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FOSSIL  FUEL  DIVESTMENT  REPORT:  UCHICAGO  

   

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Acknowledgements    Many  thanks  to  all  the  writers  of  this  report:  Anna  Dinwoodle,  ’14,  Hannah  Flynn  ’16,  Emmalina  Glinskis  ’17,  Johnny  Guy  ’17,  Kylah  Johnston  ’16,  Paul  Kim  ’14,  Rachel  Kulikoff  ’15,  Brendan  Leonard  ’15,  Shrabya  Timsina  ’17,  and  Sam  Zacher  ’16.    This  report  was  edited  by  Johnny  Guy  ’17,  Brendan  Leonard  ’15,  and  Sam  Zacher  ’16.                                                                            

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Contents    Introduction………………………………………………………………………………………4    Statement  of  Objectives…………………………………………………………………..….5    Section  I:  The  SCIENTIFIC  Case  for  Divestment…………………………………...6  

• Global  Climate  Change  (7)  • Local  and  Regional  Climate  Change  (17)    

Section  II:  The  MORAL  Case  for  Divestment………………………………………22  • Divestment  Is  a  Moral  Issue  (23)  

 Section  III:  The  INSTITUTIONAL  Case  for  Divestment………………………..25  

• Divestment  and  the  Mission  of  the  University  of  Chicago  (26)  • University  of  Chicago’s  Academic  Neutrality  and  the  Kalven  Report  (28)  • The  Effectiveness  of  Divestment  as  an  Institutional  Action  (33)    

Section  IV:  The  FINANCIAL  Case  for  Divestment………………………………..37  • The  Costs  of  Divestment  and  Risks  of  Non-­‐Divestment  (38)  • The  Direct  and  Indirect  Financial  Impact  of  Divestment  on  Industry  (42)    

Section  V:  GLOBALIZATION—Addressing  Counterarguments……………48  • Global  Economic  Effects  of  Divestment  (49)  • Effects  of  Divestment  on  Employment  (50)  

 Section  VI:  REINVESTMENT—Actions  following  Divestment……………..52  

• Reinvestment  Strategies:  Alternatives  to  Fossil  Fuel  Investment  (53)    Restatement  of  Objectives……………………………………………………………..…59                  

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Introduction      This  report  was  initially  drafted  per  request  of  University  of  Chicago  President  Robert  J.  Zimmer.1  Last  spring,  during  a  meeting  with  representatives  from  Student  Government  and  the  student  campaign  Stop  Funding  Climate  Change,  UChicago  (SFCC),  the  president  expressed  his  desire  for  a  substantive,  comprehensive,  and  intellectually  sophisticated  argument  in  favor  of  divestment  from  fossil  fuels  by  SFCC  and  its  parent  registered  student  organization,  University  of  Chicago  Climate  Action  Network  (UCAN).  Over  the  past  year,  SFCC  has  worked  to  fulfill  the  president’s  request  in  the  hope  that  the  release  of  such  a  report  will  result  in  increased  dialogue  regarding  fossil  fuel  divestment  not  only  between  the  student  body  and  the  administration  but  also  the  University  community  at  large.        The  report  has  a  few  primary  objectives.  It  describes  the  context  and  purpose  of  hypothetical  divestiture  action  taken  by  the  University  of  Chicago.  It  also  aims  to  clear  up  misconceptions  pertaining  to  the  financial  and  political  strategy  of  divestment  as  a  vehicle  for  affecting  change.  It  also,  of  course,  makes  a  multifaceted  argument  for  fossil  fuel  divestment  and  addresses  counter  arguments  made  by  its  opponents.        The  body  of  the  document  is  divided  into  six  sections.  The  first  four  sections  bestow  scientific,  moral,  institutional,  and  financial  cases  for  divestment.  The  fifth,  globalization,  simply  addresses  counterarguments  for  divestment,  and  the  sixth,  reinvestment,  argues  for  investment  paths  to  pursue  following  divestment.          

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1  Kaiser.  “SFCC  Plans  Future  After  Referendum”.  The  Chicago  Maroon.  6/4/13.  Web.  

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Statement  of  Objectives    Emphasizing  the  overwhelming  scientific  evidence  indicating  anthropogenic  climate  change  is  occurring  due  to  the  combustion  of  hydrocarbons,  more  commonly  known  as  fossil  fuels;    Expressing  concern  about  the  impending  catastrophic  consequences  anthropogenic  climate  change  will  have  for  the  University,  the  city  of  Chicago,  and  the  global  community  if  immediate  action  is  not  taken;    Feeling  distress  as  students  (international  and  domestic)  whose  futures  will  be  affected  and  limited  by  the  effects  of  climate  change;    Noting  the  University’s  investments  in  companies  that  extract,  refine,  and  sell  fossil  fuels,  thereby  accelerating  the  burning  of  hydrocarbons  and  anthropogenic  climate  change;    Affirming  the  stance  expressed  in  the  1967  Kalven  Report,  which  calls  on  the  University  to  oppose  and  defend  its  interests  from  the  activities  of  segments  of  society  that  would  do  us  harm;    Weighing  the  financial  and  social  risks  associated  with  holding  assets  that  will  become  ‘stranded’  with  unburnable  carbon  reserves  due  to  governmental  and  international  regulation,  natural  disasters,  and  societal  pressure;    Urges  the  following  actions  be  taken  by  the  University  of  Chicago:    (1)  Immediately  freeze  any  new  investments  in  the  most  carbon-­‐intensive  fossil  fuel  extraction  companies.  This  report  will  keep  the  exact  listing  of  targeted  company’s  undefined  in  the  interest  of  dialogue  with  this  University’s  Board  of  Trustees.  However,  a  listing  of  the  top  200  fossil-­‐fuel  companies  as  a  function  of  their  estimated  carbon  reserves  are  summarized  in  the  PATHWAYS  section,  the  raw  data  for  which  can  be  accessed  online  at  http://bit.ly/ReportData.    (2)  Divest  from  direct  ownership  and  any  commingled  funds  that  include  fossil  fuel  public  equities  and  corporate  bonds  within  five  years,  with  the  goal  of  influencing  fossil  fuel  companies  to  stop  exploring  for  hydrocarbon  reserves,  stop  lobbying  in  Washington  and  state  capitals  across  the  country,  and  pledge  to  keep  80%  of  their  current  reserves  underground  forever.    (3)  Implement  climate  and  carbon  risk  assessment  into  the  University’s  short-­‐term  and  long  term  investment  strategies,  in  order  to  more  accurately  predict  and  account  for  the  instability  markets  will  have  due  to  a  changing  climate  and  move  towards  more  sustainable  investment  practices.  These  practices  could  be  recommended  requested  by  the  University  as  a  client  of  its  endowment’s  external  investment  managers.  

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Section  I:    

The  SCIENTIFIC  Case  for  Divestment  

                             

 

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Global  Climate  Change  

Note  about  terminology:  Unless  otherwise  noted,  “n  degrees  C  warming”  means  warming  of  n  degrees  Celsius  above  the  1880  global  mean  temperature.  This  is  a  common  benchmark  for  pre-­‐industrial  global  temperature  in  the  literature.    

History  

The  modern  study  of  climate  change  has  its  roots  in  the  1950s.  Since  the  experiments  in  1864  of  John  Tyndall  that  showed  that  certain  greenhouse  gases  including  water  vapor,  carbon  dioxide,  and  methane  trap  solar  radiation  as  heat,  scientists  have  theorized  that  carbon  dioxide  from  industrial  fossil  fuel  use  might  globally  strengthen  the  greenhouse  effect.  During  the  1950s,  electronic  computing  first  allowed  John  von  Neumann's  scientists  to  model  the  atmosphere's  general  circulation  using  numerical  methods.1  In  1958,  scientists  also  began  measuring  atmospheric  carbon  dioxide  levels  at  remote  Mauna  Loa  in  Hawaii.  These  data  show  that  atmospheric  carbon  dioxide  levels  have  risen  every  year  since  measurement  began.    

   Data  from  Mauna  Loa,  Hawaii  show  that  atmospheric  carbon  dioxide  has  increased  

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every  year  since  measurement  began.  (Source:  Wikipedia)      The  1970s  and  1980s  brought  climate  change  to  the  center  of  scientific  attention.  As  temperature  continued  to  rise  alongside  CO2  levels  throughout  the  second  half  of  the  20th  century,  concern  among  scientists  and  the  general  public  about  the  effects  of  greenhouse  gas-­‐induced  climate  change  grew.  In  response  to  growing  concerns  among  governments  and  civil  society  about  climate  change,  in  1988  the  United  Nations  established  the  IPCC  for  the  purpose  of  providing  policy-­‐relevant  research  on  climate  change.  It  tends  to  be  conservative  in  its  assessments.    The  IPCC  Fourth  Assessment  Report  (AR4),  released  in  2007,  concluded  that  carbon  dioxide  is  "the  most  important  anthropogenic  greenhouse  gas"  (WG1  exec  summary  p  2).  CO2  concentrations  and  temperatures  have  indeed  risen  significantly.  According  to  NASA,  "with  the  exception  of  1998,  the  nine  warmest  years  in  the  132-­‐year  record  all  have  occurred  since  2000."2  The  average  global  temperature  has  risen  0.6  degrees  C  from  the  average  during  1951-­‐1980  and  0.8  C  from  1880.  Scientists  confidently  expect  this  trend  to  continue.    

