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In Conversation with Robert Litterman: divestment is a blunt weapon in the climate fight

Divestment from fossil fuels, advocated by climate action campaigners such as Bill McKibben, is a blunt instrument for reducing carbon emissions, according to climate risk analyst Robert Litterman in an…

Universities have led the charge on fossil fuel divestment - but is divestment the best way to manage climate risks? Light Brigading/Flickr, CC BY-NC

Divestment from fossil fuels, advocated by climate action campaigners such as Bill McKibben, is a blunt instrument for reducing carbon emissions, according to climate risk analyst Robert Litterman in an interview for The Conversation. Responding to climate risk, he argues, will depend on global action to reduce emissions.

Climate change poses both short- and long-term risks, particularly to infrastructure, real estate and fossil fuel reserves, both through extreme weather events and climate policies that punish greenhouse gas emissions.

Litterman worked for 23 years at Goldman Sachs, and retired in 2009 from head of risk analysis. He is now Chairman of the Risk Committee at global asset managers Kepos Capital LP. He is also a Director at the Asset Owners Disclosure Project. Recently in Australia, he was interviewed by climate economics expert Hugh Saddler at the Australian National University. Saddler also sits on the board at The Climate Institute.


Hugh Saddler: What sort of risks does climate change pose to investments?

Robert Litterman: Climate change exposes investments to many types of risks, including both anticipated and unanticipated impacts, and over both short and long run time horizons.

In the short run the first type of risk is the direct physical impact of extreme weather on exposed infrastructure. A second type of short run risk is the decline in demand for assets that create emissions because incentives are created to reduce the production of greenhouse gas emissions.

In the longer run, there are both the direct impacts of weather-related outcomes as well as the indirect effects of climate change such as rising temperatures, severity of storms, floods, droughts, forest fires, rising sea levels, acidification of the oceans, loss of ecosystem services, large increases in species extinctions, disease, human conflicts, food scarcity, etc.

In addition to the anticipated impacts of climate change, there is also the risk of exposure to a sequence of events that creates positive feedbacks leading to time compression and potentially catastrophic outcomes.

There may also be legal liability, similar to that levied against tobacco companies, for those corporations that have either created significant emissions and/or taken actions to prevent appropriate regulatory responses from being implemented.

Hugh Saddler: Which economic sectors/industries are most exposed to these risks?

Robert Litterman: Infrastructure investments and real estate are most exposed to extreme weather impacts, whereas high-carbon, expensive to extract, fossil fuel reserves are most exposed to the pricing of emissions.

Hugh Saddler: How large are these risks?

Robert Litterman: The size of the risk depends on the valuation of the exposed assets and extent of their exposure.

The magnitude of the exposure of infrastructure depends on its location and resilience to extreme weather.

The size of the exposure of fossil fuel reserves depends on the intensity of the emissions they create as well as the extraction expense. High-carbon fuels and those which are relatively more expensive to extract are the most exposed.

From a portfolio perspective, the magnitude of the total exposure depends on the concentration and size of the exposed assets.

Hugh Saddler: What is the overall implication of these risks for US investments as a whole? And for Australian investments, particularly superannuation funds?

Robert Litterman: The main implication of climate risks is that there is an urgent need to create appropriate global incentives to reduce greenhouse gas emissions. The atmosphere’s ability to safely absorb emissions is a scarce resource that is currently being wasted. Given the virtually unbounded magnitude of worst case climate change outcomes prudent risk management requires that the potential damages created by emissions be reflected in economic activities that create additional greenhouse gases. These implications are true for all investors, including those in the US and Australia.

Hugh Saddler: Is divesting from fossil fuels an economically sound strategy for an individual or, most particularly, a super fund, rather than just a moral argument?

Robert Litterman: Divestment of all fossil fuels is a rather blunt, expensive, and potentially risky response to the dangers created by climate change. It rests on a false premise that all fossil fuel companies are somehow unethical or immoral.

Fossil fuel companies are, for the most part, profit maximising entities that are optimising the valuation of shareholder’s investments given the irrational incentives that governments have created for them.

