early retirement and they all buggered off. Worked very well. Should also be done in the coal industry but there you have RWE which is a private company still making money on coal which does not want to shut down. The old Deutsche Bundespost was a state run organisation and therefore did what the state wanted.

      Reply
    3. drumlin woodchuckles

      Its a good idea and should be overtly stated more often and in more places. A Grateful Nation should give immediate retirement at full coal pay to any thermal-for-power-generation coal miners who want to just quit and take the full pay equivalent retirement. All of them. Even the young ones.

      Reply
  2. russell1200

    I am sorry, but where again are we going to get the magically appearing renewable (mostly without battery storage) electricity to do this heating and cooking?

    So we won’t (efficiently) directly cook/heat our homes? Modern home gas heating can get well above 90% efficiency. New gas plants are ~ 60% (up from ~45%) efficient. Add in the ~5% transmission loss to the net production.

    So what you are really going to do is saddle people a single source of power so that they can use up more fossil fuels. Until you get large scale energy storage (or a 24/7 source) at renewable sites, you aren’t going to accomplish anything.

    Reply
    1. Howard

      >>Until you get large scale energy storage (or a 24/7 source) at renewable sites, you aren’t going to accomplish anything.

      ….or until humanity just stops using all that energy, which means going back to a very primitive form of existence.

      Realistically that won’t happen until industrial society collapses.

      Reply
      1. russell1200

        Agreed

        With a huge corresponding drop in population.

        A die-off that most don’t want to recognize.

        IMOP, you could make that die-off problem a whole lot smaller/gradual if you made it one of your primary goals. But that isn’t realistically going to happen either.

        Reply
        1. Howard

          Also agreed.

          What leaders in their right minds would ever commit political suicide by trying to lead a people into any such thing, necessary though it might be? It would be Jimmy Carter’s sweater speech X 1000.

          Only reality itself will bring the solution to us. If perhaps enough people and groups are modeling what to do, their examples could help ease the catastrophe by example. I am thinking especially of the Amish and the homeless.

          Reply
          1. drumlin woodchuckles

            My personal at-home electricity use this last month was 2 kilowatt-hours per day. Is that a personal example of anything?

            ( My at-work electricity use is always huge. But I’m not quitting my job).

            Reply
    2. Yves Smith Post author

      Divestiture from fossil fuels doesn’t even begin to stop production. Even if it succeeds in lowering stock prices (ie, increase the cost of equity), why do fossil fuel companies need to invest more than their current cash flow? The amount of fossil fuels needed for base load (assuming people don’t wake up and realize nuclear might not be so awful in this beauty contest between Cinderalla’s ugly sisters, we at least should not be shutting down nuke plants that are in decent shape) are lower than current output levels. There’s a lot of room for contraction.

      Reply
      1. Pwelder

        Agree entirely about the need for nuclear. If there’s money to spare, that’s where it should be going.

        Reply
    3. Anonymous

      >> Until you get large scale energy storage (or a 24/7 source) at renewable sites, you aren’t going to accomplish anything

      @russel1200 Wow. I did not think of that. You’re right! Maybe we should stop investing in renewable technology until the necessary technology magically appears, thus making investing in renewable technology worthwhile. A classic, time-tested, buy-high, sell-low investment strategy. Ugh!

      BTW, your wrong about the efficiency on fossil fuel. Your numbers are of the last-mile, not well-to-home. While at one time, US oil field yielded 20 barrel of oil with the energy of 1 barrel of oil, today shale yields is 3:1. Before it comes out of the well itself, FF efficiency is already cut to 33%.

      Reply
    4. Pwelder

      There’s a quirky old book that should be required reading for anyone involved with energy policy: Mackay’s “Extraordinary Popular Delusions and the Madness of Crowds”.

      Our climate jihadis are busy writing their very own chapter for the next edition.

      They just know, for sure, that net zero by 2050 is necessary to avert disaster. So in their view it’s necessary to put the energy economy through the wringer, at vast expense, right this minute. That includes degrading the quality and resilience of the electric grid as russell indicates.

      Of course, the science doesn’t begin to support the proposition that net zero is the best among the many available policy options. They don’t care. They’re sure they know the answers. They’re all in, with no hedges allowed against the chance they might be mistaken.

      Ordinarily I’d be inclined to whip up some popcorn and watch the comedy unfold. But in these times, it’s not so funny. The mess these people create will greatly improve The Donald’s chances of regaining power.

