Climate Change - The confession of a Watermelon

This post should be seen as a call for reason within the Climate Activism movement. 

The other day, thousands of people around the world marched for the Climate. In UK, over the last year, what has been in focus for is the Divestment Campaign, calling for funds and Universities to divest their holding of fossil fuel stocks.

I have essentially two objections to this; minimal impact of campaign (thus the rising opportunity costs of doing it) and the lack of influence over dictatorial State-run oil companies. Note, this is not a discussion over climate change, over exact impact of fossil fuel-usage, temporal effects of damaged or the causation problem in arguing a "Stop Climate Change" reasoning. This is simply an observation to how the suggested means relate to the alleged ends.

But first, let me make a confession; I used to be a watermelon too. I see the temptation in these campaigns and I can follow the Kantian approach of "If it's wrong, don't do it". Also, the argument posed heavily by the people over at 350.org is pretty convincing:
"If it's wrong to wreck the planet, it's wrong to profit from that wreckage".

Problem here, though, is twofold. The first part involves a two-step "very-low-chance-of-success". That is, first you need to get all Universities and pension funds aboard - which has a very low chance of happening - secondly, the impact of the entire thing should you pass the first obstacle, is very limited. In order to show this, I grabbed some numbers from ShareAction, a similar organisation calling for pension funds to divest.

On its own account, the ShareAction campaign claims that the UK private pension system has more than £3 trillion worth of assets. Let's exaggerate and use £4 trillion to be on the safe side, also including some private savings and University Endowments etc. (£4trillion is about 1,5x the British Economy, by the way, so adding another trillion is not just a rounding error..).

Let's also assume ratios of fossil fuel exposure to rest of portfolio at between 2-5%, as seen below (from the Oxford Stranded Assets Report).

5% of £4 Trillion = £200 bn. 

The total Market Capitalization of the Big Five oil companies (Chevron, Exxon, BP, Shell, Total) is around £730 bn. If using this number, again, numbers will come out on the side of overestimating the effect Pension Funds have, because there are quite a few additional fossil fuel companies - but I'm using these companies as a proxy for the entire industry, thus benevolently exaggerating the effect the campaign might have: £200bn/£730bn = 27%. Interestingly, the share prices of these companies have had differences between top and bottom price over the last few years larger than 30%.

That is the entire chunk of fossil fuel investments (all British University Endowment, Pension funds etc) represent a value in these companies less than what regular share appreciation/depreciation already does in normal markets.

In other words, even if the campaign would be instantly accepted, face no objections and all funds/Universities would sell off their fossil fuel assets, the effect would be minimal. This, again, not even considering that there quite possibly would be neutral buyers for these shares, counteracting the effect aimed for by the Fossil Fuel Divestment campaign.

The Oxford report on divestment of Fossil Fuel companies concludes exactely that:

In this report we find that the direct impacts of fossil fuel divestment on equity or debt are likely to be limited. The maximum possible capital that might be divested by university endowments and public pension funds from the fossil fuel companies represents a relatively small pool of funds. .  - Stranded Assets Report Smith School of Enterprise and Environment

My Second Objection

Going after publicly-traded fossil fuel companies in the west is misdirected. Why?

This chart explains it pretty neatly; the vast majority of fossil fuel production is made by National Oil Companies, predominantly in dictatorship or questionable democracies (Russia, Venezuela etc).

That is, the argument about divesting obviously has a further aim than just to annoy oil companies. Climate Activists want to stop the production of oil, so that the impact of climate change is halted. But going after the companies in the West that represent a minor piece, some 20% of global production, is misdirected. If these countries (Saudi Arabia, Iran, Qatar) won't even accept internal criticism and protesters are violently put down, why would foreign University students protest be any of their concern?

A formula for success would look something like this:

Result = (Large IOC share of global production [x] percentage Unis/pension funds hold [x] chance they would comply with the Campaign demands)

We know roughly two of these componens, (Share of IOCs = 20%; and percentage all Funds can affect, estimated to less than 27%). We don't know how successful the campaign might be, but it is reasonable to assume that not all will divest. Still, 0,2 x 0,27 x Y = a very small amount, even if Y turn out to be close to 1.

What I am saying here is that the campaign is completely misdirected; if you care about climate change (which watermelons normally do) you'd be much better off/having a much greater impact if you went vegetarian, got a your bike instead of driving or switched your electricity provider to a non-fossil-fuel one.