Certain fossil fuels, such as coal, which are often referred to as “stranded assets,” are clearly exposed to the potential loss of value created by the increased expectations of the introduction of incentives to reduce emissions. This asset valuation risk can, and should, be hedged.

Other fossil fuels, in particular natural gas, which is much cleaner than coal, may actually become more valuable, at least for some period of time, if those appropriate incentives to reduce emissions are put in place. Rather than divesting all fossil fuels, an economically sound response for investors is to hedge the stranded assets in a fund.

Hugh Saddler: What are the impediments to more comprehensive disclosure to individual investors of the nature and size of the risks? Are the regulation settings right?

Robert Litterman: Disclosure of climate risks embedded in portfolios is made extremely difficult by the complexity of the risks involved and the uncertainty of the global policy response. There have been few, if any, clear guidelines for disclosure, although clearly many funds are moving in the direction of creating additional transparency for their beneficiaries of the extent of their exposures.

Hugh Saddler: The coal industry argues that coal will be a sound investment for decades thanks to consumption in China and India. Divestment advocates say coal mines will become “stranded assets”. How are we to make sense of these contrasting arguments? What is the evidence that investing in coal is unsound?

Robert Litterman: The concept of a “carbon budget” refers to the unknown quantity of emissions which can be safely allowed into the atmosphere. The well-understood fact that higher levels of greenhouse gases in the atmosphere lead to higher risks of extreme, and potentially catastrophic climatic outcomes implies that a rational, risk-averse society should immediately create incentives to sharply reduce emissions.

To the extent that expectations of the creation of such incentives become more likely and at higher levels than currently exist, demand for coal, and thus it’s expected value, will decline.

Future consumption of coal in China and India, as well as the rest of the world, is highly uncertain and dependent on the expected future price of emissions. Arguments that rely on extrapolating past, unsustainable policies indefinitely into the future are fatally flawed.

The best evidence to date that investing in coal is unsound is the recently announced policy of the Stanford University endowment that it is divesting of its coal assets. This decision is likely to be the first of many such actions by investors around the globe. Clearly, investors who anticipate such a response will want to act before valuations are impacted.

Join the conversation

84 Comments sorted by

  1. Suzy Gneist
    Suzy Gneist is a Friend of The Conversation.

    Multi-tasker at Graphic Design & Montville Coffee

    "[Divestment] rests on a false premise that all fossil fuel companies are somehow unethical or immoral." Excuse me, but one does not follow the other that is oversimplification at its worst. An argument resting on this statement/conclusion also rests on a false premise.

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    1. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Ross Barrell

      Today the ABC Just-In reports that the Greens say that they can no longer trust the Abbott government in any negotiations - see http://www.abc.net.au/news/2014-05-26/milne-says-pm-cannot-be-trusted-in-negotiations/5477198

      The article gives a good reason for Milne finding Abbott untrustworthy, yet the response from the Liberals is Abetz saying "When it comes to extreme policy positions I think everybody accepts the Greens have the mortgage on that in the Australian parliament."

      The Guardian also reports that PUP won't talk to Abbott (strangely the Guardian doesn't mention the Greens and the ABC don't mention PUP).

      So Abbott has done a great job in making it harder, if not impossible, for him to get things through the senate.

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    2. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Henry Verberne

      Yes Henry, the last budget shows that Abbott is tea-party extreme.

      But all the Rudd/Gillard budgets showed that Labor are are right wing government pushing the neoliberal agenda. So don't think the progressives have won just be kicking out Abbott (which will happen one day).

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    3. Ross Barrell

      Aikido Student

      In reply to Michael Wilbur-Ham (MWH)

      Well. This would be true to form. Abbott would take the view that the best defense is attack. Milne said this morning that she thought Tony was a "crash or crash through PM". I think he's just trying to marginalise the cross benches, the Greens and the ALP. In any event he's just doing more damage to himself and the LNP.

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    4. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Ross Barrell

      Today the ABC reports that "Abolishing renewable energy target could cost billions" and that it would result in HIGHER electricity prices.