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   Temperature  and  atmospheric  carbon  dioxide  have  both  risen  sharply  since  the  1950s.  While  solar  and  volcanic  "forcings"  (induced  changes  in  temperature)  have  fluctuated  since  1900,  the  human  contribution  to  temperature  increase  has  sharply  since  1975.  (Source:  “Global  Climate  Change.”  Energy  Studies  in  the  College  of  Engineering.  Cornell  University.)    According  to  the  report,  the  combustion  of  fossil  fuels  is  the  most  important  contributor  to  the  increase  in  atmospheric  CO2  during  the  industrial  age.  For  the  past  8,000  years—the  entirety  of  human  history—until  very  recently,  levels  near  280  parts  per  million  by  volume  (ppm)  prevailed.  In  1880  CO2  concentration  in  the  atmosphere  was  285  ppm;  in  1958  it  was  315  ppm.  In  2013,  atmospheric  CO2  exceeded  400  ppm.    We  are  witnessing  atmospheric  changes  that  are  epochal  in  scale,  though  human  in  

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pace.  According  to  a  2013  article  in  Science,  CO2  concentrations  were  last  400  ppm  3.6  to  3.4  million  years  ago,  when  summer  temperatures  in  northeast  Siberia  were  about  8  degrees  Celsius  warmer  than  today.3  Homo  has  never  witnessed  400  ppm  CO2,  and  in  particular  the  past  eleven  thousand  years  have  been  characterized  by  a  climatic  stability  that  is  unusual  in  Earth's  history.  According  to  the  IPCC,  at  current  rates,  we  will  reach  450  ppm  between  2038  and  2060.4  However,  its  predictions  have  historically  underestimated  climate  change  effects.    Parties  to  the  United  Nations  Climate  Change  Conference  in  Durban  in  December  2011  declared  a  cap  of  two  degrees  Celsius  warming  as  a  non-­‐binding  international  consensus  goal.  A  concentration  of  450  ppm  CO2  is  seen  as  the  most  likely  cap  to  correspond  to  this  target,  following  a  calculation  we  shall  reproduce.  Delegates  agreed  to  take  legally  binding  action  by  2015  to  limit  warming  to  two  degrees  Celsius,5  via  action  after  the  year  2020.    Scientists  are  beginning  to  warn  that  two  degrees  is  too  hot  to  handle.  Kevin  Anderson  of  the  Tyndall  Centre  for  Climate  Change  Research  at  the  University  of  Manchester  warns  that  the  symptoms  scientists  once  predicted  for  two  degrees  are  more  likely  to  occur  as  we  approach  one  degree.6  Notwithstanding  these  new  risks,  we  will  discuss  the  magnitude  of  the  changes  needed  to  cap  warming  at  two  degrees  in  the  next  section.    

Effects  of  Climate  Change  

Along  with  higher  temperatures,  the  IPCC  foresees  that  heavy  precipitation  events,  tropical  cyclones,  and  "extreme  high  sea  level"  events  will  all  grow  more  frequent.  Hurricane  frequency  and  intensity  have  both  grown.7  This  is  not  surprising:  more  heat  energy  in  the  air  and  water  should  lead  to  higher-­‐energy  weather.    The  area  affected  by  droughts  is  also  expected  to  grow.8  The  processes  that  cause  increased  drought  are  complex,  but  can  be  explained  by  the  increased  water  vapor  capacity  of  warmer  air  and  the  increasing  intensity  of  rain  events  when  they  do  happen.  These  long  dry  spells  punctuated  by  large  storms  are  disastrous  for  farmers.    The  World  Bank's  report  on  the  possibility  of  four  degrees  warming  claims  that,  although  "there  are  technically  and  economically  feasible  emission  pathways  that  could  still  limit  warming  to  2  °C  or  below  in  the  21st  century,"  if  we  continue  on  our  current  trajectory,  the  future  is  grimmer:    

The  emission  pledges  made  at  the  climate  conventions  in  Copenhagen  and  Cancun,  if  fully  met,  place  the  world  on  a  trajectory  for  a  global  mean  warming  of  well  over  3  °C.  Even  if  these  pledges  are  fully  implemented  there  is  still  about  a  20  percent  chance  of  exceeding  4  °C  in  2100.  If  these  pledges  are  not  met  then  there  is  a  much  higher  likelihood-­‐-­‐-­‐more  than  40  percent-­‐-­‐-­‐

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of  warming  exceeding  4  °C  by  2100,  and  a  10  percent  possibility  of  this  occurring  already  by  the  2070s,  assuming  emissions  follow  the  medium  business-­‐as-­‐usual  reference  pathway.  

 It  also  lists  the  probable  consequences:    

The  inundation  of  coastal  cities;  increasing  risks  for  food  production  potentially  leading  to  higher  malnutrition  rates;  many  dry  regions  becoming  dryer,  wet  regions  wetter;  unprecedented  heat  waves  in  many  regions,  especially  in  the  tropics;  substantially  exacerbated  water  scarcity  in  many  regions;  increased  frequency  of  high-­‐intensity  tropical  cyclones;  and  irreversible  loss  of  biodiversity,  including  coral  reef  systems.  And,  most  importantly,  …  a  world  so  different  from  the  current  one  that  it  comes  with  high  uncertainty  and  new  risks  that  threaten  our  ability  to  anticipate  and  plan  for  future  adaptation  needs."9  

 The  slowdown  in  warming  over  the  past  fifteen  years  is  not  a  sign  that  warming  has  stopped.  Many  critics  of  the  scientific  consensus  on  climate  change  cite  the  fact  that  despite  accelerating  carbon  dioxide  emissions,  rates  of  temperature  increase  have  slowed.  However,  during  the  past  half-­‐century  there  have  been  substantial  temperature  fluctuations  on  decadal  scales,  which  do  not  falsify  the  trend  over  the  past  fifty  years.  Our  own  analysis  of  NASA  annual  global  average  surface  temperature  data  shows  that  the  rate  of  temperature  rise  and  fall  has  fluctuated,  and  that  despite  even  a  period  of  cooling  during  the  1970s,  the  sixty-­‐year  trend  has  been  upward.  Slow  periods  have  followed  fast,  and  fast  slow.10    

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 The  pace  of  change:  The  average  rate  of  change  of  global  temperature  over  the  previous  fifteen  years,  in  degrees  Celsius  per  year.  For  each  year,  global  temperature  for  the  previous  fifteen  years  were  fit  to  a  line,  and  the  slopes  for  each  fifteen-­‐year  period  are  shown.  The  pace  of  warming  is  indeed  slower  between  1997  and  2012  than  between  1992  and  2007,  but  is  not  outside  the  range  seen  since  the  1950s.  (Source:  "GLOBAL  Land-­‐Ocean  Temperature  Index  in  0.01  degrees  Celsius."  NASA.  2013.)    Non-­‐anthropogenic  factors  alter  climate  on  the  scale  of  decades  as  well,  but  their  effects  are  temporary  or  very  gradual  compared  to  human  greenhouse  gas  emissions.  Though  their  findings  are  far  from  conclusive,  a  recent  paper  in  Nature  found  that  "accounting  for  recent  cooling  in  the  eastern  equatorial  Pacific  reconciles  climate  simulations  and  observations."11  Their  model  "reproduces  the  annual-­‐mean  global  temperature  remarkably  well  with  correlation  coefficient  r  =  0.97  for  1970  –  2012  (which  includes  the  current  hiatus  and  a  period  of  accelerated  global  warming)."  The  study's  authors  claim  that  this  "decadal  cooling"  is  part  of  the  natural  La  Niña  pattern,  and  that  such  events  in  the  future  should  not  be  confused  with  a  weakening  of  the  causal  chain  in  climate  change.    

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Feedback  Effects  and  Nonlinearity  

 Climate  feedback  mechanisms  make  the  timing  of  climate  action  a  critical  issue.  In  addition  to  influencing  climate  sensitivity,  many  effects  of  warming  instantiate  positive  feedback  loops,  where  the  results  of  increased  temperatures  themselves  cause  increased  warming  or  greenhouse  gas  emissions.  At  one  point,  the  reverse  of  these  processes  brought  the  polar  ice  caps  well  into  the  tropics.  Climate  researchers  still  struggle  to  understand  these  feedback  processes  because  modeling  nonlinear  processes  introduces  additional  computational  issues.  Some  positive  feedback  mechanisms,  such  as  the  melting  of  the  Arctic  ice  cap,  are  widely  accepted,  while  others,  such  as  the  possibility  of  catastrophic  methane  release  due  to  permafrost  melting,  are  frightening  but  poorly  understood.    

   September  mean  ice  levels  in  the  Arctic  Sea  have  declined  significantly  since  the  1970s.  This  decline  is  not  only  a  symptom  but  a  cause  of  warming.  (Source:  Arctic  Sea  Ice  Graphs  website.)      For  example,  figure  4  shows  trends  in  sea  ice.  Higher  temperatures  have  lowered  

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sea  ice  levels  in  the  Arctic  Sea  in  recent  years.  But  ice  reflects  much  more  radiation  and  heat  than  seawater;  it  acts  like  a  mirror.  Because  open  water  absorbs  more  heat,  the  increase  in  open  water  causes  the  oceans  to  retain  more  solar  energy,  which  in  turn  aggravates  warming.  This  may  help  explain  why  Arctic  temperature  anomalies  have  risen  from  1.0  to  1.6  degrees  C  over  the  last  decade  or  so,  much  larger  than  the  global  average  temperature  anomaly  (see  Figures  2  and  5).    

   Arctic  average  surface  temperature  anomaly  between  70  and  90  degrees  N.  (Source:  "Temperature  in  Polar  Regions:  Arctic  and  Antarctic."  Climate4you,  2013.)      Because  of  these  accelerative  effects,  we  may  soon  be  substantially  unable  to  mitigate  warming.  If  the  carbon  dioxide  level  and  the  temperature  keep  increasing  in  the  presence  of  positive  feedback  mechanisms  whose  strength  is  bounded  below,  there  must  be  a  point  at  which  temperatures  and  carbon  dioxide  levels  must  keep  increasing  in  the  total  absence  of  human-­‐caused  emissions.  Imagine  pushing  a  boulder  up  a  hill:  once  you  pass  the  peak,  the  rock  rolls  down  on  its  own.  To  avoid  this  outcome  we  must  effectively  cease  fossil  fuel-­‐related  carbon  dioxide  emissions  before  this  tipping  point.    

What  will  mitigation  require?  

It  is  generally  agreed  that  total  emissions  over  the  period  2000-­‐-­‐2100  (integrated  over  time)  is  a  good  metric  for  climate  change  mitigation.  Deliberate  CO2  removal  (not  including  that  caused,  say,  by  currently  living  plants)  is  considered  negative  emissions.  This  implies  that  for  a  given  desired  level  of  total  emission,  we  face  a  choice  between  emissions  now  and  emissions  later.  

