Photo Credit: Fossil Free UC
The following is an opinion contribution and reflects the author’s views alone.
It would be tempting to dismiss the Fossil Fuel Divestment movement at Princeton as just the latest example of environmental tokenism to sweep Princeton, but that would miss the mark. Paper straws and canned drinking water are tokenism. Divest Princeton is backwards-looking and, even, counterproductive. The inconvenient truth is, the ship has likely sailed on mitigation. If the prophesized horrors of climate change do come to pass in their fullest fire and fury, we must be forward thinking for the sake of future generations. In decades’ time, we must produce as robust an economy as possible, so that we can face the economic challenges of adaptation head on.
Divest Princeton rests on two pillars. The first: climate change is anthropogenic, with greenhouse gas emissions as the main culprit. As a result, in order to save the planet, greenhouse gas emissions must be drastically curbed. The second: financial support for a company equates ethical and financial support for that company’s activities. As a result, Princeton must divest from the fossil fuel industry, because Princeton must do its part by revoking financial and ethical support for the industry that provides the world with fossil fuels, and is thereby heralding our impending doom.
How impending is that doom? No one really knows. “The world is going to end in 12 years if we don’t address climate change… this is our World War II,” said Democratic Congresswoman Alexandria Ocasio-Cortez. “We are at the beginning of a mass extinction,” said Swedish teenage climate activist Greta Thunberg at the UN. England’s Extinction Rebellion movement proclaim that “time is running out,” while blocking London streets.
It turns out time has been running out for a long time. In 2000, Vice President Al Gore predicted the world would reach the point of no return in 10 years. In 2002, he said that in 5 years’ time, ice would melt in the North Pole. In 1988, Columbia University professor James Hansen said that by the year 2000, the West Side Highway would “be under water.” In 2005, the United Nations Environment Program (UNEP) declared that, by 2010, the world would see 50 million climate refugees, going so far as to publish a map, which showed in grave detail where the ill-fated would escape. By 2010, the populations in the prophesized areas only increased.
Are we staring down at the edge of the abyss, or will the effects of climate change be less severe than climatologists’ models predict? Perhaps if the past is to be any guide, predicting the future is a fickle thing. But so be it. Despite the ambiguity of climate modeling and the actual consequences of climate change, let us accept the most devastating of predictions at face value: we are in the midst of a climate crisis, and if we do not act now, purposefully, bravely, and with great speed, we are doomed to a “Day after Tomorrow” future, quite possibly with less snow. What do we do about it?
Well, we know what Divest Princeton proposes. Will divestment work? Unfortunately for the movement, markets are efficient. If Princeton, the entire Ivy League, or even every institutional investor in the western world decided to divest from the fossil fuel industry tomorrow, what would happen? Retail and institutional investors who have not decided to divest thrive, since artificially lowering the demand for fossil fuel industry investment does not impact the value of the internationally priced commodity underpinning the value of the industry: oil and natural gas. This is akin to selling Apple stock while continuing to buy iPhones.
Can movements like Divest Princeton can turn fossil fuels into such a pariah of an industry that lenders refuse to finance fossil fuel projects, one might ask? If domestic bankers refuse to lend to the fossil fuel industry on moral ground, shadow bankers and international financiers, who do not share the same moral scruples, would happily take the place of U.S. bankers. Simply put, the profit motive does not disappear internationally due to domestic moral qualms.
But what if, by some miracle, bankers were able to actually strangle the US fossil fuel industry? For simplicity’s sake, let’s focus exclusively on oil as opposed to natural gas. According to the US Energy Information Administration, of the ten world’s largest producers of oil, the US is responsible for 18% of the world oil supply (due to the shale boom), Canada is responsible for 5%, Brazil is responsible for 3%, and China for 5%. OPEC is responsible for 30% of world oil production (a low figure, due to purposeful production cuts, and involuntary losses in Iran and Venezuela), with (sometimes) somewhat aligned Russia accounting for 11%.
In that case, let us make the drastic assumption that the U.S. market share of oil falls to 0% over time. (This cannot and should not happen overnight. Just look at the economic disruption caused by the 1973 OPEC Embargo.) Since the U.S. would reduce output over time, OPEC and Russia would react by increasing production to increase their market share. OPEC and Russia do not currently export at maximum capacity in order to manipulate international oil markets.
However, OPEC and Russian production capacity is not boundless. Though the actual maximum production capacity of OPEC and Russia is shrouded in mystery, an over time decrease in American oil production may also cause OPEC and Russia to produce less than the necessary oil to mitigate the shortfall in U.S. production at the 1:1 level, either because the countries cannot boost their production sufficiently, or because the countries are willing to sacrifice market share in order to boost the price of oil.
