The problem with Power Shift (and environmental NGOs in general)

This piece was published in a college newspaper

I received an email a few months ago from my department’s adviser about the Power Shift conference in Pittsburgh that was going to take place around that time. Power Shift is a grassroots organization that mobilizes college students to help the environment and fight against climate change. 

At first glance, Power Shift’s main objective is noble. Universities, it argues, are the foundation of American excellence and technology, and they also play a major role in influencing public discourse on nearly all political, economic and research-related issues. If such institutions withdraw financial support in oil, coal and gas companies, Power Shift argues, then those companies will lose billions of dollars in funding — which will somehow reduce pollution — and public discourse on climate change would increase. Two birds, one stone.

This line of reasoning, however, may ultimately prove to be flawed. Here is my message to all who think they are supporters of the Power Shift ideology.

First, if universities began divesting stakes in fossil fuel companies, all that would do is temporarily lower the stock prices (market price), or cost of investment (function of market price), in these companies. Strategic investors on Wall Street and elsewhere would all jump at this opportunity and flock in to buy undervalued fossil-fuel stocks because, by themselves, fossil-fuel assets do not lose value; as a result, the prices would drive back up to normal. So who profits if universities were to adopt Power Shift’s charter? Strategic investors. Who loses? University endowments, by taking on the risk of selling cheap.

Second, what is the goal of a university endowment? To support academic learning, not to push forward social or political agendas — however noble they may be. A university’s fund management team decides in which areas of the market to invest the university’s money in order to deliver the best possible financial results to the institution. These financial gains will pay the bills and enable the institution to achieve its academic goals. If that means investment in Exxon Mobil, why not? 

Third, this agenda is somewhat short-sighted. Power Shift may counter-argue that universities can invest in so many other market-based avenues such as stocks of thousands of other profitable corporations, government or municipal bonds, etc. But here’s something it fails to observe: Human society today is driven by fossil-fuel based energy. Nike, Apple, Sears, you name it — all corporations have a supply chain system that is built on the basis of fossil-fuel energy. This even applies to governments or municipalities: What do they use the money they raise for? Construction, powering up their offices, cleaning up neighborhoods. All of it requires energy that is predominantly fossil-fuel based. By not investing in British Petroleum, and instead parking precious capital in government bonds or another corporation’s stock, may not solve the problem.

Finally, this agenda may also be a little hypocritical. Power Shift supporters want universities to divest stakes in fossil-fuel companies. However, in our personal lives, all of us consume fossil-fuel based energy in one form or another. We drive cars, we live in homes, we use electricity, we fly commercially, we consume goods, we eat at restaurants where natural gas is the primary source of fuel, and so on. Why should an academic institution make poor financial decisions — to the merry of market arbitragers — to support a cause that, in itself, is ultimately a zero-sum game?

What we need is clean and renewable energy, yes. I’m confident that with time, the clean energy industry will figure out a way to deliver clean energy at competitive prices. When that time comes, the market will rearrange itself. Until then, all the hullabaloo is going to amount to nothing.



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