Why Stanford Should Keep Its Coal Stocks
Stanford University this week struck a blow for campus political correctness when it agreed to have its $18 billion endowment fund purge itself of coal stocks.
On campus—and even off-campus—divestment has long been a popular means of channeling outrage. Back in the 1980s, when I as an undergraduate at Cornell University, the campus was roiled by huge protests and sit-ins arguing that the university’s endowment should divest from stocks that did business with the pariah Apartheid regime. Palestinian groups are promoting a BDS (Boycott, Divest, Sanction) strategy against companies that do business in the occupied territories. Today, much of the divestment energy surrounds … energy. At Harvard, a student group is urging the university’s $32. 7 billion fund to stop investing in fossil fuel companies, sell some $17.3 million in direct holdings of 200 large publicly traded fossil fuel companies, and channel money to socially responsible funds. Norway, which has an $840 billion sovereign wealth fund that has been filled up with (irony alert!) oil-related revenues, has appointed a panel to determine whether it should sell the shares it owns in oil and coal companies.
Divestment can be a highly public way of expressing moral outrage by refusing to be financially or commercially complicit in a trend or situation that is deemed unpopular or damaging. And in the case of South Africa, the divestment effort helped hasten the demise of an evil regime. But when it comes to energy, divestment from coal or fossil fuels is much more symbolic—and not very meaningful.
An individual’s (and an institution’s) complicity and involvement with coal or fossil fuels, goes far beyond owning stocks in a company that mines coal or drills for oil.
When students at Stanford and Harvard power up their computers, charge up their iPhones, gas up their Toyota Priuses, turn on their air conditioners, or fly to Cancun for spring break, they’re participating in the fossil fuel economy—to a far greater extent than they would by owning a few hundred shares of any particular company. California is among the states that has gone the farthest to wean itself from using coal to make electricity inside the state’s borders. But in 2013, thanks to imports from other states, coal accounted for about five percent of the electricity used in the Golden State. How about Massachusetts, Harvard’s home state? In 2013, Massachusetts got 12 percent of its generation from coal and 63 percent from natural gas (a clean-burning fossil fuel, but a fossil fuel nonetheless).
Targeted divestment, like many passive-aggressive acts, isn’t particularly effective. When the shares are sold, they will be bought by somebody else. As The New York Times reported, Stanford will sell shares in “about 100 companies worldwide that derive the majority of their revenue from coal extraction.” But the coal extractors are just giving their customers what they want. Coal may be a harmful substance when burned, like tobacco. But with tobacco, lots of people besides farmers prosper from the production, use, sale, and distribution of cigarettes—retailers, convenience store owners, distributors, advertising and media companies. Coal is a raw material, used to make electricity and heat that powers factories, transportation systems, and lights. Are we to divest from utility companies that use coal—even though they are also the ones leading the charge to build out a natural gas and renewable portfolio? And how about the industrial companies that use them?
In fact, most people are carrying around coal-based products in their pockets. Electricity is a huge input into the manufacturing of everything from clothes to iPhones. Many of the manufactured goods we use come from China. And guess how China makes electricity? In China, coal accounts for a whopping 79 percent of electricity generation. As the U.S. Energy Department notes, China consumes nearly as much coal as the rest of the world combined. Selling the shares of coal-mining stocks, while holding on to the shares of companies whose business model relies on manufacturing goods in China, doesn’t really get at the root of the problem.
Breaking the link between fossil fuel and our energy-fueled lifestyle requires a certain amount of self-abnegation. Bike, don’t drive. Travel less. But it also requires breakthroughs in research, and changes in policy and market structure. And here, universities like Stanford and Harvard are already contributing a great deal. They employ and fund researchers, incubate and test new technologies relating to energy storage, production and carbon capture. Their endowments hold shares of publicly held companies that are working to produce energy from renewables, or that are rolling out energy efficiency programs.
Divestment may an appealing short-term action for people concerned with the effects of coal and fossil fuels on the environment. But in the long-term, investment matters a lot more.