      Any conservative reader will be thinking that this is just more Green's propaganda from me - yet this message came from Financial news and data firm Bloomberg
      - see http://www.abc.net.au/news/2014-05-26/abolishing-renewable-energy-target-could-cost-billions/5478476

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  2. Brad Farrant

    logged in via email @hotmail.com

    Given the utter failure of governments and fossil fuel companies to do what is required to prevent dangerous climate change the question of whether or not divestment "is a blunt instrument for reducing carbon emissions" is almost completely irrelevant. It is one of the only real options that thinking and caring human beings have at the moment to try and make sure that we don't keep passing the costs of our fossil fuel burning behaviour onto the kids of today and tomorrow.

    This piece seems to contradict…

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    1. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Brad Farrant

      I do like the suggestion that just like the tobacco companies are having to pay for their unethical behaviour in the past that the polluting industries might also one day be held to account.

      For example, the funding of climate denial groups might one day be be found to be illegal.

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    2. Sean Douglas

      logged in via email @hotmail.com

      In reply to Brad Farrant

      HI Brad, that was a good summary about what makes very little common sense in the article and the comments quoted from Litterman. also I note that: "Litterman worked for 23 years at Goldman Sachs" which should raise eyebrows in itself. Knowledge of climate science issues???

      So, yes, I too was befuddled by the title, and then what followed. What is said above is clearly contradictory on multiple levels. As to this in particular -- ""The concept of a “carbon budget” refers to the** unknown quantity…

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    3. Georgina Byrne
      Georgina Byrne is a Friend of The Conversation.

      Farmer at Farming

      In reply to Sean Douglas

      Including the comment that gas is "much cleaner"! Sad really to be taking the opinions of an obviously somewhat poorly informed investment banker so seriously...but then so many of the movers and shakers in our society are asked to comment on issues outside their areas of expertise..."Celebrity" of sorts finds its place, even on serious sites like this...sigh...

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    4. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Georgina Byrne

      Gas emits lots of carbon, but it does emit less carbon than coal for the same amount of electricity.

      So moving from coal to gas does result in less emissions, and as the US has had lots of coal seam gas, their electricity emissions have I think reduced because of this (though the coal that would have been burned is now exported, so the world is not really better off).

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    5. Brad Farrant

      logged in via email @hotmail.com

      In reply to Sean Douglas

      Thanks Sean, nice to have all that info on the carbon budget. It seems that more scientists and others are coming to the conclusion that if we were to err on the side of caution then we have little if any carbon budget left yet our politicians and business leaders continue to advocate business as usual with at best some tinkering around the edges. Divestment is one of the best tools that the average person has.

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    6. Brad Farrant

      logged in via email @hotmail.com

      In reply to Michael Wilbur-Ham (MWH)

      Michael,

      I see that the greenhouse gas estimates from the unconventional gas (csg, shale etc) lifecycle continue to climb as we get better measurements on things like fugitive emissions. Thus there are serious questions about whether unconventional gas is actually that much better than coal.

      I am also yet to come across anyone who can demonstrate how the massive expansion of unconventional gas (CSG, Shale, UCG etc) that is advocated by its proponents is compatible with doing what is required to prevent dangerous climate change. Wouldn't the money be much better spent if it were invested in the solution (renewables) rather than more of the problem (fossil fuels)? And don't these gas investors risk massive stranded assets if the world gets serious about preventing dangerous climate change?

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    7. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Brad Farrant

      Brad, you are right that gas from fracking can have significant leakage which may be enough to counter the increased generating efficiency of gas.

      And there are plenty of other reasons for not being keen on csg.

      But gas from the old style 'oil' fields does have a role in transitioning to renewables. Unlike coal which is always on - and hard to turn up or turn down, gas is able to quickly provide peaks.

      If I was in charge I would end subsidies to domestic solar electricity, and instead build large solar schemes which will result in more electricity for each dollar spend.

      This would also enable systems such as heating oil - with the hot oil used to make steam to make electricity. It now because relatively cheap to store the hot oil which was heated up during the day and use it to generate electricity at night.

