MUCH of the discussion that will be taking place at the global climate summit in Paris this week and next is likely to turn out to be a lot of hot air. There is at least one climate-related initiative that is having a real impact, though – it started as a fashionable protest by college students in the United States – but while it may be beneficial to the world in the long run, it may not be very good news for the Philippines.
In 2008, students at several US universities began agitating for their schools’ endowment funds divestment from fossil fuels—for example, stocks in oil and mining companies, and bonds related to coal-fired energy production. University divestment protests are not something to be taken lightly. It is generally acknowledged that a similar movement in the later 1980s helped undercut the South African economy and lead to the end of apartheid.
The student movement for fossil fuel divestment is still continuing; the latest hotspots are the Massachusetts Institute of Technology and Stanford University, both of which are so far resisting pressure to divest, but may find themselves isolated by the trend in the global economy as a whole.
In June, Norway announced that its sovereign wealth fund—the world’s largest, which is ironically due to Norway owning a large part of the North Sea’s oil reserves—would divest from coal power, and about two weeks ago, the OECD nations agreed to a plan to eliminate export subsidies for all but the most advanced coal power plant systems beginning in Jan. 2017 in order to discourage the spread of coal; the decision potentially puts at risk the financing for about 85 percent of the coal plants now in various stages of planning.
Divestment momentum is building in the financial world as well; major insurers AXA and Allianz have largely backed away from coal and lower-grade petroleum-based generating systems, and big institutional and commercial banks like Societe Generale, BNP Paribas, and Bank of America Merrill Lynch have also followed suit.
As reported recently by Agence France-Presse, a study published in September by the US-based philanthropic consultancy Arabella Advisors revealed that 436 institutions and more than 2,000 individual investors —altogether, an investment pool worth $2.6 trillion—had pledged to completely or partially divest from fossil fuel. In terms of what has actually been done rather than simply promised, various estimates place the amount pulled out of fossil fuel-related investments so far at about $50 billion. ‘Dirty’ technology is also being stigmatized in other ways; Standard and Poor’s recently added climate change risk to its menu of factors assessed in determining credit ratings.
Although environmental advocates play up the climate change mitigation benefit of divestment, concern for the environment is not the only driver of the trend. As alternative energy technology has developed, its costs have decreased while its reliability and political attractiveness has greatly improved, making it a viable, and in some cases, even more profitable investment than conventional technologies. Although somewhat speculative, a recent analysis of 14 major funds, with a combined $1 trillion in assets, conducted by activist groups 350.org, Corporate Knights, and the South Pole Group, concluded that their earnings over the past three years would have been $22 billion higher if they had shifted into clean energy stocks.
For the Philippines, whose energy policy for the past five-plus years of President BS Aquino 3rd’s reign has more resembled something out of the late 1960s than the 21st century, the trend toward divestment might very well raise significant financial hurdles for its largely coal-based generation capacity growth strategy. While renewables have gained a foothold in the country’s energy mix, their present and planned contribution is a drop in the bucket, compared with the conventional capacity the government’s strategy foresees.
Two things could happen: First, direct funding for conventional energy projects—for example, buyers for a corporate bond issue from an energy company planning to build a coal plant—may simply not be available due to the growing social unacceptability of high-carbon technology. Second, the government’s own debt management program could be thrown into turmoil; if the government is forced to fund ‘dirty’ energy projects for lack of outside sources, Philippine sovereign debt issuances of any sort suddenly fall into the embargoed category.
On the positive side, greater government enthusiasm for sustainable energy—something one might think would be natural for a country set on spending most of the next two weeks complaining about being a victim of climate effects—is likely to gain an appropriately enthusiastic response from investors and financing sources. That would obviously be a far preferable state of affairs than being caught out by the divergence of its energy strategy from the prevailing mood of the rest of the world and the energy crisis that would await us in the future.