Why divest?

A problem for fossil fuel miners and those who lend to or invest in them, is that they can not control the market price for their products. They may endeavour to do so through cartel like behavior (manipulating or varying supply and the market price of their products) or influencing government policies and regulation – both in the countries where mining takes place and in those where their product is used.

As we have recently seen with coal, oil, iron ore and other commodities, this is not an effective way of maintaining their market price or the value of assets owned by producing companies. Hardly surprising where an open market operates but now shareholders in fossil fuel mining companies are confronted with two new and growing threats to the value of their shareholding and the dividend yield they receive.

Technology

For the past two centuries, coal, gas and oil have been the mainstays for producing the energy needed to sustain economic growth and improved living standards for billions of people worldwide. Global population is growing rapidly as are their aspiration for improved living standards and access to the energy essential to achieving this.

To meet this demand, fossil fuels are being produced and burned in ever increasing quantities, a process which results in release of rising quantities of greenhouse gasses. Concentration of these gasses in the atmosphere are now at their highest level in at least 800,000 years.

They produce global warming which in turn causes climate change charcterised by more frequent and severe weather events threatening human habitat. The more pronounced this threat, the greater the need to reduce greenhouse gas emissions and the more financially rewarding development of technology and policy that will achieve this.

Technology has been and is continuing to be developed in ways which reduce greenhouse gas emissions by replacing fossil fuel burning with energy produced from emissions-free renewable sources and by using electricity more efficiently.

Increasingly, renewable energy is being produced more cheaply than energy generated from fossil fuels and this trend is increasing. Technology has been developed making it cheaper to build and operate renewable power stations far more cheaply than those burning fossil fuels. Advances are also being made on energy storage enabling renewable power stations to provide energy 24/7.

The financial rewards for achieving this are high, very high, motivating further advances in science and technology – advances with potential to bring about rapid, eventually total replacement of fossil fuels with renewable energy sources. As these advances are made, they place downward pressure on the market price of fossil fuels, on their production and on the value on un-mined deposits.

The speedier these advances are made, the greater that downward pressure on value of product and assets held by fossil fuel miners, the more uncertain their future.

Regulation

Rising cost of damage caused by climate change prompts governments to regulate fossil fuel use in favour of energy produced from renewable sources. This is particularly true of countries dependent on imported fossil fuels for their energy needs. Adopting renewable energy saves foreign exchange, and enables local energy production without the need for an expensive grid or power station.