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 There  are  multiple  costs  associated  with  delaying  action  to  reduce  emissions.  First,  given  an  emissions  budget,  more  fuel  consumption  now  means  not  only  less  consumption  later,  but  a  more  abrupt  transition  between  fuel  consumption  levels.  This  is  likely  to  lead  to  short-­‐term  hardship  as  well  as  greater  wasted  investment  in  assets  that  must  be  abandoned  during  their  useful  life.12  More  importantly,  delay  increases  the  risk  that  we  cross  the  threshold  into  a  self-­‐perpetuating  warming  that  brings  the  temperature  above  any  upper  bound  for  safety.    Scientists  generally  assign  probability  distributions  for  the  total  permitted  emissions  before  we  reach  two  degrees  warming.  This  total  permitted  level  is  a  function  of  climate  sensitivity,  which  is  defined  as  the  change  in  global  mean  temperature  due  to  a  doubling  of  carbon  dioxide  concentration.  AR4  reports  that  "climate  sensitivity  is  likely  [greater  than  66  percent  chance]  to  be  in  the  range  of  2  to  4.5  degrees  C  with  a  best  estimate  of  about  3  degrees  C,"  while  it  is  "very  unlikely  [less  than  10  percent  chance]  to  be  less  than  1.5  degrees."13  The  chance  of  climate  sensitivity  exceeding  4.5  degrees  is  thus  between  0  and  29  percent.    Given  climate  sensitivity,  we  can  compute  likely  temperature  change  at  a  given  concentration  of  CO2.  Assuming  a  simple  logarithmic  model  with  climate  sensitivity  of  3  degrees  C,  warming  of  2  degrees  above  pre-­‐industrial  levels  requires  CO2  levels  to  rise  to  approximately  452  ppm,  replicating  the  UN  consensus  figure.  Warming  of  4  degrees  requires  CO2  levels  of  718  ppm  CO2.14  The  IPCC  predicts  that  a  future  with  continued  rapid  economic  growth  and  fossil  fuel  use  that  is  heavy  or  "balanced"  with  renewable  energy,  or  even  a  future  with  slower  economic  growth  but  insufficient  global  coordination,  will  likely  lead  to  CO2  concentrations  above  720  ppm  by  the  year  2100;  if  rapid  economic  growth  is  combined  with  heavy  fossil  fuel  use,  we  will  reach  this  level  by  about  2070,  within  the  lifetimes  of  people  living  today.15          

   Climate  sensitivity  outcomes  from  running  a  model  simulation  500  times.  The  distribution  of  outcomes  is  similar  to  that  reported  in  the  IPCC  report,  with  20  percent  of  outcomes  predicting  sensitivity  of  greater  than  4.5  degrees.  Note  that  10  percent  of  outcomes  predict  sensitivity  greater  than  6  degrees.    

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 Achieving  2  degrees  warming  will  require  prompt,  large-­‐scale  action.  The  article  "Beyond  `dangerous'  climate  change:  emission  scenarios  for  a  new  world"  by  Kevin  Anderson  and  Alice  Bows  considers  emission  caps  of  1578  and  1321  GtCO2.16  The  first  "provides  an  approximate  50  per  cent  chance  of  not  exceeding  2  degrees  C"  (page  26).  AR4  states  that  450  ppm  requires  limiting  2000–2100  CO2  emissions  to  a  value  which  is  likely  between  1370  and  2200  Gt.  As  total  remaining  proven  fuel  reserves  were  equivalent  to  2,795  GtCO2,  this  cap  will  require  not  exploiting  substantial  reserves.17  The  paper  lays  out  three  paths  for  staying  within  each  cap.  They  all  require  global  emissions  to  peak  before  2020.  Since  global  equity  requires  countries  with  histories  of  high  emissions  to  reduce  emissions  sooner  and  more  quickly  than  countries  with  lower  historical  emissions,  all  the  authors'  mitigation  pathways  prescribe  a  decline  in  emissions  every  year  after  2015  for  industrialized  nations.  This  will  be  challenging,  but  lowering  our  sights  to  a  "reasonable"  cap  of  4  degrees  warming  will,  as  we  have  detailed,  lead  to  consequences  that  most  policymakers  consider  unacceptable.    As  the  consequences  of  warming  become  more  severe,  we  believe  that  emissions  reduction  will  occupy  a  more  important  role  in  policy  across  levels  of  government.  One  thousand  sixty  mayors  across  the  United  States  have  pledged  to  reduce  carbon  dioxide  emissions  in  their  cities  to  below  1990  levels,  in  line  with  the  Kyoto  Protocol.18  Due  largely  to  civil  society  efforts  and  increasingly  sympathetic  governments,  two  thirds  of  249  new  coal  plant  proposals  were  thrown  out  between  2001  and  2012,  while  existing  plants  such  as  the  Fisk  and  Crawford  stations  in  Chicago  have  been  shuttered.19  In  2013,  the  EPA  for  the  first  time  passed  rules  on  power  plants  that  explicitly  target  carbon  dioxide  emissions,  and  effectively  halts  any  new  coal  generation.20  Coal  generation  has  declined  from  1,973,737  MWh  in  2003  to  1,517,203  MWh  in  2012.21  In  contrast,  thanks  in  part  to  a  policy  of  public  investment  in  renewable  energy,  renewable  generation  has  gone  up  from  79,487  MWh  in  2003  to  218,787  MWh  in  2012,  with  wind  generation  jumping  from  11,187  to  140,089  MWh  over  the  same  period.22  The  wisdom  of  policy  to  reduce  carbon  dioxide  emissions  is  now  taken  for  granted;  the  question  is  now  whether  changes  will  take  place  sufficiently  quickly  to  avert  catastrophic  levels  of  damage.    

Conclusion  

Since  the  1950s,  climatologists  have  learned  a  great  deal  about  the  ways  Earth's  atmosphere,  hydrosphere,  cryosphere,  geosphere,  and  biosphere  interact  to  create  the  global  climate.  During  this  time,  the  theory  of  anthropogenic  climate  change,  which  holds  that  human  emissions  of  carbon  dioxide  and  other  greenhouse  gases  are  responsible  for  ecosystem-­‐wide  climatic  change  and  worldwide  climatic  warming,  has  become  the  consensus  among  climate  researchers.    The  Intergovernmental  Panel  on  Climate  Change,  an  collaboration  among  governments  to  collect,  evaluate,  and  present  policy-­‐relevant  research  on  climate  

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change  to  policymakers  and  the  public,  has  blamed  increasingly  severe  weather  events  on  warming.  It  has  announced  in  its  IPCC  Fourth  Assessment  Report  and  other  publications  that  rapid,  decisive  action  to  reduce  greenhouse  gas  emissions  is  necessary  to  avoid  water  scarcity,  declines  in  agriculture,  large-­‐scale  population  displacement,  and  the  social  upheaval  that  would  follow.    The  international  community  has  officially  agreed  to  2  degrees  above  the  1880  global  mean  temperature  and  450  ppm  of  carbon  dioxide  as  upper  limits.  In  order  to  achieve  this,  we  must  refrain  from  fully  exploiting  current  proven  fossil  fuel  reserves;  yet  efforts  to  expand  reserves  are  continuing.  Large-­‐scale  emissions  reduction  will  require  reversing  this  trend  of  business  as  usual;    this  will  require  government  and  intergovernmental  action  and  cooperation.  As  the  short-­‐term  effects  of  climate  change  become  more  apparent,  we  believe  that  governments  will  take  action  to  reduce  carbon  emissions;  it  is  to  be  determined  whether  they  will  act  quickly  enough  to  avert  environmental  and  economic  breakdown.    We  do  not  fully  know  what  will  happen  if  government  and  civil  society  fail  to  coordinate  large-­‐scale  action  to  reach  desired  emissions  outcomes.  Already  we  are  approaching  an  atmospheric  composition  radically  different  from  that  which  has  supported  human  settlement  for  the  entirety  of  its  history,  and  whose  last  precedent  coexisted  with  a  climate  that  could  not  have  supported  our  current  civilization.  The  speed  of  these  changes  is  unprecedented  in  Earth's  history,  and  the  opportunity  to  address  the  problem  is  quickly  passing.  We  fear  that  these  changes  deeply  threaten  our  way  of  life  and  the  well-­‐being  of  all  life  on  earth.        Local  and  Regional  Climate  Change    It  is  easy  to  understand  the  detrimental  effects  of  climate  change  on  the  Global  South.  While  it’s  true  that  the  lives  and  homes  of  those  residents  are  greatly  threatened  by  climate  change  and  sea  level  rise,  residents  of  Chicago,  too,  are  facing  the  consequences  of  increased  greenhouse  gas  emissions.  Just  this  winter,  Chicago  has  experienced  the  so-­‐called  “polar  vortex,”  relevant  as  an  extreme  weather  event  but  newsworthy  only  because  winters  in  Chicago  have  become  much  milder  in  the  last  fifty  or  so  years.  This  section  seeks  to  elucidate  the  ecological  effects  that  global  climate  change  is  having  on  the  University  of  Chicago  campus  community,  the  city  of  Chicago,  and  the  Midwest  region  of  the  United  States.    The  effects  of  climate  change  have  both  large-­‐scale  effects  in  the  Midwest  region,  as  well  as  particular  threats  to  the  city  of  Chicago.  In  Illinois,  the  recently  approved  State  Natural  Hazard  Mitigation  Plan  (SHMP)  of  2013  fails  to  mention  climate  change  as  one  of  the  threats  that  factor  into  natural  hazards.  However,  the  effects  of  climate  change,  if  not  effectively  dealt  with  by  decreasing  the  use  of  fossil  fuels,  will  become  the  main  cause  of  increased  natural  hazards  in  the  region.    