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    8. Sean Douglas

      logged in via email @hotmail.com

      In reply to Georgina Byrne

      Thanks Georgina, sad it is. Hugh Saddler is a regular here, and he typically brings credible well researched facts and an analysis of a high value. I don't understand why he sees Litterman has to offer that is helpful to anyone.
      Gas is is "sightly" cleaner in that it doesn't have all the add on pollutants that coal brings ... most of which are scrubbed out of a coal fired plant anyway. The bonus for energy suppliers is it is cheaper for them to burn gas than coal. A less expensive power plant basically…

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    9. Sean Douglas

      logged in via email @hotmail.com

      In reply to Brad Farrant

      re "Divestment is one of the best tools that the average person has." Yes, and it is an effective approach, which while many say it isn't it actually works like chinese water torture. It works, as shown in South Africa eventually.
      The other tool everyone has is their own voice, choosing an aspect of climate change they can become well informed about and then repeating it adnauseum to our political (non) leadership in this country and anyone who will listen. Sharing quality information also helps, albeit slowly and no idea whether it ever will help. Best.

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    10. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Michael Wilbur-Ham (MWH)

      The cleaner burning potential for gas is significantly offset by leakage at all stages of extraction and distribution. If memory serves, methane has a CO2 e factor of twenty. Coal seam gas is presumably the worst scource in this respect.
      Thinking of gas as a clean alternative may prove to be problematic, unless significant effort is made to minimise leakage.

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    11. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Sean Douglas

      Sean, whilst I am entirely sympathetic with your perspective of economics being entirely at odds with reality, I would offer a defence of Prof Saddler.
      I have been a climate change warrior for nearly forty five years, since learning about it at school in the late 1960’s. My best subject was economics which is how I came to the realisation that our entire society was based on a profound delusion, or possibly a deliberate lie: that it is possible to have perpetual economic growth in a finite biosphere…

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    12. Sean Douglas

      logged in via email @hotmail.com

      In reply to Alice Kelly

      Great ref there Alice TY ... "While administrators at some of the nation’s most influential colleges and universities continue to resist the students’ calls for divestment, the movement is gathering considerable momentum elsewhere despite this pushback. A number of cities around the country, including Seattle and San Francisco, agreed to divest last spring; the World Bank’s President, Jim Yong Kim, announced his support for divestment at the World Economic Forum summit in Davos, Switzerland last…

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    13. Sean Douglas

      logged in via email @hotmail.com

      In reply to Tony Dickson

      Tony, thanks for the reply, that was really excellent. I agree with everything you say, and I have known all of that myself for many decades, and totally get how economics (when used rationally) can help to inform people, especially regarding putting a $ value on ecology and the environment and on social values/benefits. I get 'economics' and 'balance sheets' being a former company executive with several multinationals. I get business and the positive role they can and actually do play in the world…

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    14. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Sean Douglas

      Indeed. I suppose that the most relevant issue is the audience. It would seem that, judging by the comments, this one is unlikely to derive much from Litterman's wisdom. I heard him on RN and like someone else here, wondered how much he was paid for stating a slightly distorted version of the bleeding obvious. But then I think that about 90% of the commentariat. The trouble is that they don't get paid if they don't say something.
      I also heard a another high powered ex executive promoting her new book which was inspired by her recent epiphany that under some circumstances, competition could be counterproductive and that co-operation could produce better results. I was astounded. Maybe she was inspired by nature’s discovery that symbiosis is just as important as competition in any ecosystem.

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    15. Sean Douglas

      logged in via email @hotmail.com

      In reply to Tony Dickson

      re "... under some circumstances, competition could be counterproductive and that co-operation could produce better results" Was that last night for a caught a short bit of something similar on radio.
      I suggest that it is under MOST circumstances and that there is much distortions on accepted economic theory besides the most false about the "invisible hand of the market" bs. IN the 1980's I as trying to run a multi-million $ operation using "quality circle" ideas ... my mngt & staff loved the way I approached being "successful" in a profit center .. my superiors couldn't understand how I did things so well and could turn performance around fast. It wasn't me, it was the people under who did the work... it;s called co-operation and Synergy in Action The Prime Minister as the #1 in this nation would be wise to give all below him the respect they deserve.

