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Environment

How Fossil Fuels Could Go in the Way of the Tobacco Industry

The fossil fuel divestment movement—the growing push for companies to chuck unethical oil stocks—recently got its largest backer in New York City’s pension funds’ decision to divest. But a lot of experts are worrying whether the movement is really doing anything to prevent the further burning of fossil fuels. Should such a task be done in collaboration with the fossil fuel industry rather than in opposition? Are the 850 signatory organizations—representing $6 trillion in assets—merely trafficking in symbolism?

Their concern isn’t without reason. The fossil fuel divestment movement’s deliberate flirtation with capitalist rhetoric has gotten it into a double-standard conundrum: trying to fight capitalism with capitalism. And the queasy truth is, divestment won’t actually hurt the respective company’s bottom-line—divesting is selling, so there needs to be a buyer on the other end, and there will always be a willing buyer in the approximately $200 trillion financial marketplace to keep the stock-price of fossil fuel companies from falling. But when it comes to bringing powerful public companies into relief, symbols are not “merely” symbols.

Symbols can set into motion real-world socio-economic consequences and progressive political action.

As powerful cultural symbols began to erode in the last 20th century, so too did the viability of the tobacco industry within the United States. Because of symbols, the United Kingdom’s government began an aggressive campaign to curb its plastic use by 2020. And it is with symbols, that the fossil fuel divestment movement can push governments to impose a price-mechanism onto the burning of fossil fuels, limiting their use in favor of cleaner burning energy.

The series of events that now provide climate activists with a strong platform began in the 1960s, and the focus was on race rather than environmental issues. Financial stakeholders made up of students, teachers and alumni at universities like Harvard, Michigan State and Columbia demanded their school boards divest their university’s endowment from any company with business ties to the South Africa apartheid government. By 1988, the movement had grown to 155 universities, 250 U.S.-based corporations and 160 international businesses—all working to challenge the apartheid government’s long-term viability.
The tobacco industry’s fall-from-grace provides a blueprint for how public opinion can disrupt a powerful economic sector.
Later, the strategy was employed by those worried over the health impacts caused by tobacco and the industry’s willful misleading of the public about tobacco’s detrimental effects. Lawsuits were filed, and a massive campaign was waged to stigmatize the industry. In response, global governments reacted. In 2005, the World Health Organization issued the Framework Convention on Tobacco Control, a legally binding health treaty addressing the global tobacco epidemic. The treaty’s list of legal obligation reads similarly to what is being suggested for oil companies: properly disclose risks of use, adopt tax and price measures to curtail demand, and support an economically viable substitute. The effect of the treaty can be seen in bodegas, where a pack of cigarettes now costs $13 while it costs less than a dollar to produce.

It is a pattern now being used by the fossil fuel divestment movement whose genesis is in a study conducted by the Carbon Tracker Initiative and Grantham Research Institute on Climate Change and the Environment. The 2015 study concluded that “60-80 percent of coal, oil and gas reserves of publicly listed companies” had to remain in the “ground” to stop global temperatures from rising 2°C above pre-industrial levels. (That temperature is the reference point used by climate scientists for when the worst impacts of global warming will begin to occur.) The study found that a majority of the fossil fuel reserves carried on companies’ balance sheets were worthless if future generations are to survive. And without them, the movement argues, fossil fuel companies would be insolvent (annual reserve levels for fossil fuel companies are more important than annual profits) and thus a poor investment.

Yet the fossil fuel divestment movement understood that change wasn’t going to arrive atop more facts. Instead, they decided to focus their efforts on removing the “social license” of the fossil fuel industry— the symbolic bastion that, as it did with tobacco, protects fossil fuel companies from political scrutiny. As with the tobacco industry, if you can remove the protections you can fix the economics.

Not that reigning in tobacco would be the same for fossil fuels—tobacco isn’t used in almost every global product and process. But the industry’s fall-from-grace provides a blueprint for how public opinion can disrupt a powerful economic sector. “Almost every divestment campaign reviewed, from adult services to Darfur, from tobacco to South Africa, was successful in lobbying for restrictive legislation affecting stigmatized firms,” said the Smith School of Enterprise and Environment at the University of Oxford, in its report on stranded assets. Once a public company has fallen out of favor with the world’s economic powers—i.e. its investors—and has been actively stigmatized, politicians can enact restrictive legislation without fearing political backlash. “If divestment can force oil companies to better report on the cost associated with their product and provide the space for policymakers to act, then regulators can use the company’s own data to impose a cost reflective of its true-cost,” an institutional investment consultant at Meketa Investment Group told me over the phone.
The cost of a barrel of oil is artificially low for a number of reasons, one of which is an estimated 600 billion dollar subsidy provided by the U.S government.
The cost of a barrel of oil is artificially low for a number of reasons, one of which is an estimated $600 billion subsidy provided by the U.S government. Another one being the price of fossil fuels doesn’t take into account the negative impact associated with its procurement and use: the effects on the environment and overall global health, the difficulty of its transport, and the geopolitical conflicts directly caused by our attempts to secure the commodity. The current administration’s unwillingness to face climate change runs deep, so the general subsidy will be difficult to remove. But the latter can be addressed with state legislation.

To do this, local governments can either introduce a greenhouse gas emissions trading system (ETS) or place a tax on carbon. The ETS works by setting a ceiling on carbon emittance through the issuance of “emission allowances” that companies can purchase in auctions. Low-emitting companies can then trade their allowances with higher-emitting companies, further incentivizing the adoption of more efficient business practices. Local communities can also use the funds raised through the allowance auctions to support local initiatives or commission public building projects.

Such a system is already being implemented on the East Coast. The Regional Greenhouse Gas Initiative or RGGI (pronounced “Reggie”) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont—which, over a three-year period, has curbed emissions by 50 percent, added $2.8 billion to their local economies and created 14,500 jobs.

Alternatively, a carbon tax charges companies a dollar amount for every ton of carbon produced. It’s a much simpler tool, introduced in regions like British Columbia that are more amenable to taxes.

The wider consequences of both pricing-systems will be the same: a signal to the market that the cheaper, more sustainable fuels are the way of the future. It would create market-based incentives for companies to transition away from more carbon intensive business models, and it would force companies to better report on the amount of carbon they are releasing into our atmosphere.

Still, even enlightened institutions are hesitant to put their weight behind the movement. Harvard University, for example, has not committed its endowment to divestment. They are worried “whether a focus on divestment does not in fact distract [them] from more effective measures, better aligned with [their] institutional capacities. ” To their credit, Harvard did respond to the fossil fuel divestment movement’s request. They hired Jameela Pedicini, the university’s “first-ever vice president for sustainable investing.” Much of her efforts will be focused on engagement with fossil fuel companies—an admirable yet futile proposition as the issue is with the company’s mission of extracting fuel for use. Harvard will be trapped in a sort of paradoxical hell: asking a fossil fuel company to agree to their destruction.

In announcing New York City’s intention to divest, Mayor Bill de Blasio told reporters that the New York government would also be suing BP, Chevron, Conoco-Phillips, ExxonMobil and Royal Dutch Shell for damages and future losses created by climate change: “As climate change continues to worsen, it’s up to the fossil fuel companies whose greed put us in this position to shoulder the cost of making New York safer and more resilient.” It was a gesture toward the changing public opinion—an emphasis on the fact that if fossil fuel companies won’t help voluntarily, we would force their hand. It’s a public challenge, and one that will need a vocal backing to help push forward.

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