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The  city  of  Chicago  will  feel  many  of  the  effects  of  climate  change  much  sooner  than  many  people  think.  With  temperature  increases,  more  extreme  weather  events  like  flooding,  heat  waves,  and  extreme  droughts  will  occur.  Because  of  the  high  population  density  in  the  city,  these  events  will  have  serious  negative  health  effects  on  many  residents,  particularly  those  who  live  in  apartments  without  air  conditioning  (which  includes  many  UChicago  students,  including  several  dormitories).    To  put  these  higher  mean  temperatures,  specifically  an  increase  of  0.6-­‐0.8  degrees  Celsius  by  2039  and  2-­‐4  degrees  Celsius  by  2099,  in  context:  some  scientists  have  predicted  that  just  a  4-­‐degree  (C)  rise  in  a  global  mean  temperature  would  destroy  ecosystems  and  disrupt  human  life  enough  that  species  survival  becomes  questionable.23  Warmer  summers  will  mean  a  higher  demand  for  energy  to  power  cooling  systems  not  only  in  Chicago  homes,  but  businesses  as  well.  This  will  lead  to  a  higher  amount  of  carbon  dioxide  released  and  even  greater  negative  effects  on  the  climate,  creating  an  ecological  positive  feedback  loop.    In  the  larger  region  of  the  Midwest,  an  immediate  threat  that  has  already  shown  signs  of  worsening  is  the  amount  of  flooding  the  Midwest  has  currently  encountered  and  will  continue  encounter.  As  the  climate  warms  each  year,  precipitation  levels  increase  dramatically.  The  U.S.  Federal  Emergency  Management  Agency  (FEMA)  estimates  that  Illinois  counties  can  expect  between  a  40%  and  90%  increase  in  size  of  areas  susceptible  to  flooding  by  2100.24  The  annual  number  of  precipitation  events  greater  than  3  inches  has  increased  by  83%  over  the  last  50  years,  and  the  amount  of  total  precipitation  during  these  events  has  increased  by  100  percent.  What  this  means  for  the  state  of  Illinois  and  the  Midwest  region  is  the  destruction  of  countless  homes,  roads,  hospitals,  and  yes,  schools  as  flood-­‐prone  zones  widen.  Illinois  has  experienced  $5.5  billion  in  flood  losses  since  1993,  and  the  cost  continues  to  grow.    The  city  of  Chicago  has  also  already  seen  more  rainstorms.  A  storm  classified  as  a  once-­‐in-­‐ten-­‐years  storm  has  occurred  twice  in  Chicago  in  the  past  four  years,  and  a  storm  categorized  as  a  once-­‐in-­‐a-­‐hundred-­‐years  has  occurred  thrice  since  1980.25  Extreme  flooding  will  disrupt  transportation  for  students  and  faculty,  and  has  the  potential  to  contaminate  drinking  water  obtained  from  Lake  Michigan.  However,  the  worst  damage  the  increased  flooding  will  have  is  on  the  Chicago  River.  Massive  levels  of  precipitation  can  cause  the  river  to  revert  itself  and  flow  into  Lake  Michigan  instead  of  away  from  it,  thus  carrying  with  it  millions  of  gallons  of  untreated  sewage.26    In  the  Midwest  region,  along  with  this  extreme  flooding,  there  will  be  increased  drought  and  extreme  heat,  affecting  not  only  the  fragile  ecosystems  of  the  area  but  also  posing  a  serious  public  health  threat  to  the  inhabitants  who  live  there.  In  2012,  not  too  long  ago,  the  Midwest  experienced  a  historic  drought  which  severely  affected  the  agricultural  industry,  with  crop  losses  totaling  nearly  3  billion  dollars.  The  average  precipitation  in  the  summer  will  decrease  by  10%,  coinciding  with  

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summer  temperature  increases  of  5-­‐6  degrees  Fahrenheit.27  110  heat  records  were  broken  in  2012,  posing  a  huge  risk  to  residents  of  Illinois  including  the  University’s  very  own  student  and  faculty  members.    On  a  local  scale,  this  translates  into  greater  year-­‐to-­‐year  variability  in  Chicago’s  weather.  In  March  of  2011,  temperatures  were  reaching  80  degrees  Fahrenheit,  while  in  March  2012  the  campus  temperatures  were  hovering  about  32  degrees  Fahrenheit.  Extreme  heat  decreases  the  quality  of  air  to  breathe,  so  hotter  Chicago  days  would  increase  both  the  ambient  ozone  in  the  atmosphere  of  the  city  and  the  number  of  days  Chicago’s  ozone  measurements  are  above  safe  levels.  When  they  are  above  safe  levels,  going  outside  becomes  hazardous  due  to  respiratory  illnesses,  and  the  financial  sector  as  well  as  the  health  sector  suffers.          Thus,  the  bottom  line  is  that  if  nothing  is  done,  the  odds  for  larger  storms  and  disasters,  flooding,  extreme  heat,  and  droughts  will  continue  to  increase  every  year  the  climate  warms  both  in  the  Midwest  and  the  city  of  Chicago.  The  SHMP  of  2013  is  not  an  adequate  enough  of  a  source  to  counter  a  move  like  divestment,  because  it  does  not  adequately  express  the  role  climate  change  will  play  in  the  increasing  number  and  size  of  the  natural  hazards  of  the  Midwest.  According  to  Matthew  Babcock’s  “Rating  the  States”  report  for  Columbia  Law  School’s  Center  for  Climate  Change  Law,  which  surveyed  the  preparedness  plans  of  each  state  to  climate  related  dangers,  the  state  of  Illinois  is  ranked  as  Category  2,  meaning  a  minimal  mention  of  climate-­‐related  issues.  Brief  qualitative  mentions  are  made,  but  without  expansion,  and  prove  that  the  SHMP  of  Illinois  as  a  Category  2  state  is  lacking  behind  a  lot  of  other  states  in  regards  to  responding  to  climate  change.28  In  reality,  Illinois’s  SHMP  only  relies  on  historical  data,  proving  the  state  is  not  ready  for  the  effects  of  climate  change  unless  a  strong  move  against  it  is  taken.  The  University  of  Chicago,  by  agreeing  to  divest  from  fossil  fuels,  could  set  the  example  for  the  Midwest  to  move  away  from  practices  that  aide  in  multiplying  the  severity  of  natural  disasters  that  threaten  public  health  as  well  as  the  ecological  health  of  its  residents.    

Glossary  

Anthropogenic  climate  change  Climate  change  with  human  causes,  most  importantly  greenhouse  gas  emissions  from  fossil  fuels  but  also  including  changes  from  land  use,  agriculture,  and  smog  pollution.  Climate  sensitivity  The  change  in  global  mean  surface  temperature  due  to  a  doubling  of  atmospheric  carbon  dioxide  concentration.  Feedback  loop  A  pattern  in  a  system  in  which  the  effects  of  a  stimulus  tend  to  either  increase  or  decrease  the  stimulus.  An  example  of  positive  feedback  is  audio  feedback,  when  a  small  noise  is  amplified,  that  amplified  noise  is  itself  amplified,  and  so  on.  Feedback  effects  are  an  important  determinant  of  climate  sensitivity,  and  also  raise  the  specter  of  self-­‐perpetuating  climate  change.  Greenhouse  gases  Gases  such  as  water  vapor,  carbon  dioxide,  methane,  etc.  which  absorb  solar  radiation  and  store  it  as  heat.  This  phenomenon  is  called  the  

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greenhouse  effect.  IPCC  The  Intergovernmental  Panel  on  Climate  Change  is  an  organization  devoted  to  collecting,  assessing,  and  presenting  policy-­‐relevant  research  on  climate  change  to  policymakers  and  the  general  public.  For  its  "efforts  to  build  up  and  disseminate  greater  knowledge  about  man-­‐made  climate  change,  and  to  lay  the  foundations  for  the  measures  that  are  needed  to  counteract  such  change,"  it  shared  the  2007  Nobel  Peace  Prize  with  Al  Gore.  ppm  Parts  per  million.  In  this  section,  "ppm"  always  refers  to  parts  per  million  by  volume,  which  in  gases  always  coincides  with  parts  per  million  by  molecule  count.    _________________________________________________________________________________________________  1  Edwards,  Paul.  “The  Vast  Machine.”  Cambridge,  Massachusetts:  MIT  Press,  2010.  2  "NASA  Finds  2012  Sustained  Long-­‐Term  Climate  Warming  Trend".  NASA,  2013.  Accessed  16  September  2013.  3  Brigham-­‐Grette,  Julie  et  al.  "Pliocene  Warmth,  Polar  Amplification,  and  Stepped  Pleistocene  Cooling  Recorded  in  NE  Arctic  Russia."  Science.  21  June  2013.  4  "Carbon  Dioxide:  Projected  emissions  and  concentrations."  Intergovernmental  Panel  on  Climate  Change,  2013.  Accessed  16  September  2013.  5  Harvey,  Fiona  and  Vidal,  John.  "Global  climate  change  treaty  in  sight  after  Durban  breakthrough."  The  Guardian,  11  December  2011.  Accessed  16  September  2013.  6  Anderson,  Kevin.  "Climate  Change:  going  beyond  dangerous."  July  2011.  Web,  slide  at  08:19.  7  "What  is  the  link  between  hurricanes  and  global  warming?"  Skeptical  Science,  2010.  Accessed  16  September  2013.  8  See  7  “What…”  9  World  Bank.  "Turn  Down  the  Heat:  Why  a  4  deg  C  Warmer  World  Must  be  Avoided."  November  2011.  10  "GLOBAL  Land-­‐Ocean  Temperature  Index  in  0.01  degrees  Celsius."  NASA,  2013.  Accessed  16  September  2013  11  Kosaka,  Yu  and  Xie,  Shang-­‐Ping.  "Recent  global-­‐warming  hiatus  tied  to  equatorial  Pacific  surface  cooling."  Nature  28  August  2013.    12  "Delaying  climate  policy  would  triple  short-­‐term  mitigation  costs."  Potsdam  Institute  for  Climate  Impact  Research,  2013.  Accessed  16  September  2013.  13  AR4,  p.  38.  14  If  climate  sensitivity  is  n  degrees,  then  warming  as  a  function  of  carbon  dioxide  concentration,  x,  is  given  by  (log  base  nth  root  of  2)  *  x.  Therefore,  three  degrees  climate  sensitivity  requires  a  1.59-­‐fold  increase  in  concentration  for  two  degrees  warming  and  a  2.52-­‐fold  increase  for  four  degrees  warming.  From  the  pre-­‐industrial  285  ppm,  this  is  452  and  718  ppm  respectively.  15  Intergovernmental  Panel  on  Climate  Change.  IPCC  Third  Assessment  Report,  Working  Group  I:  The  Scientific  Basis,  Summary  for  Policymakers,  Figure  5.  2001.  16  Anderson,  Kevin  and  Bows,  Alice.  "Beyond  'dangerous'  climate  change:  emission  scenarios  for  a  new  world."  Philosophical  Transactions  of  the  Royal  Society  A  29  November  2010.  17  "Carbon  Bubble."  Carbon  Tracker  Initiative,  2011.  Accessed  16  September  2013.  18  "U.S.  Conference  of  Mayors  Climate  Protection  Agreement."  Mayors  Climate  Protection  Center,  2009.  Accessed  16  September  2013.  19  Battistoni,  Alyssa;  Aleaziz,  Hamed;  and  Oatman,  Maddie.  "Map:  The  Cross-­‐Country  Fight  Against  Coal.  20  “Carbon  Pollution  Standards  for  the  Power  Sector."  Environmental  Protection  Agency,  2013.  Accessed  16  September  2013.  21  "Net  Generation  by  Energy  Source:  Total  (All  Sectors),  2003–June  2013."  U.S.  Energy  Information  Administration,  2013.  Accessed  16  September  2013.  22  See  21  “Net…”      23  “Introduction:  Assessing  the  effects  of  climate  change  on  Chicago  and  the  Great  Lakes”,  Donald  J.  Wuebbles,  Katharine  Hayhoe,  Julia  Parzen.  Journal  of  Great  Lakes  Research.  2010.  