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    16. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Sean Douglas

      > Gas is is "sightly" cleaner in that it doesn't have all the add on pollutants that coal brings.

      Wrong - the big difference is that most of the energy from burning gas goes into heating the water for the generators.

      Particularly in Victoria we have wet brown coal, so lots of the burning is drying the wet coal - which is all wasted heat but which generates CO2 which goes up the chimney.

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    17. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Tony Dickson

      The Stern review states that climate change is the greatest and widest-ranging market failure ever seen, presenting a unique challenge for economics.

      Economics has been a big part of the problem, and getting the economics right will be a big part of the solution.

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    18. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Sean Douglas

      No, it was on AM a few days ago. It shouldn't be hard to find, but doubt it is worth the effort.

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    19. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Michael Wilbur-Ham (MWH)

      I find that you are a master of understatment. I could, and have, enlarged on this at great length, but will refrain from a sense common decency.

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    20. Sean Douglas

      logged in via email @hotmail.com

      In reply to Michael Wilbur-Ham (MWH)

      Was I talking about wet brown coal specifically? No.
      Was I speaking about Victoria only? No.
      Is what I said "wrong"? No.
      Do I care? No.

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    21. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Sean Douglas

      Was what you said wrong? Yes.

      The Victorian example was an example, And it shows why our LaTrobe Valley has some of the world's 'dirtiest' coal stations.

      And do you care that you are sometimes wrong? Well you answered that yourself - no.

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  3. Felix MacNeill

    Environmental Manager

    Tell me I misunderstood this comment:
    "Divestment of all fossil fuels is a rather blunt, expensive, and potentially risky response to the dangers created by climate change. It rests on a false premise that all fossil fuel companies are somehow unethical or immoral."

    I would fail a high school student for advancing so manifestly absurd an argument as that second sentence. Why is divestment done as some kind of moral punishment? Where does anyone say that? who is necessarily arguing for "all" fossil…

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    1. Michael Shand

      Software Tester

      In reply to Felix MacNeill

      It is the fine art of mis-representing someone's view and then attacking your own misunderstanding

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    2. Felix MacNeill

      Environmental Manager

      In reply to Alice Kelly

      Yup - seems borderline-bearable is now the best we can hope for...and people wonder why we get a little impolite at times...

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    3. Warwick Rowell

      Permaculturist at Rowell Consulting Services

      In reply to Alice Kelly

      HI Alice. A permaculture perspective:

      West coasts generally have less extreme climate than east coasts.

      Salt levels drop each 100m you are in from the coast; four kms is a good distance to stop damage to crops metals and electrics.

      At this distance, as well as the earliest possible sea breeze, you get climate amelioration effects of milder water temperatures (rather than those transferred from land masses); 50 km may be a bit too far for much effect.

      Then high up the slope of…

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  4. Anthony Nolan

    logged in via email @hotmail.com

    Divestment is a lot less blunt an instrument than a crowd of rope carrying citizens looking for irresponsible CEO's to whom to teach a lesson. Doubtless the views of the nabobs in this article, interviewer and interviewee, are seen as radical by the bloaters of the one percent but for mine this sort of fatuous commentary reeks of too little,way too late to be of much use even as a conscience salve.

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    1. Felix MacNeill

      Environmental Manager

      In reply to Anthony Nolan

      Anthony, Hugh Saddler's a decent bloke with good credentials and track record, but I agree that Litterman was embarrassingly bad...must be too many years inside the great vampire squid...

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    2. Anthony Nolan

      logged in via email @hotmail.com

      In reply to Felix MacNeill

      Felix, I wish I could agree with you. But reading this sort of tripe reminds of discussing the future of capitalism with a member of the International Socialists whose only authority on capitalism derives from their abject failure to topple it. Similarly, given the data on increased global carbon emissions since 2000 it seems to me that the suggestions made by elite environmental policy types are utterly hollow. An honest appraisal would commence with the words "we have failed, we have been ineffective, we are unsure as to how to proceed".

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    3. Felix MacNeill

      Environmental Manager

      In reply to Anthony Nolan

      For some reason my reply to you has been censored. I can't honestly recall what I said that was offensive. Perhaps I used a rude word.

