Fossil fuel is a bad investment

The sun sets behind the Alon USA refinery in Bakersfield in August 2014. Advocates say smart investors should get out of fossil fuels.
The sun sets behind the Alon USA refinery in Bakersfield in August 2014. Advocates say smart investors should get out of fossil fuels. Sacramento Bee file

Just a few years ago, people who saw tremendous economic opportunity in renewable energy were often seen as unrealistic do-gooders. Then the clean energy industry took off, spurred by huge drops in the cost of solar and wind technology and changes in energy policy. Since 2013, the world has been adding more renewable electricity capacity than fossil fuel capacity each year.

Meanwhile, the fossil fuel industry is showing its age. For example, since 2011, America’s four biggest coal mining companies have seen their combined worth drop by 98 percent. While the industry still speaks of a rosy future of growth and potential built on vast stores of coal, oil and gas, today it’s the one being unrealistic.

The world is fast moving toward a clean energy economy, and there’s no turning back. For investors, this is a moment of caution – and a moment of tremendous opportunity.

So it’s not surprising that more than 400 institutions and 2,000 individuals with more than $2.6 trillion in assets have already pledged to divest from the fossil fuel sector. Investors see a healthier return on their money in the fast-growing clean energy sector – and a way to build a better future for people and the planet at the same time.

Among them are the California Public Employees’ Retirement System, the nation’s largest public pension fund, and the California State Teachers’ Retirement System. A new state law requires both funds to sell their holdings in coal-producing companies.

And it comes just in time. A new report from the Carbon Tracker Initiative, a London-based think tank, finds the fossil fuel sector in deep denial over dropping demand for its products. Coal, oil and gas companies are making financial projections based on business-as-usual assumptions that no longer reflect reality. That casts doubt on the their optimistic forecasts – and raises a big red flag for investors.

Carbon Tracker analyzed previous projections by the fossil fuel industry, the U.S. Energy Information Administration and the International Energy Agency, and found that they have consistently underestimated the pace of renewable energy growth and overestimated fossil fuel demand. The analysis casts doubt on the fossil fuel sector’s consistent assumption that the world’s energy mix will change slowly and incrementally, if at all. And it raises questions about whether reserves of coal, oil and gas now counted as huge assets could end up worthless as climate and energy policies advance around the world.

The flip side of this energy equation is where financial opportunity comes in. As the dirty fuel sources of the past become less attractive and less in demand, renewables continue to grow. Growth will continue as clean energy becomes more affordable, and as countries commit to tackling climate change by deploying renewable sources more widely.

Just as fortunes were made in the move from typewriters to computers and in the shift from landlines to smart phones, fortunes will be made in the transition from fossil fuels to clean energy. Getting in early increases the chance of big return.

Given the rise of clean, low-carbon energy and the uncertain future of fossil fuels, it’s hard to see why any savvy investor wouldn’t make the move.

Danny Kennedy is managing director of the California Clean Energy Fund. Jeremy Leggett is chairman of the Carbon Tracker Initiative.