A Critique of the Coal Divestment Campaign

Executive summary/key points

The fossil fuel industry, in general, and the coal industry, in particular, has come under attack from environmental activists seeking to end Australian coal production and exports.

If the goal of the campaign is to end coal production, the means to that end is to persuade investors that coal has no economic future and to persuade them to ‘divest’ out of fossil fuel based industries.

The campaign rests, however, on false premises and unsubstantiated claims and may breach Australian law.

Taken at face value the logic of the claims is appealing and is scientifically and economically sophisticated. Upon close evaluation, however, the divestment logic is fragile and driven by the desired conclusions.

Despite lip-service being paid to a 2°C temperature target increase most governments are making little or no progress to achieving that target. Whether or not that target will be breached is a function both of CO2 emissions and technology.

The divestment campaign logic ignores technological improvements that could vary the maximum amount of CO2 emissions.

Importantly the divestment campaign assumes that investors do not understand the risk of the investments that they undertake. As such they are incapable of pricing the risk within their portfolios.

By contrast, the divestment campaign suggests that they are capable of understanding that risk and that the “solution” to the carbon risk problem is to divest portfolios of fossil fuel stocks. Yet the World Wildlife Fund has not divested its fossil fuel exposure, but rather hedged that risk. In this respect, the WWF is following the practice of ordinary investors, who are indeed pricing the risk of climate change, but just not as highly as the environmental movement would like.

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