Roughly 40,000 environmental activists recently descended on lower Manhattan for a global climate strike. Many of the protesters marched with a specific goal in mind: convince Comptroller Thomas DiNapoli to purge $13 billion in fossil fuel investments from New York State’s $210 billion pension fund.
All across the country, environmentalists are urging public pension managers to sell their fossil fuel assets. If pension managers embrace divestment, the thinking goes, oil and gas companies’ share prices would plummet. And firms would struggle to raise capital in the future. Thus, they’d shelve expansion plans and keep more fossil fuels in the ground.
But the strategy is shortsighted. Divestment would punish retirees, not the energy industry.
State pension funds manage retirement benefits for public employees like teachers, firefighters, and police officers. And the plans are heavily invested in the energy industry. Nearly 30 percent of fossil fuel industry shares are held by pension funds. And almost 20 percent are owned in individual retirement accounts.
Because they’re high performing, fossil fuel-related stocks help secure public employees’ retirement plans. An average investment portfolio featuring fossil fuels outperforms a divested portfolio of equal risk by 0.5 percent per year over the long run. That amounts to tens of thousands of dollars per worker over several decades.
That’s why divestment would hurt America’s retirees the most. If they divest, the nation’s 11 top pension funds would risk losing up to $430 million a year and almost $4.9 trillion over 50 years. Specifically, the California Public Employees’ Retirement System and New York’s five pensions would risk missing out on nearly $290 million and $120 million per year, respectively.
In response to these losses, pension funds would be forced to cut pensioners’ benefits. In Colorado, divestment could cut every pensioners’ benefits by up to $400.
Even before the divestment craze, public pensions were struggling to fund employees’ retirements. Across the country, state pensions’ future liabilities exceed projected assets by $1 trillion. In the 20 states with the least-funded pension plans — including New Jersey, Illinois, and Kentucky — retirement systems have only half the assets necessary to cover retirees’ benefits.
And divestment wouldn’t even remotely affect energy companies’ behavior. If any state pension divested from energy stocks, different investors would simply take the pension fund’s place.
Even if divestment did reduce energy companies’ share prices, it wouldn’t curb global demand for fossil fuels. Global energy demand rose 2.3 percent last year with fossil fuels providing more than two-thirds of the increase. The outlook for energy is 50 percent growth by 2050, according to the U.S. Energy Information Administration, with fossil fuels accounting for 70 percent.
If climate activists truly want to reduce emissions, why not support natural gas? This cleaner-burning resource has helped wean Americans off coal, the dirtiest fossil fuel. As a result, American energy emissions are nearing 30-year lows, while global emissions have spiked 50 percent.
Already, methane emissions from natural gas dropped 14 percent between 1990 and 2017 even as natural gas production climbed 50 percent.
Dumping oil and gas stocks wouldn’t remotely affect climate change. It’d simply cheat workers out of retirement security.
Robert L. Bradley Jr. is the founder and CEO of the Institute for Energy Research.
