Governors, Disinvestment and Climate Logic

In January, Massachusetts Governor Charlie Baker and Vermont Governor Peter Shumlin, in State of the State addresses, vowed new climate change efforts.

Governor Baker proposed initiatives on renewables to meet Bay State energy needs.  He cited Massachusetts’ $37 million investment in green energy projects last year.  His proposal has the law and logic behind it.

Governor Shumlin asked Vermont to copy California by divesting coal and also considering removing ExxonMobil stocks from State pension funds – a request his own Democratic in the Vermont Senate recently disagreed with, holding a “no vote” to kill the bill. Governor Shumlin’s position flouted law, logic, economics and experience.

Let’s consider some points.

First, under law, governors, state treasurers and others who oversee state retirement funds have a fiduciary duty to the people to whom the pensions are owed.  Fiduciaries must advance the financial interest of those to whom pensions are due.  They must prudently seek to increase the value of the fund.

Second, divestment does not work.  In 2014, University of California finance professor Ivo Welch found that divestments, “as economic or symbolic pressure, have never gotten companies or countries to change.”  It is imprudent and vain to sell off high-performing, low-risk equities investments in to change the behavior of stock-issuing companies.

A 2015 study by University of Chicago Law Professor Daniel Fischel found that portfolios divested of energy equities produced significantly lower returns.  And Vermont State Treasurer Beth Pearce’s 2015 analysis projected that state pension funds would lose about $10 million per year by divesting energy stocks.

Third, a stock sale requires a simultaneous stock buy.  No company is put it out of business or harmed by such a sale.

Fourth, the advocates say fossil fuels directly impact climate and must be eliminated now (or else?).  But coal, oil and natural gas have been primary energy sources for more than 100 years, and provided 87 percent of America’s primary energy over the last decade.  The Energy Information Administration projects that they will provide 75 percent through at least 2035. International Energy Agency projections are similar, as are those by other experts.

The U.S. is the only nation that met its Kyoto carbon emissions goal – no thanks to EPA.  A former EPA Administrator boasted that EPA’s Clean Power Plan would “drive coal out of business,” but it’s being done by economics.  Coal fueled more than 50 percent of U.S. electric power plants in 2005, but only 34 percent in 2015.  Natural gas has replaced coal so fast that it now provides over 33 percent.  Thanks to fossil fuel companies, the Clean Power Plan goal will likely be met early.

At the same time, 8.5 gigawatts of new wind capacity and 7.3 gigawatts of new solar capacity were installed in 2015.  According to the Washington Post and Bloomberg New Energy Finance, “non-hydro renewables were about 2.2 percent of the U.S. electricity mix in 2005, and in 2015, they were 7.5 percent.”

So our clean energy future does not rely on wrongheaded “policies” that damage the economic security of our nation.

Governor Baker understands that.  Governor Shumlin and his climate activist allies don’t.


Morning Consult