CalPERS gift—a lump of coal

Here is more disturbing information about the dangers of coal, from Gary Horvitz. Gary is an erstwhile divestment activist and current CCL volunteer devoted to enacting carbon pricing worldwide.

There is no dispute that coal is the dirtiest form of energy, contributing more carbon to the atmosphere than any other source of power. The coal life-cycle costs, from mining to use—including tax subsidies, public health effects, environmental degradation, and air and water pollution—make North American coal the third most damaging sector-region in the world, behind only the East Asian coal industry and the South American beef industry. More than any other single factor, global warming is driven by the burning of coal.

An obsolete fuel

California’s Public Employee Retirement System (CalPERS) continues to be deeply invested in coal, although the returns from that investment have turned sharply negative. The 2012 fiscal year financial statement indicates that CalPERS lost a half-billion dollars in their coal investments in one year. And it wasn’t just from a few coal companies. Declining value among coal producers has been a nearly universal condition over the past couple of years.  The Dow Jones Coal Index has also lost 70% of its value over the same period.

Why? Because the North American coal industry is beset with multiple conditions that together are squeezing coal out of the market:

• proposed EPA emission standards
• retirement of aging plants
• widespread opposition to building new plants
• California’s mandate to transition to renewable energy sources for electric power generation
• other states’ similar mandates

All of these factors are conspiring to depress the use (and price) of coal.  The average share of electricity generated from coal in the US has dropped from 52.8% in 1997 to 42.0% in 2011.

Fierce, effective opposition to building export terminals in the Northwest is also preventing the coal industry from finding markets for its product. Elections last year in Whatcom County, Washington, swept four candidates backed by environmental organizations into a majority on the County Council. That council has the final word on whether to permit a proposed $600 million Gateway Pacific Terminal at Cherry Point, north of Bellingham. If the Gateway Terminal is not built, 48 million tons of North American coal will not be exported per year to China.

And now it’s official: MIT says coal shortens lives.

Wall Street is noticing that coal’s days are numbered. One of its well-known traders, Jim Chanos, is now selling coal short. Bernstein Research is reporting that China, finally realizing that urban air pollution has reached intolerable levels, will restrain its construction of new coal-fired power plants. China’s reliance on coal is peaking. This shift marks another milestone on the way to the end of coal.

James Hanson, one of the foremost climate scientists in the world, says, “Coal emissions must be phased out as rapidly as possible or climate disasters will be a dead certainty.”

An obsolete investment plan

Yet CalPERS persists on its losing investment trajectory, caught between an increasingly obsolete investment plan that requires owning shares throughout the diverse investment universe—and a growing realization that most of the coal still in the ground cannot be burned if we are to avoid the global warming version of a bleak Dickensian world. Although it has sold shares in domestic companies, CalPERS is also buying millions of shares in international coal companies—even as their prices drop as well—in the belief that global demand for coal shows no sign of abating.

CalPERS investment practices now stand in contrast to its stated investment belief that climate change presents a long-term risk. Is this not a picture of that very risk? As the effects of climate change become more apparent, how will the CalPERS coal investments fare? The 2.5 billion dollars it has currently invested in coal represents only a small percentage of all equities and less than 1 percent of the total fund at its current value. The threat these losses represent to the fund is far less than the threat these companies represent to California and to the planet. Can CalPERS truly afford to be complacent?

CalPERS has a fiduciary responsibility to its members, its retirees, and all California taxpayers that is measured not only by its bottom line, but by its stewardship of the natural capital on which we all depend. Continuing to hold these investments is a lump of coal that none of us deserve. Eliminating coal from its portfolio would clearly demonstrate CalPERS’s commitment to a climate-conscious asset allocation model. It would also demonstrate that it is paying attention to the signs that are arising from every direction. The way coal numbers are declining, it’s as though CalPERS is passively divesting from coal already. Why not make it official?