In that case, the oil price would see a slow and steady rise. Clearly, a higher oil price would provide a boon to renewable energy adoption and investment. However, a higher oil price would also increase investment in fossil fuel production: making projects that were once uneconomical at lower-price oil economical at higher-price oil. This is called a commodity cycle. Infamously, Mexico discovered this concept the hard way when, in the 1970s and 1980s, it borrowed against its future oil revenues. The 70s and early 80s saw a boom in oil prices, and some oil-exporting countries, including Mexico, bet that this boom would continue. However, sustained high oil prices caused an increase in oil exploration and development.
These investments often take many years to bear fruit, which is why these commodity cycles sometimes take decades to go from valley to peak, back to valley, and so on. In the 1980s, the price of oil collapsed, and Mexico went through a sovereign debt crisis.
But what of a reduction in U.S. oil consumption? Certainly, the Princeton Divest folks would see that as an unmitigated good. Unfortunately, things are a little more complicated than that. A reduction in U.S. oil consumption implies a reduction in demand for oil. Lower demand for oil should decrease the price of fossil fuels if every unit of decreased demand is not matched by a unit decrease in supply. The problem is that the U.S. and the rest of the Western world are more interested in environmentalism and mitigating pollutants than the developing world.
The issue with a reduction in fossil fuel demand in Western countries is that it does not affect the rising demand of the developing world. Poorer countries are less free to prioritize environmentalism, especially delayed-benefit environmentalism like mitigating climate change. Instead, they focus on increasingly providing goods and services to their citizens, and on industrialization and development. That means, the developing world will prioritize the most economically efficient source of energy, as opposed to the cleanest source of energy.
According to the EDGAR database created by European Commission and Netherlands Environmental Assessment Agency, China is the world’s largest emitter of greenhouse gas emission, at almost 30% of the world total. America stands at second, at almost 14%, with the entire European Union following at almost 10%. India is next in line, with almost 7%. Around half of China is still rural and agrarian, India is still largely poverty stricken, and many African nations and East Asian countries are anything but developed. In 2016, the U.S. produced 15 T (metric tons) of CO2 per capita. China, despite overtaking the U.S. in total emissions, only produced 6.4 T of CO2 per capita. India produced 1.6 T of CO2 per capita. That is to say, there is still plenty of development and industrialization yet to happen across the globe, and much fossil fuel left to burn.
However, wouldn’t lower oil demand in the western world lead to lower oil prices (along the lines of a commodity cycle), which would in turn lead to lower oil production over the long term? The problem with this line of thinking is that many of the world’s largest oil producers are rentier states, often with very low extraction costs. A rentier state is a state that derives all or most of its revenue from a natural resource sold to outside parties. Russia is a partial rentier state. OPEC is composed of total or partial rentier states. These countries will sell their oil no matter what, especially if oil remains above around $10 a barrel. (Venezuela has one of the highest extraction costs, at around 20$ a barrel. Middle East producers’ extraction costs hover around $10 a barrel.) They currently compose 40% of the world oil supply, but their actual production capacity (as it stands today) is greater. Future increases in productivity, as well as the resumption of supply from Iran and Venezuela, will likely drive this figure higher. It is these rentier states that will fill the developing world’s growing demand for fossil fuels.
So, the Western world finds itself between a rock and a hard place. It urgently wants to mitigate climate change to prevent an “apocalyptical” scenario, but the rest of the world has no interest in playing ball. As a result, movements like Divest Princeton present domestic solutions to global problems. If Divest Princeton were to achieve its logical conclusion — a reduction or secession of U.S. fossil fuel production and reliance — all that would be achieved is a weakened U.S. economy and a climate that is, meanwhile, changing apace. A weakened U.S. economy means the U.S. has less resources to deploy on adaptation efforts, if and when the time comes. Future generations will respect what we practically did to prepare for the future, not what self-defeating, feel-good, stances we take today. With the gift of retrospect, Divest Princeton will find itself hoisted with its own petard.
But what of the ethics of fossil fuels? Just because institutional divestment from the fossil fuel industry is meaningless and, even, counterproductive does not mean the university must be complicit in its funding. The issue here is that fossil fuels do not exist in a vacuum. The conventional wisdom that the modern world runs on fossil fuels is not a platitude. Every apple you buy in the grocery store, every component of your dishwasher, and every fiber of your clothing had to be transported from somewhere, often from many somewheres. If you think domestic supply chains are complex, global supply chains are a different ball game altogether. Further globalization will only make it more complex. As of yet, we have not developed alternate modes of transportation beyond the nascent electric truck (Though lithium mining—for the lithium ion batteries that power these trucks—is no clean business, and the electricity that fill these batteries will not necessarily come from renewable sources).
The university is just as complicit in funding the fossil fuel industry as is every consumer. There is no reason to differentiate between direct funding (institutional investment) and indirect funding (personal consumption) of the fossil fuel industry. At the end of the day, the result is exactly the same: a robustly funded fossil fuel industry.
The world has produced some practical solutions, ranging from a carbon tax to carbon capture. These are what are worth looking at. Perhaps it’s time for Princeton students to finish virtue-signalling and complaining and begin learning and acting.
David Esterlit ’21 is a politics major.
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