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24  “Illinois  Must  Look  Ahead  to  Anticipate  Natural  Disasters,  Not  Backwards”,  Rob  Moore.  Natural  Resources  Defense  Council  (NRDC),  2013.  25  Wuebbles,  et  al.  2010.  26  Moore.  2013.  27  Moore.  2013.  28  “State  Hazard  Mitigation  Plans  and  Climate  Change  -­‐  Rating  the  States”,  Matthew  Babckick.  Columbia  Law  School,  Center  for  Climate  Change  Law,  2013.                                                                          

 

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Section  II:      

The  MORAL  Case  for  Divestment  

                                                           

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Divestment  Is  a  Moral  Issue    Despite  public  misconception  that  the  scientific  community  is  uncertain  about  the  existence  or  primary  cause  of  climate  change,  the  phenomenon  and  its  anthropogenic  nature  are  seen  as  a  certainty  among  scientists:  Cook  et  al.  (2013)  found  that  around  97%  of  scientists  agree  climate  change  is  caused  by  human  activity.  The  IPCC  has  outlined  a  report  that  includes  all  of  the  economic  and  ecological  damage  that  climate  change  will  cause  if  we  are  to  proceed  in  “business  as  usual”  fashion—that  is,  making  no  substantial  attempt  to  lower  anthropogenic  CO2  emissions.  The  report  predicts  unprecedented  death  tolls  in  the  billions  and  mass  species  extinction.      All  in  all,  climate  change  is  widely  regarded  as  the  greatest  long-­‐term  threat  to  the  survival  of  our  species.  However,  people,  institutions,  companies,  and  governments  worldwide  continue  to  not  prioritize  climate  action  for  a  number  of  reasons:  poor  understanding  of  climate  change  held  by  some  of  the  general  public,  potential  economic  hardship  of  transition,  and  unsustainable  socially  embedded  consumer  habits.  The  most  formidable  roadblock  to  change,  however,  is  the  ‘time  discounting  effect’,  a  psychological  phenomenon  where  the  perceived  urgency  of  addressing  a  potential  problem  decreases  as  the  distance  between  the  present  and  the  realization  of  the  issue’s  consequences  increases.  In  other  words,  the  fact  that  the  catastrophic  consequences  of  climate  change  are  relatively  far  off  is  causing  the  subconscious  reprioritization  of  climate  action.  This  cognitive  bias  is  morally  hazardous  and  highly  detrimental  considering  the  short-­‐term  urgency  of  reducing  carbon  pollution.  The  best  way  to  combat  climate  change,  therefore,  is  to  understand  it  not  just  an  economic  or  political  issue  but  also  a  moral  one.    With  political  and  economic  issues,  analysis  tends  to  center  around  optimization  of  several  possible  outcomes,  in  order  to  achieve  the  best  possible  outcome.  Alfred  Marshall,  the  neoclassical  economist,  noted  the  lack  of  worry  in  Western  Europe  apropos  to  ecological  limits  allowed  for  a  unique  period  of  enhanced  production  and  resource  extraction,  and  such  an  attitude  (and  cause  for  said  attitude)  must  be  present  for  total  freedom  of  action  to  exist.  As  previously  stated,  it  is  clear  that  we  are  not  currently  living  in  such  a  period.  Understanding  that  effectively  dealing  with  climate  change  is  a  moral  issue  requires  the  ability  to  see  that  not  all  possible  outcomes  of  the  issue  are  desirable,  or  even  acceptable.  This  is  not  simply  a  case  of  optimization  of  results,  or  of  getting  the  best  results  for  the  least  input.  This  is  a  situation  in  which  the  incorrect  balance  of  priorities  can  and  will  result  in  environmental  damage  accompanied  by  worldwide  political  and  economic  damage.    While  it  is  understandable  that  economic  choices  are  first  deliberated  in  an  ethical  vacuum,  away  from  normative  ethical  judgments,  it  must  be  understood  that  there  are  inherent  judgments  in  any  sort  of  framework.  In  analysis,  there  is  an  expectation  of  freedom  of  choice,  which  will  allow  an  analysis  to  avoid  being  normative  and  subjective  and  continue  in  a  positivist  manner.  However,  this  assumption  belies  a  sort  of  normative  nature  that  prioritizes  freedom  of  choice  above  other  guiding  

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tenets,  such  as  socially  healthy,  pro-­‐equality,  pro-­‐moral,  or  pro-­‐environmental  values.  It  is  also  important  to  understand  that  the  climate  change  is  not  an  amoral  situation;  this  is  a  dynamic  world  in  which  economic  and  social  interests  must  be  balanced  on  a  local  and  global  scale.  The  University  of  Chicago  holds  its  own  amount  of  economic  and  social  power,  and  this  does  not  exist  in  a  vacuum.  While  education  and  research  are  the  Universities  two  main  goals,  there  are  ramifications  of  its  actions  outside  the  academic  world,  and  one  of  those  actions  is  investing.  Instead,  the  University  functions  in  a  system  in  which  its  actions  and  investments  ultimately  affect  community  health,  national  health,  and  global  health,  and  yet  this  power  does  not  come  in  a  democracy  but  in  a  free-­‐for-­‐all  financial  playing  field.  Divestment  and  investment  are  opposites,  that  is  understood;  however,  what  needs  to  be  clarified  is  that  they  are  not  opposites  in  that  one  represents  action  and  the  other,  non-­‐action:  both  are  actions  that  impact  third  parties.  Fossil  fuel  investments  affect  companies  financially  and  the  earth  environmentally,  which  will  affect  every  single  human  being  an  adverse  time.  There  adverse  effects  will  worsen  every  year,  too.      This  is  why  divestment  is  the  morally  correct  choice—it’s  the  correct  decision  when  thinking  of  all  seven  billion  fellow  human  beings  on  the  planet,  particularly  those  in  developing  nations  who  rely  so  heavily  on  agriculture,  where  increased  disasters  can  wipe  out  livelihoods  and  even  cause  displacement.  Additionally,  climate  change  will  continue  to  adversely  impact  those  in  developed  nations,  too,  in  disasters  striking  coastal  regions  and  other  extreme  weather  all  over,  causing  forest  fires,  droughts,  flooding,  and  more.  At  the  end  of  the  day,  while  investing  in  fossil  fuel  companies  allows  society  to  function  in  its  current  fashion,  the  same  investing  hurts  every  single  human  being  through  climate  change  and  will  only  continue  to  harm  the  human  race’s  well-­‐being.                                            

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Section  III:    

The  INSTITUTIONAL  Case  for  Divestment  

                                                         

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Divestment  and  the  Mission  of  the  University  of  Chicago    Fossil  fuel  divestment  is  not  only  consistent  with  the  University’s  mission  as  a  research  and  educational  institution,  but  is  in  fact  necessitated  by  that  mission.  The  purpose  of  the  University  is,  as  put  forward  by  the  University  of  Chicago’s  Articles  of  Incorporation,  to  establish  and  maintain  opportunities  for  higher  education  and  “to  do  all  and  every  of  the  things  necessary  or  pertaining  to  [this]  accomplishment.”1  One  of  the  ordering  principles  necessary  for  the  pursuit  of  higher  education  is,  presumably,  an  environment  that  supports  and  facilitates  human  activity.  Yet,  investment  in  fossil  fuel  companies  financially  contributes  to  global  climate  change  and  thus  to  increasingly  frequent  and  severe  weather  patterns  and  natural  disasters.2        Recent  extreme  weather  events  in  Chicago  and  across  the  United  States,  while  not  necessarily  caused  by  climate  change,  provide  examples  of  the  ways  in  which  meteorological  and  climate  conditions  affect  the  University’s  ability  to  carry  out  its  mission.  The  first  day  of  the  current  academic  quarter  (Winter  2014)  saw  University  courses  cancelled  due  to  “severe  weather”  and  “dangerous  cold,”3  with  some  students  and  faculty  unable  to  return  to  campus  for  up  to  two  weeks.4      Other  American  universities  have  been  even  more  severely  affected  by  natural  disasters.  New  York  University,  for  example,  was  forced  to  close  down  for  a  week  and  to  evacuate  its  hospital  and  residence  halls  as  a  result  of  Superstorm  Sandy  in  2012,  with  students  losing  electricity  and  running  water  in  some  cases,5  severely  affecting  NYU’s  ability  to  operate  both  during  and  after  the  storm.  Severe  weather  will  affect  the  University’s  ability  to  function  normally,  whether  due  to  the  inability  of  students,  faculty  and  staff  to  reach  campus  or  to  the  devastating  impact  of  natural  disasters  on  members  of  the  University  community  and  possibly  on  the  University  campus  itself.    The  long-­‐term  effects  of  climate  change  extend  well  beyond  inconveniences  in  transit  or  momentary  suspension  of  basic  services.  The  2012  Climate  Vulnerability  Report  predicts  100  million  deaths  attributable  to  climate  change  worldwide  by  2030,  with  that  number  increasing  exponentially  moving  forward.6  Future  members  of  the  University  community  will  have  to  grapple  with  sustained  drought,  famine,  overcrowding  in  cities,  flooding,  heightened  seismic  activity,  and  drinking  water  shortages  that  will  significantly  impede  the  institution’s  ability  to  function.    Considering  the  gravity  of  the  threat  anthropogenic  climate  change  poses,  the  University  is  therefore  obligated  to  “do  all  and  every  of  the  things  necessary”  to  ensure  that  climate  change  will  not  prevent  or  inhibit  the  pursuit  of  higher  education  at  the  University  of  Chicago.  One  of  these  necessary  actions  is  divestment  from  fossil  fuel  companies,  whose  activities  are  directly  contributing  to  climate  change.  By  investing  in  these  companies,  the  University  is  effectively  sponsoring  climate  change,7  jeopardizing  its  future  ability  to  fulfill  its  mission.    