      Anyway, all I'd tried to say was that, while I think there's a lot of truth in your final sentence, I still think that, if people like High Saddler were the worst we had to deal with we'd be okay and the problem lay with the Litterman's of the world with their crazy economic 'rationalist' obsessions.

      I think I noted that Saddler had basically just asked some simple questions, though I would have appreciated a bit more challenge and probing.

      Perhaps the editors might enlighten me as to what sin I committed.

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  5. John Newlands

    tree changer

    What seems to be working is borderline investment returns coupled with green issues. Deutsche Bank would probably have pulled the pin on the Abbot Point expansion without the shareholder petition as the whole project was looking shaky. Green concerns provided an additional excuse.

    I like the idea of a shrinking emissions cap as the rationale is clear to everybody. That is if it includes a component of fuel tax and embodied carbon constraints on imported goods while excluding questionable concessions like free permits, soil carbon and foreign offsets. A really tough CO2 cap combined with the rising gas price could make the RET unnecessary, thereby circumventing a lot of the current debate. If there is to be any 'blunt instrument' I'd make it a serious emissions cap.

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    1. Steve Hindle

      logged in via email @bigpond.com

      In reply to John Newlands

      I agree an emissions cap is probably the most efficient way to reduce the carbon going into the atmosphere. But to be really effective it needs to be supported by a price on carbon, rising at a long term predictable rate and applied globally. This would give the markets something solid to work with and the risks on carbon producing assets could be more accurately measured.

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    2. Sean Douglas

      logged in via email @hotmail.com

      In reply to Steve Hindle

      And I totally agree Steve. A couple of First principles analogies. Car seat belts were legislated in Australia in the early 1970s (and globally at different stages). The Government did not leave this choice to the markets, but imposing a massive Tax on non-seatbelt vehicles in order for the "market" to demand them being installed. The Govts legislated strict laws and regulations ... do it or you can no longer sell your product under threat of being put of business and CEOs sent to jail if they refused…

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  6. Aden Date

    Service Learning Coordinator at University of Western Australia

    "It rests on a false premise that all fossil fuel companies are somehow unethical or immoral.

    Fossil fuel companies are, for the most part, profit maximising entities that are optimising the valuation of shareholder’s investments given the irrational incentives that governments have created for them."

    These two sentences amount to: "Fossil Fuel companies are not immoral, they just relentlessly pursue profit at the expense of undermining the ability of the biosphere to sustain life."

    It speaks to the evil inherent in purposeless, unrestrained free-market capitalism.

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    1. Brad Farrant

      logged in via email @hotmail.com

      In reply to Ross Barrell

      As I said elsewhere - The time where people could get away with making decisions that negatively impact on people or the planet by simply saying "I am just doing my job" is over. Many of our corporate leaders may be still trying to duck and weave around their responsibilities to the rest of us at the moment by engaging all the resources at their disposal (spin doctors, marketing, propagating lies etc.) but the public are increasingly waking up to this and this will accelerate as more come to understand the massive economic, health, food and ecological challenges we face. The smart corporate leaders will get out in front and lead on solutions and the rest will fall by the wayside.

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    2. Michael Shand

      Software Tester

      In reply to Aden Date

      Keep this in mind the next time you hear talk about less government, smaller government, less regulation, green tape, red tape, getting in the way of business

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    3. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Aden Date

      The primary legal obligation imposed on commercial corporations by Commonwealth legislation is to maximise profits for their shareholders. This is only overridden by an obligation not to transgress other legal requirements.
      Thus the problem is systemic and invites a radical review of the law of associations with respect to their obligations to wider society.
      As Ross observes below, it is more a question of amorality, because that is the nature of the legal pond in which they swim.

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    4. Aden Date

      Service Learning Coordinator at University of Western Australia

      In reply to Tony Dickson

      I think of Hannah Arendt's Banality of Evil. Evil doesn't require that our corporations be malicious or even to possess intent. It only requires that they do "swim in the legal pond," as it was. I disagree that they are amoral. If passive compliance is results in negative outcomes for society and the environment, then passive compliance must be considered immoral.

