[Originally published in the Honolulu Star-Advertiser, February 25, 2016]
Should ERS divest from fossil fuels? Yes, bubble will burst for carbon-coal stocks
By Anthony Aalto and Michael Kramer
February 25, 2016
Why is our state pension system betting against the people of Hawaii?
Hawaii has pledged to be free of fossil fuels by 2045. It’s a commitment written in law, backed by our governor, endorsed by leading businessmen and supported by ordinary citizens who’ve already invested more than three quarters of a billion of their hard-earned dollars in rooftop solar.
But our Employees’ Retirement System has zeroed-out that effort by investing nearly as much in fossil fuel companies. Those investments are rapidly losing money for the public workers whose pension benefits they’re supposed to finance — and the ERS refuses to end this risky gamble with taxpayers’ money.
Our decision to switch to renewable energy wasn’t just a moral one — though, given that climate change is already killing 400,000 people a year amid mounting warnings of an existential threat to our civilization, the moral imperative is undeniable.
The decision was also driven by the fact that every year we’ll save the $5 billion we currently spend importing oil, coal and gas. And, if we continue to lead national integration of renewable, smart grid and energy storage technologies, we’ll create a new economic pillar and thousands of great blue and white collar jobs.
Still the ERS, with $14 billion of our money, stays wedded to its dirty fossil fuel investment strategy — even as energy stocks underperformed the broad market for the past decade, a losing streak that shows no sign of ending.
Because it hasn’t cashed-out yet, the ERS’s losses thus far are only on paper. The folks who run the system apparently think they can minimize those losses by waiting for energy stocks to reverse course and sell into a rally.
It’s a lost cause. And here’s why.
In Paris last December, every nation on earth agreed to limit the rise in average global temperatures to less than 2 degrees Celsius. If we are to meet that target, most of the world’s known reserves of oil, coal and gas have to stay in the ground. That’s a fact.
Yet, the fossil fuel companies have not written-down the value of those reserves on their balance sheets. Mark Carney, governor of the Bank of England, warns that investors face “potentially huge” losses from these “stranded assets.”
Perhaps ERS advisers know better? They say markets are efficient at pricing risk and have already accounted for potential losses in pricing energy stocks.
Really? How well did the experts do pricing the risk of the real estate bubble in 2008? Former Treasury Secretary Hank Paulson says, “We’re staring down a climate bubble that poses enormous risks to both our environment and economy.”
The carbon bubble is growing because carbon regulations are multiplying. China’s CO2 emissions are set to peak by 2030. By 2025, American automobiles must achieve an average 54.5 miles per gallon, double the 2012 standard — and U.S. passenger vehicles account for one-tenth of world petroleum consumption. Washington has banned all new coal leases on federal land. The list grows daily. The ERS cannot claim ignorance when the bubble finally bursts.
More than 500 institutions worldwide have already divested over $3.4 trillion. They encompass cities, universities — including the University of Hawaii — and pension funds with fiduciary obligations to secure maximum returns for their investments. None have been sued for failing that obligation. All appear to have reaped the reward of higher returns.
It’s time for the ERS to cut its losses, protect its beneficiaries and stop betting against the wisdom and will of the people of Hawaii.
The Senate is currently considering Senate Bill 2155, which would require the ERS to slowly divest all fossil fuel stocks by 2021. Please urge support for it.