      Maybe not the most likely outcome, but a much higher probably than the climate disaster scenarios being waved around.

      Where’s H. L. Mencken when you really need him?

      Reply
  3. LowellHighlander

    I’d like to ask why it would not be feasible to establish an office in the U.S. Department of Labor to promote and develop worker-owned companies (i.e. worker-owned co-operatives, like New England town-hall democracies)? Surely, the Federal government could then set such enterprises up in states where employment now relies heavily on fossil fuels, especially coal. These companies could, as the Federal government did a la Friedrich List in the early 19th Century, be protected so that they could go into production of energy storage (e.g. batteries), solar panels, wind turbines, etc. In fact, the low-hanging fruit – to get such companies started and operating as a worker-owned firm – would be to retrofit buildings of any kind to reduce their energy consumption. Ultimately, these firms could move into production and marketing of bio-diesel.

    Seems to me that this would be a fairly easy sell in places like West Virginia: “My Administration will help you make sure that your sons (and daughters) never have to go down into the mines to risk your health and lives again for the profits of out-of-state multi-millionaires.You will own your own companies in an industry with oceans of economic potential. And these companies will never be taken away from you.”

    Reply
  4. Henry

    I would recommend taking a look at Nate Hagen’s paper “from the lens of the superorganism” or listen him present the data here: https://www.youtube.com/watch?v=2DpfsqjQbP0&t=2s. as it shows that if we want to make this transition we will have to change fundamentally how our economy functions as the incentive structure aligns our society to operate as a mindless superorganism that consumes ever more energy as it grows 2%/yr (doubling every 35 yrs). A promising fact, at least for the environment, is that we’ve likely reached peak carbon extraction as for the last 10 yrs or so that growth has come almost exclusively from fracking in the US, which required massive amounts of resources from the future to pay for it and since we are not actually generating those promised resources in sufficient levels the losses are pilling up. The US still imports most of the oil it uses and again pays for it with resources from the future so again the debt is piling up. China is already experiencing energy shortages as the amazing thing about coal is while it is cheap to dig out of the ground and burn (if you ignore the environmental impact) it is not so cheap if you run out locally and have to transport it hundreds of miles or build a new power plant at the source. The same problem can be said for oil as while a typical internal combustion engine is 20% or so efficient when you subtract the energy required to extract, transport, refine, and again transport the fuel the amount of actually useful energy is pretty small and thus a reduction of even 1% in efficiency anywhere in the supply chain can have a large impact on the amount we need to extract in order to maintain our current growth. Nate also shows that our industries, like industrial ag (think of the ridiculous amount of energy embedded in a can of coke), because they use cheap energy to leverage up their production are highly sensitive to price increases thus as Gail Tverberg has shown instead of getting ever increasing prices they instead become ever more volatile as we start to feel the strain we oscillate between supply constraints and demand constraints. We are currently entering a period of supply side constraints so expect fuel prices to rise until they incentivize the risk to bring production back online while at the same time cost of goods rise beyond what most can afford to pay and demand begins to drop. The size of the swing is dependent on how much leverage the system can generate.

    Reply
  5. Peter

    One simple statement of fact – back re: WSJ and Barron’s statistics & one question.

    The average return of the top Oil and Gas related ETF’s vs the return of the S&P 500

    Average Return Oil & Gas ETF’s vs S&P 500
    3 year average return = -21% S&P 500 = +15.4%
    5 year average return = -11% S&P 500 = + 14.89%
    10 year average return = – 11.86 S&P = + 12.32%

    Question – why would any investor looking to make money in the stock market invest in the O& G industry? S& P hugely outperformed in every period and the O& G industry over the past 10 years had the worst performance of any market sector.

    I have been an investment banker and equity analyst for 35 years and none of our analysts even considered bringing O&G investments to weekly investment meetings.

    Reply
    1. BrianM

      This is the mystery to me. As the article says, the trend is clear. Even with Trump’s huffing and puffing, no one wanted to invest in coal. It seems to me that lenders could get their money back, but oil companies as long term equity investments are screwed. If institutions are “trapped” in them then they are condemned.

      Reply
  6. Anonymous

    Rather than pussyfooting around, telling state pension funds which funds that CANNOT invest in, red state govt should just go head-first and demand that funds MUST invest in fossil fuel.

    Time for WV, TX, KY, etc to put their money where their mouth is.

    Reply

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