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    5. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Aden Date

      Aden, I don’t disagree with your ethical position; any differences between us are of a semantic and pragmatic nature.
      I agree that corporations do immoral things, and that their functionaries can and do behave immorally, but I am not sure it is helpful to designate such institutions as immoral per se. What needs to be acknowledged is that the legal obligations of such associations must better reflect ecological and social realities.
      There is an inherent problem with attributing moral responsibilities…

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  7. Michael Shand

    Software Tester

    Interesting Interview, I think a critical point was his description of companies

    (If you change "Governments" to "Markets" because governments can interfere with markets but they do not control or create them, markets are an emergent property of a complex system and if you remove the words Fossil Fuel as this applies to all companies)

    "(Fossil Fuel) companies are, for the most part, profit maximising entities that are optimising the valuation of shareholder’s investments given the irrational incentives that markets (governments) have created for them."

    Everyone needs to understand this, corporations are neither moral or immoral, they simply do not care, they have a fiscal responsibility to meet

    You can't shame a company into acting right, you can only shame a company into performing PR

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    1. Sean Douglas

      logged in via email @hotmail.com

      In reply to Michael Shand

      "You can't shame a company into acting right"

      No you can't. The ONLY thing found to be effective since Comapnies were created as "entities" has been PURE FORCE of the LAW .. and the threat of being shut down and put in Jail if one remained a recalcitrant. What's the differecen between Slavery and Fossil Fuels use?

      Nothing both will be stopped with severe Laws to FORCE such purveyors to change their behavior. It isn't rocket science, it's plain common sense based on Historical precedents going…

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    2. Felix MacNeill

      Environmental Manager

      In reply to Michael Shand

      Funny how corporations are legal 'people' for some purposes (being protected by the law), but not for others (being responsible under the law).

      Pretty much socialising risk but privatising profit again, just in a slightly modified form.

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    3. Michael Shand

      Software Tester

      In reply to Felix MacNeill

      It's pretty shocking isn't it, I think your phrasing is great.

      IMO, all the arguments for corporate personhood are deeply flawed

      Most notably by the fact that all a corporation has is fiduciary responsibility, they only care about anything else when it affects there fiduciary responsibility, everything else is spin, PR

      It's important to understand, in the same way that you shouldn't expect a car to suddenly correct course for it's own sake, you shouldn't expect companies to either, they are just machines

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    4. Felix MacNeill

      Environmental Manager

      In reply to Michael Shand

      Then again, Michael, the neo-cons are doing their darndest to educate us so we too can, as mere smelly, flesh-and-blood organisms, might attain the semi-divine consciousness of the corporation and realise trhat the only responsibilities we truly have are fiduciary responsibilities to ourselves.

      In the old days, this was called being a psychopath. In the modern world it has charming titles like 'You Inc.'

      In no time at all we'll have achieved machine status ourselves.

      It's a bit like the way 1984 happened, only the screens and cameras were pointing 180 degrees in the opposite direction. 'Same difference' as we used to say when I was at school.

      And the only problem with the Terminator or Matrix films as predictive science fiction was that they assumed we'd go down fighting.

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  8. Gary Murphy

    Independent Thinker

    Of course what these corporations are really worried about is the potential for investing in assets that will become stranded. That is why the smart ones are already factoring an emissions price into their investment decisions.

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  9. Dave Bradley

    logged in via email @yahoo.com.au

    Stranded assets? don't worry tony will rescue them, rescue it's in his dna

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  10. Warwick Rowell

    Permaculturist at Rowell Consulting Services

    Thank you all for the comments on this article. I just went back, and reread the first sentence:

    Divestment from fossil fuels .. is a blunt instrument for reducing carbon emissions.. Responding to climate risk, he argues, will depend on global action to reduce emissions....

    If we examine the outcomes achieved since the first revelations about the risk of climate change in the mid eighties, it seems clear that continued calls for and efforts at global action are even blunter instruments…

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  11. Warwick Rowell

    Permaculturist at Rowell Consulting Services

    Sorry ... .. no government will put in place...