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While  most  major  institutions  of  higher  learning  in  the  United  States  have  acknowledged  the  existence  and  threat  of  anthropogenic  climate  change,  only  nine  universities  have  divested  as  of  the  release  of  this  report.  Statements  made  by  the  presidents  of  Harvard  University  and  Brown  University  have  raised  objections  to  divestment,  dismissing  it  as  an  ineffective  tactic  for  combatting  climate  change.8  This  report  addresses  these  statements,  which  are  reproduced  in  italics  and  underlined  below.    Since  the  purpose  of  the  university’s  endowment  is  to  maintain  education  and  research,  only  considerations  of  the  endowment’s  financial  strength  and  ability  to  advance  academic  goals  should  be  considered  in  divestment.    Since  climate  change  will  severely  impact  the  university’s  ability  to  advance  academic  goals,  considering  the  environmental  consequences  of  funding  fossil  fuel  companies  should  be  part  of  the  University’s  investment  strategy.  Climate  change  is  predicted  to  cause  significant  increases  in  the  intensity  of  storms  and  other  severe  weather  patterns  in  the  future,  which  has  and  will  continue  to  demonstrably  interfere  with  the  university’s  ability  to  conduct  education  and  research.  Furthermore,  the  volatility  of  oil  prices  and  the  threat  of  a  carbon  bubble  affect  not  only  University  capital  directly  invested  in  fossil  fuel  assets  but  in  all  areas  if  asset-­‐damaging  climate  change  is  allowed  to  occur  unmitigated.    Thinking  of  the  endowment  as  a  political  tool  to  establish  a  stance  on  any  issue  risks  the  University’s  academic  freedom.    The  University’s  investment  in  fossil  fuel  companies  is  an  action  with  social  and  political  consequences;  is  it  not  a  neutral  stance  or  a  lack  of  action.  Just  as  divestment  is  an  act  undertaken  by  an  institution,  so  is  investment  in  a  company;  even  actions  as  basic  as  participation  in  a  market  economy  are  inherently  political.  It  is  fallacious  to  say  that  divestment,  but  not  investment,  carries  political  and  social  meaning.      Divesting  from  fossil  fuel  companies  is  not  intended  to  insert  the  University  into  the  political  arena,  or  even  to  be  a  statement  of  institutional  ideology.  It  is  simply  both  recognition  of  the  fact  that  investing  in  the  destruction  of  a  stable  planetary  climate  is  counterproductive  to  the  University’s  mission  of  education  and  research,  as  well  as  an  attempt  to  limit  said  destruction.  Climate  scientists  have  reached  overwhelming  consensus  on  the  issue,  and  the  ethical  imperative  to  avoid  ecological  catastrophe  is  a  matter  of  social  responsibility.9    This  report’s  call  for  divestment,  therefore,  is  different  from  previous  divestment  campaigns  based  on  political  or  social  issues.  While  fostering  social  equality  is  a  goal  the  University  rightly  strives  for,  financial  investment  in  corporations  that  take  unpopular  stances  on  social  issues  does  not  directly  affect  the  University’s  ability  to  conduct  its  academic  mission,  even  while  these  corporations  may  contribute  to  the  inability  of  some  individuals  to  enter  or  engage  with  the  University  community.  The  

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operations  of  fossil  fuel  companies,  in  contrast,  contribute  directly  to  climate  change  and  engender  increasingly  severe  storms,  significant  changes  in  temperature  and  precipitation,  and  changing  sea  levels,  all  of  which  are  affecting  or  are  likely  to  affect  Chicago  in  the  future.10  To  invest  in  these  companies  is  to  finance  the  destruction  of  an  institution  conducive  to  education,  research,  and  free  inquiry.    It  is  inconsistent  to  rely  on  fossil  fuel  companies’  products  and  services,  as  individuals  and  as  a  community,  while  boycotting  or  refusing  to  have  anything  to  do  with  these  companies  through  our  investments.    Investing  in  a  company  is  a  choice  unrelated  to  consumption.  Relying  on  the  products  we  buy  from  oil,  gas,  and  coal  companies  does  not  compel  us  to  donate  to  these  companies,  nor  does  it  compel  us  to  invest  money  in  them.  The  University  purchases  oil  and  carbon-­‐based  electricity  because  current  economic  constraints  offer  scant  alternatives.  The  University  is  not  hypocritical,  therefore,  if  investments  in  fossil  fuel  companies  are  discontinued.    Economic  dependence  on  fossil  fuels  has  been  perpetuated  in  large  part  due  to  aggressive  lobbying  and  protectionist  practices  by  the  industry.  Fossil  fuel  companies  contribute  unprecedented  sums  of  money  to  organizations  and  political  candidates  that  deny  climate  change  and  spend  millions  on  lobbying  efforts  to  block  climate  legislation  and  the  cessation  oil  subsidies.11    In  summary,  divestment  from  fossil-­‐fuel  companies  is  consistent  with  the  University’s  mission  as  a  research  and  educational  institution  and  is  in  fact  necessitated  by  that  mission.  The  predicted  consequences  of  climate  change  are  extremely  likely  to  interfere  with  the  University’s  ability  to  conduct  research  and  education,  and  the  Articles  of  Incorporation  therefore  oblige  the  University  “to  do  all  and  every  of  the  things  necessary”  to  ensure  that  extreme  weather  caused  by  climate  change  does  not  interfere  with  education  and  research  at  the  University.  One  of  these  necessary  actions  is  fossil  fuel  divestment.  Divestment  will  not  compromise  the  integrity  of  the  University’s  academic  independence,  nor  will  it  constitute  an  appropriation  of  the  endowment  for  political  or  social  purposes.  Divestment  from  fossil  fuel  companies  is  an  essential  means  by  which  the  University  can  pursue  its  mission  as  an  educational  and  research  institution  in  the  coming  years.    University  of  Chicago’s  Academic  Neutrality  and  the  Kalven  Report    Drafted  by  a  committee  of  faculty  and  administrators  in  1967,  the  Kalven  Report  acts  as  the  University  of  Chicago’s  guide  on  matters  of  academic  freedom  and  institutional  actions  related  to  social  or  political  causes.  The  paradigms  presented  in  the  Kalven  Report  were  written  in  the  historical  context  of  decades-­‐long  attacks  on  free  academic  inquiry  by  parties  external  to  the  University  itself,  namely  the  political  persecution  of  faculty  and  students  by  representatives  of  the  United  States  Government.  This  report  makes  several  different  arguments  that  are  summarized  as  

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follows:  (1)  that  divestment  is  not  a  violation  of  the  Kalven  report  because  the  University  will  be  materially  affected  as  a  direct  party  to  the  operations  of  fossil  fuel  extraction  companies,  (2)  the  historical  context  and  intention  of  the  Kalven  report  targeted  actors  outside  of  the  University  itself,  not  internally  deliberated  decisions  such  as  divestment  (3)  that  the  University  would  be  acting  in  its  apolitical  corporate  capacity  if  it  were  to  divest,  (4)  the  University’s  primary  goals  of  not  taking  or  supporting  actions  that  cause  serious  harm  or  suffering  to  its  student  and  alumni  community  trumps  consideration  of  the  Kalven  report.    The  University  is  a  direct  party  to  the  effects  of  climate  change  perpetuated  by  fossil  fuel  extraction.  Divestment  does  not  violate  Kalven  principles  because  it  targets  companies  that  threaten  realization  of  the  University’s  institutional  self-­‐interest.  The  passage  of  the  Kalven  report  relevant  to  this  argument  of  institutional  self-­‐preservation  reads  as  follows:    

“From  time  to  time  instances  will  arise  in  which  the  society,  or  segments  of  it,  threaten  the  very  mission  of  the  university  and  its  values  of  free  inquiry.  In  such  a  crisis,  it  becomes  the  obligation  of  the  university  as  an  institution  to  oppose  such  measures  and  actively  to  defend  its  interests  and  its  values.”12  

