Should We Divest?

By George Harvey

Peter Shumlin. Community College of Vermont photo. CC BY-SA 2.0 Generic

When Vermont Governor Peter Shumlin came up with a plan for the state to divest its pension funds from coal stock, he was immediately opposed by State Treasurer Beth Pearce. She took the view of the corporate officer whose task is to guarantee the economic value of the client, regardless of the environmental impact of the investment. The result, however, is precisely the opposite of what she has intended; Vermont may be lose money on dead-end investments in coal and oil.

Many of us are familiar with the Dow Jones Industrial Average (DJI). Dow Jones maintains many indices, however, one of which is the Dow Jones Coal Index. It might be instructive to see how this index, its components, and other large coal companies are performing on the stock market.

Beth Pearce. Photo by Don Shall via Flickr

The Dow Jones Coal Index hit a high in 2008, just as a recession was beginning. During the recession, it fell, though at a much faster rate than the rest of the stock market. In fact, it fell faster than the DJI did at the start of the Great Depression. But unlike the rest of the stock market, it did not begin to recover after two or three years. It just kept falling, without slowing down. Since 2008, it has lost about 98% of its value.

The coal index has also lost most of the component companies it had in 2008. Some have been delisted. Some have gone bankrupt. The index did not replace them, and only two remain. These two, CONSOL (CNX) and Peabody Energy (BTU) have also lost 94.02% and 99.64% of their values, respectively.

They, however, are the survivors. Arch Coal (ACIIQ), which was responsible for much of the mountaintop removal mining in the central Appellations, saw a share price drop from 73.41 to 0.187, a loss of 99.75% of its value. It removed the tops of hundreds of mountains and dumped the rubble into thousands of miles of valley streams, to get coal. Now it has declared bankruptcy, destroying the investments of its shareholders along with the environment.

Bill McKibben. Photo by Hotshot977. CC BY-SA 3.0 Unported

And there is Alpha Natural Resources (ANRZQ), which lost 99.98% of its 2008 high value. You might have bought 1000 shares of Alpha Natural Resources at its high in 2008, for $104,440, instead of putting a payment down on a really gorgeous home. The current value of that stock would be enough to buy a modest lunch for two at McDonald’s, $16.

People associated with fossil fuels like to blame President Obama, but few of them seem to be willing to talk about the fundamental failure of fossil fuels in the marketplace. They are no longer competitive, and the fact that they get about five times as much government support as wind and solar is insufficient to make them competitive.

We can look to the Levelized Cost of Electricity (LCOE) to see the cause of the decline of coal more clearly. Lazard Associates is perhaps the most cited source, and its figures account for subsidies. The average LCOE of coal is 10.75¢/kilowatt-hour (kWh). For nuclear power, it is about 11.65¢/kWh. The average is 6.5¢/kWh for combined cycle natural gas. The LCOE of utility-scale solar power averages about 6.4¢/kWh for crystaline photovoltaics and 5.5¢/kWh for thin-film. Wind power’s average LCOE is 5.5¢/kWh. Both wind and solar are less expensive than fossil fuels of any kind.

Fossil fuels have other problems. Citigroup says that if the external costs of gasoline were paid at the pump, it would raise the price by $3.80 per gallon. That represents hidden costs we all pay, much of it in medical bills, for our use of fossil fuels. The inherent unfairness of this brings us back to ethics.

Ethics give value to social costs. Though fiscal managers have been taught to ignore them, there are consequences. For example, two of California’s state pension funds chose to ignore pleas to divest fossil fuel securities, supposedly because they wanted to protect financial interests of workers. A report released in August of 2015 said they had lost $5 billion in one year on the largest 200 fossil fuel companies.

We are learning, as a society, that we can do what is right and save a lot of money in the process. It is a powerful combination.

Should we divest our interests in coal? That might be simply dumping some worthless stock. Oil and gas, on the other hand, still have almost 50% of the value they had in 2008. Does that bring anything to mind?