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    1. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Warwick Rowell

      “If we examine the outcomes achieved since the first revelations about the risk of climate change in the mid eighties,...”
      Sorry to be pedantic Warwick, but the first revelations about evidence of climate change goes back to the late 1940s. I learnt about at school in the late 1960s. At the inaugural meeting of Friends of the Earth at Adelaide Uni in 1972, the top two priorities that went up on the black board were ozone depletion and climate change. In our naivety we all thought that within a decade or so, we would have these issues licked. Yeah right!
      Ostriches don’t come within cooee of us for wilful and delusional idiocy. The sad truth is that despite being the most intellectually sophisticated animal on this planet, we are too stupid to survive, unlike the cockroaches.

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    2. Warwick Rowell

      Permaculturist at Rowell Consulting Services

      In reply to Tony Dickson

      Thanks for the correction, 1972 was quite a year; Blueprint For Survival, Vol 1 Issue 1 of The Ecologist Magazine...

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    3. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to Warwick Rowell

      Not to mention "Limits to Growth" and about a squillion great LP's.

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  12. ted rees

    Retired Read-Write Engineer at disk memory

    We've got a problem with excess CO2 generated mostly by burning fossil fuels and deforestation. Divestment is one strategy that hopes to reduce CO2 generation. Or there is protesting. ... But, the simple fact is, we the people buy the fossil fuels and deforestation products. If you cut the source, or raise the price of the goods, we the people will suffer from what is an external event. The fossil fuel companies only have a motive to keep up the business, and the politicians would not dare to withhold…

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    1. Alice Kelly
      Alice Kelly is a Friend of The Conversation.

      sole parent

      In reply to ted rees

      "the missing ... is to stop using"
      I have no doubt this will happen Ted.
      I heard an interview with Tim Flannery, he described a meeting of Fossil Fuel CEO's in the US he went to... he asked them what they feared the most, (what keeps them awake at night), their common answer was "innovation". Because that will kill their industry.
      This innovation will not happen here, more likely in California or Germany.

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    2. Tony Dickson

      Farmer at Farm Forestry and ecological services

      In reply to ted rees

      Can't argue with that, in fact I have spent most of my life attemting to do just that. I'm still working on it.

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  13. Thomas Kim Wearne

    logged in via Facebook

    I think some of you have got the wrong idea about Robert Litterman, he is someone who campaigns ferociously for market mechanisms, especially carbon pricing. He doesn't pretend to be a climate scientist but he has a lot of respect for climate scientists and he trusts what they are telling us. At the end of the article he mentions Stanford divesting, so I don't take from this that he believes divestment is entirely a bad idea, just perhaps ineffective.

    I'm happy however to contradict the section…

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    1. Warwick Rowell

      Permaculturist at Rowell Consulting Services

      In reply to Thomas Kim Wearne

      The next step with your divestment programme is to look to the positive side, and invest in a company you regard as ethical, or if that is too hard, in one of the ethical investment funds.

      Many years ago, when with many colleagues we set up what is now Australian Ethical, the Earthbank Society's motto was: "What is your money doing tonight?" I am still a shareholder, and have my self managed superfund with them as well.

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    2. Thomas Kim Wearne

      logged in via Facebook

      In reply to Warwick Rowell

      I am also with Australian ethical super and encouraging others in my life to do the same. Without being much of an investor, it is easy to appreciate that they have basically a successful linear trend going back years. I think divestment is picking up and the business case to drop dirty investments is likewise becoming more and more sound.

      Whatever peoples feelings on divestment are, they can't really argue that it's a financial compromise because Australian Ethical does so well.

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  14. Michael Ekin Smyth

    Investor

    Litterman is right that divestment is an extremely blunt weapon - and potentially counter-productive.
    While a case for disinvestment in coal producers would seem to be straight-forward, it is worth recognizing that diverse companies, including Wesfarmers, which owns Coles, are coal investors. What do you do? Try to force the company to split up?
    When it comes to Big oil - ExxonMobil, Shell, BP, Total and Chevron - it is worth remembering that are also the biggest investors in new, non-carbon energy…

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