 This  clause  holds  that  confrontational  action  taken  against  external  threats  is  justifiable  in  some  cases.  University  of  Chicago  Law  professor  and  former  Provost  of  the  University  Geoffrey  R.  Stone  further  interprets  this  clause  as  governing  “exceptional  circumstances  in  which  it  is  appropriate  for  the  University  to  take  positions  on  public  issues.  It  may  do  so  in  order  to  protect  the  fundamental  interests  of  the  University  itself.”  13  These  exceptional  instances  of  collective  action  for  the  sake  of  institutional  interests  can  be  understood  to  cover  environmental  externalities  produced  by  fossil  fuel  companies  when  considered  in  the  Kalven  Report’s  historical  context.    Though  the  relationship  between  student  campaigns  and  the  Kalven  Report  is  complicated  and  has  been  historically  contentious,  as  in  the  case  of  the  student  movements  to  divest  from  South  Africa  and  Darfur,  readers  are  encouraged  to  consider  the  Kalven  Report’s  own  statement  on  the  need  for  open-­‐mindedness  in  administrative  affairs:  “A  university  faithful  to  its  mission  will  provide  enduring  challenges  to  social  values,  policies,  practices,  and  institutions.  By  design  and  by  effect,  it  is  the  institution  that  creates  discontent  with  the  existing  social  arrangements  and  proposes  new  ones.  In  brief,  a  good  university,  like  Socrates,  will  be  upsetting.”  14    The  drafting  of  the  institutional  preservation  clause  was  motivated  by  various  attempts  to  place  external  limits  on  the  University’s  operations.  The  Kalven  Report  names  three  contextual  events  that  guided  the  principles  contained  therein.  First,  hearings  held  by  the  federal  Seditious  Activities  Investigating  Committee  in  1940  attempted  to  “assess  the  loyalty  [to  Communism  ideologies]  of  faculties  of  the  University  of  Chicago.”  15  Personal  and  political  attacks  against  faculty  members  of  

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the  University  at  these  hearings  led  Robert  Maynard  Hutchins  to  offer  a  principled  defense  of  academic  freedom,  stating  “the  policy  of  repression  of  ideas  cannot  work  and  never  has  worked."16  Second,  the  United  States  Senate’s  ‘Jenner  Committee’  (formally  known  as  the  Internal  Security  Subcommittee)  attempted  to  investigate  “subversive”  faculty  members  in  the  departments  of  national  universities  including  the  University  of  Chicago.  The  final  external  threat  to  academic  freedom  the  Committee  considered  was  the  ‘affidavit  clause’  of  the  1958  NDEA  Act  which  required  all  applicants  for  federal  student  loans  to  answer  a  disclaimer  regarding  their  political  beliefs  towards  the  government.17  Each  of  these  three  guiding  historical  precedents  involved  repressive  action  taken  by  the  United  States  government  through  attempts  to  place  direct  limitations  on  the  University’s  ability  to  conduct  academic  research  and  educate  freely.    The  above-­‐mentioned  historical  precedents,  when  considered  as  the  context  for  the  adoption  of  the  Kalven  Report,  suggest  that  the  document  was  never  intended  to  prevent  the  University  from  divesting  for  two  primary  reasons.  First,  divestment  is  an  act  that  would  be  taken  by  the  University  voluntarily  without  coercion,  unlike  external  challenges  to  its  interests  and  values  in  the  20th  century.  Former  University  president  George  Beadle’s  critique  of  the  NDEA  Act  was  entered  on  what  he  called  an  “injunction  to  close  the  mind,”  a  critique  that  was  based  on  the  premise  of  an  actor  outside  the  University  limiting;18  this  is  distinct  from  the  act  of  divestment,  which  would  be  conducted  by  the  University  it8elf.  Second,  divestment  would  not  place  a  constraint  on  the  allowed  positions  of  faculty  members  of  students,  unlike  the  Kalven  Report-­‐inspiring  historical  precedents  that  involved  the  censure  of  students  and  faculty  members  for  their  internally  held  beliefs.  Divestment  itself,  after  being  approved  by  the  Board  of  Trustees,  would  negatively  screen  for  external  financial  assets  that  are  not  subject  to  the  internally  sanctioned  academic  freedoms  of  the  University  of  Chicago.  Divestment  places  no  direct  or  indirect  constraints  on  the  University’s  research.  The  academic  freedom  of  faculty  and  students  to  conduct  research  or  take  positions  on  climate  change,  pollution,  environmental  regulation,  or  energy  production  would  face  no  tangible  constraint  as  a  result  of  institutional  divestment.    Furthermore,  if  the  University’s  decision  to  divest  were  grounded  in  financial  justifications,  then  divestment  would  not  be  a  political  action  by  extension  of  the  University  acting  in  its  corporate  capacity.  Indeed,  the  University’s  actions  can  be  demarcated  between  when  it  acts  in  its  corporate  and  educational  capacities.  A  helpful  demarcation  of  these  capacities  was  offered  by  Chair  of  the  Political  Science  Department  Cathy  Cohen  is  as  follows:  “The  University  has  multiple  missions  and  roles.  There  are  ways  that  the  University  acts  as  corporate  actor.  The  Kalven  report  doesn’t  give  us  much  guidance  or  helpful  guidance  about  how  to  act  as  a  corporate  entity.”19  Cohen  is  correct  in  drawing  the  ambiguities  of  the  Kalven  Report’s  applicability  to  the  University’s  corporate  capacities.  The  Kalven  Report  itself  expresses  ambivalence  of  its  applicability  to  these  situations  -­‐  as  expressed  by  the  dissenting  addendum  of  University  of  Chicago  economist  and  Nobel  Prize  winner  George  Stigler:  

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 I  agree  with  the  report  as  drafted,  except  for  the  statements  in  the  fifth  paragraph  from  the  end  as  to  the  role  of  the  university  when  it  is  acting  in  its  corporate  capacity.  As  to  this  matter,  I  would  prefer  the  statement  on  the  following  form:  

 The  university  when  it  acts  in  its  corporate  capacity  as  employer  and  property  owner  should,  of  course,  conduct  its  affairs  with  honor.  The  university  should  not  use  these  corporate  activities  to  foster  any  moral  or  political  values  because  such  use  of  its  facilities  will  impair  its  integrity  as  the  home  of  intellectual  freedom.  20    

The  ambiguity  present  in  the  original  framing  of  the  Kalven  report,  as  expressed  by  Stigler,  creates  room  for  demarcating  fossil  fuel  divestment  from  past  campaigns  targeting  companies  doing  business  with  the  Apartheid  regime  in  South  Africa  and  the  Sudan  in  the  2000s.  The  fossil  fuel  divestment  movement  can  be  demarcated  from  these  past  efforts  because  institutional  action  can  be  motivated  by  financial  sensibility,  allowing  the  University  to  divest  in  its  apolitical  capacity.  Indeed,  the  framing  and  arguments  for  past  divestment  campaigns  did  not  argue  for  divestment  on  financial  or  institutionally  interested  grounds.  Rather,  as  with  the  South  African  divestment  campaign  in  particular,  the  framing  of  divestment  as  an  action  of  ‘morality’  prevented  the  campaign  from  activating  the  University’s  capacity  as  a  corporate  actor.21      The  direct  and  indirect  institutional  linkages  of  the  University  to  the  effects  of  climate  change  demarcates  fossil  fuel  divestment  allows  the  University  to  divest  in  its  corporate  capacity.  There  are  two  arguments  from  this  report  which  differentiate  the  fossil  fuel  divestment  campaign  from  divestment  movements  past:  (1)  the  argument  that  the  University’s  investments  are  based  on  unrealized  financial  risk  -­‐  made  in  the  FINANCIAL  case  for  divestment  (2)  that  the  activities  of  fossil  fuel  companies  impinge  upon  its  purpose,  operational  needs,  and  larger  institutional  interests  -­‐  made  in  the  SCIENTIFIC  section  and  the  previous  sub-­‐section.  A  speech  made  by  President  Zimmer  at  Columbia  University  in  2009  helps  to  explain  the  exception  to  the  Kalven  report  that  these  arguments  draw  upon:      

Second,  it  follows  that  the  University,  as  an  institution,  should  take  no  political  positions  and  should  remain  neutral  on  such  matters  (except  of  necessity  those  in  which  it  is  a  direct  party),  in  order  to  ensure  that  we  have  a  maximally  open  environment.  Violations  of  neutrality  are  a  mark  against  the  maintenance  of  a  non-­‐chilling  environment.22  

 Zimmer’s  invocation  of  instances  in  which  the  University  is  a  ‘direct  party’  invokes  arguments  for  divestment  based  upon  the  University  acting  in  accordance  with  its  institutional  and  corporate  interests.  In  the  week  after  the  passage  of  a  referendum  

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in  favor  of  a  ‘shift’  in  the  University’s  investment  strategy  towards  divestment  made  this  appeal  to  the  University’s  institutional  interests.23    The  direct  threat  posed  to  students  and  alumni  by  the  effects  of  climate  change  trump  any  potential  violation  of  the  Kalven  report  in  considering  divestment.  More  explicitly,  as  an  institution  that  guards  the  interests  of  its  students,  the  University  ought  not  support  activities  that  would  cut  its  students  futures  short.  The  University’s  role  as  a  ‘global  citizen’,  particularly  in  the  recruitment  of  international  students,  contradicts  support  for  activities  which  might  flood  or,  the  case  of  the  Maldives,  submerge  whole  nations  -­‐  activities  which  the  university  is  financially  tied  to  through  its  investments  in  fossil  fuel  companies  at  present.  24  Could  the  University  continue  to  recruit  international  students  considering  when  that  the  activities  it  invests  in  are  expected  to  displace  millions  of  people  in  the  developing  world?25  Within  the  United  States,  the  state  of  Massachusetts  alone  is  projected  to  experience  a  major  sea  level  rise,  as  displayed  in  the  figure  below.26    

   The  relative  suffering,  likely  deaths,  and  displacement  that  will  be  experienced  by  members  of  the  University  of  Chicago  student  and  alumni  community  form  an  institutional  prerogative  for  divestment  from  industrial  activities  -­‐  namely  the  extraction  of  fossil  fuel  reserves  -­‐  that  science  shows  to  cause  them  harm.  A  recent  University  student  forum  on  the  University's  finances  and  investments  stated  a  goal  of  our  investment  portfolio  through  its  title  to  be  “Investing  in  your  Future”.27  This  report  argues  that  investments  in  fossil  fuel  companies  that  guarantee  planetary  

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chaos  and  shortened  lives  and  opportunities  for  students  and  alumni  alike  cannot  fulfill  this  goal.  Indeed,  the  Spring  2013  vote  by  the  graduate  and  undergraduate  student  body  in  favor  of  divestment  (70%  voting  ‘yes’  to  divest)  ought  to  show  the  Board  of  Trustees  that  it  should  consider  divestment  as  a  conscientious  move  in  the  interest  of  its  students,  since  climate  change  is  becoming  a  very  real  concern  among  us—after  all,  our  generation  will  inherit  the  bulk  of  the  wreckage  caused  by  the  unsustainable  culture  of  subsidized  fossil  fuel  extraction.      The  Effectiveness  of  Divestment  as  an  Institutional  Action    American  institutions  of  higher  education  are  engines  of  economic  activity  and  wield  unmatched  intellectual  influence,  giving  legitimacy  to  reasoned  ideas.  In  addition  to  the  $406  billion  total  value  of  United  States  college  and  university  endowments,  higher  education  institutions  hold  unique  types  of  sway  over  public  and  private  industries.18                    There  is  little  debate  in  scientific  academia  over  the  reality  of  anthropogenic  climate  change  and  the  ability  of  humans  to  mitigate  its  effects.  Universities  have  several  options  in  contributing  to  this  mitigation  effort.  Clearly,  more  detailed  climate  research  is  necessary,  and  the  University  of  Chicago  will  likely  continue  to  remain  engaged  in  this  capacity.  Additionally,  the  University  currently  offers  many  courses,  seminars,  and  other  learning  opportunities  focused  on  educating  students  and  members  of  the  community  about  anthropogenic  climate  change  as  well  as  possible  methods  of  mitigation  and  adaption.                    These  actions,  essential  though  they  are  in  supporting  scientific  and  technological  progress,  do  little  to  affect  political  and  social  change  as  directly  or  effectively  the  way  divestment  does.  Of  the  $406  billion,  only  $9.6  million  of  U.S.  college  and  university  endowments  is  in  the  fossil  fuel  industry.28  UChicago’s  endowment  ranks  12th  nationally  at  $6.57  billion,29  making  the  isolated  financial  impact  on  fossil  fuel  corporate  asset  value  admittedly  small.  The  collective  disinvestment  resulting  from  other  universities  following  suit,  however,  could  prove  financially  influential.  In  any  case,  the  primary  objective  of  divestment  is  the  social  stigmatization  of  fossil  fuel  corporations,  which  historically  has  led  to  changes  in  corporate  practices  such  as  less  corrupt  administration  practices,  environmental  protection  initiatives,  and  investor  transparency.                    Corporations  are  the  vehicle  for  and  cause  of  excessive  reliance  of  the  global  economy  on  fossil  fuels  and  therefore  the  perpetrators  of  destructive  practices  that  result  in  global  warming.  The  stigmatization  effect  of  divestment  is  more  effective  in  the  short  run  than  the  intellectual  actions  of  a  university  insofar  as  it  catalyzes  popular  movements  that  affect  policy  change.      While  Brown  University  President  Christina  Paxson  has  argued  that  divestment  would  not  have  a  significant  impact  on  fossil  fuel  companies  and  that  immediately  

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ceasing  coal  production  would  harm  communities  around  the  globe,30  these  objections  misrepresent  the  point  of  divestment.  We  do  not  argue  that  divesting  from  fossil  fuel  companies  will  cause  them  to  immediately  cease  operations,  nor  do  we  believe  this  will  happen.  Harvard  undergraduate  Eric  Hendey  wrote  in  a  recent  article  in  the  Harvard  Political  Review  that  even  if  the  financial  impact  of  divestment  on  specific  companies  is  negligible,  divestment  can  have  a  significant  impact  by  shaping  public  discourse,  as  was  the  case  in  the  divestment  movement  around  Apartheid.31  Divestment  is  a  signal  to  companies  with  enormous  amounts  of  money  and  influence  that  our  institution  does  not  support,  and  is  unwilling  to  contribute  to,  the  destruction  of  the  environment  and  of  our  future  and  that  we  do  support  a  transition  to  renewable  sources  of  energy  that  will  not  jeopardize  humanity’s  future.    The  presidents  of  Harvard  and  Brown  have  presented  two  main  methods  of  combatting  climate  change  they  contend  are  more  consistent  with  the  role  of  a  university.  Explanations  of  these  methods  and  the  problems  with  their  approaches  are  outlined  below.    1.  Shareholder  advocacy    Attempts  over  the  past  decade  to  change  the  behavior  of  the  fossil  fuel  industry  through  shareholder  advocacy  have  been  unsuccessful,  and  such  attempts  will  continue  to  fail  because  transitioning  away  from  lucrative  fossil  fuel  production  is  at  odds  with  shareholder  interests.32  Brown  University  President  Paxson  has  also  argued  that  the  statement  conveyed  by  divestment  would  not  engage  with  the  complexity  of  the  problem  posed  by  climate  change—how,  for  example,  we  ought  to  transition  away  from  fossil  fuels  and  at  what  pace—but  would  rather  convey  an  unspecified  rejection  of  fossil  fuels  in  general.33  This  statement  is  correct  in  that  divesting  from  these  companies  would  not  convey  the  exact  steps  the  University  envisions  for  a  transition  to  a  more  sustainable  energy  economy.  But  it  is  not  the  University’s  responsibility  to  provide  such  a  blueprint,  nor  does  the  University  have  the  power  to  enforce  a  specific  path  in  this  transition.  Divestment  conveys  a  clear  statement  that  the  University  refuses  to  fund  the  devastation  of  its  future  capacity  to  conduct  research  and  education  by  sponsoring  climate  change.    2.  Research  and  education    While  the  University  of  Chicago’s  contributions  to  climate  science  and  education  are  critical,  they  do  not  negate  the  University’s  financial  investment  in  the  very  root  of  the  problem  of  climate  change.  The  University’s  direct  financial  investments  in  fossil  fuels  contribute  to  the  impediment  of  the  renewable  energy  industry,  revealing  a  counterproductive  approach  to  solving  the  problem  of  climate  change.      _________________________________________________________________________________________________  1  “Restated  Articles  of  Incorporation  of  The  University  of  Chicago.”  Trustees.uchicago.edu.  Web.  Feb  2014.  

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2  Peterson,  Hoerling,  Stott,  and  Herring.  “Explaining  Extreme  Events  of  2012  from  a  Climate  Perspective.”  Bulletin  of  the  American  Meteorological  Society.  September  2013.  Web.  Feb  2014.  3  Art,  Susan.  “Classes  cancelled  on  Monday.”  Email  message.  5  January  2014.  4  El  Ouardani,  C.  “Life  Course  and  Generation  in  the  Arab  World:  Rescheduling  Wednesday’s  Class.”  Email  message.  5  January  2014.      5    Kingkade.  “NYU  To  Remain  Closed  Through  Saturday  Due  to  Hurricane.”  Huffington  Post.  31  October  2012.  Web.  Feb  2014.  6  “Climate  Variability  Monitor.”  Climate  Vulnerable  Forum.  Web.  Feb  2014.    7  As  argued  in  the  Harvard  Guide  to  Divestment  Arguments.  8  “Fossil  Fuel  Divestment  Statement.”  Harvard  University.  Office  of  the  President.  3  October  2013.  Web.  Feb  2014.  “Coal  Divestment  Update.”  Brown  University.  Office  of  the  President.  27  October  2013.  Web.  Feb  2014.    9  As  argued  in  the  Harvard  Guide  to  Divestment  Arguments  10  “Climate  Change  and  Chicago.”  Chicago  Climate  Action  Plan.  2009.  Web.  Feb  2014.  11  As  Harvard  Guide  to  Divestment  argues.  12  Kalven,  Harry,  John  H.  Frankline,  Gwin  J.  Kolb,  George  Stigler,  Jacob  Getzels,  Julian  Goldsmith,  and  Gilbert  F.  White.  Kalven  Report  on  the  University's  Role  in  Political  and  Social  Action.  Rep.  no.  1.  Vol.  1.  Chicago:  13  University  of  Chicago  Record,  1967.  Print.  13  Stone,  Geoffrey.  "Darfur  and  the  Kalven  Report:  A  Personal  Journey  (2.9.07)."  Web  log  post.  The  University  of  Chicago  Law  School  Faculty  Blog.  University  of  Chicago  Law  School,  9  Feb.  2007.  Web.  25  Feb.  2014.  14  Kalven,  1967  15  Fried,  Richard  M.  "The  Rise  of  the  Communist  Issue."  Nightmare  in  Red:  The  McCarthy  Era  in  Perspective.  New  York:  Oxford  UP,  1990.  106-­‐07.  Print.  16  Neely,  Caroline.  "McCarthyism  and  Academic  Freedom  on  the  University  of  Chicago  Campus."  The  University  of  Chicago  Humanities  Division  Wiki.  Division  of  the  Humanities  at  the  University  of  Chicago,  20  Mar.  2008.  Web.  27  Feb.  2014.  <https://coral.uchicago.edu:8443/display/chicago68/McCarthyism+and+Academic+Freedom+on+the+University+of+Chicago+Campus>.  16  Ibid.  17  Kalven,  1967.  18  Nely,  Caroline,  2008.  A  copy  of  the  affidavit  form  found  in  the  Archives  reads  as  follows:  "I,  (name  of  student),  do  solemnly  swear  (or  affirm)  that  I  do  not  believe  in,  and  am  not  a  member  of  and  do  not  support  any  organization  that  believes  in  or  teaches,  the  overthrow  of  the  United  States  Government  by  force  or  violence  or  by  any  illegal  or  unconstitutional  methods."  19  Zhang.  “Kalven  report  examined,  questioned  at  open  forum.”  The  Chicago  Maroon.  2  March  2012.  Web.  Feb  2014.  20  Kalven,  1967.  21  In  Vol.  101  #10,  October  13th  1989  the  South  Africa  Divestment  campaign  published  the  following  update  in  the  Gray  City  Journal:  

The  Board  of  Trustees  and  President  Gray  ...  fail  to  realize  that  the    University  community  is  guilty  through  association,  of  all  the  crimes  committed  against  Black  South  Africa.  I  urge  all  students,  faculty,  and  staff  to  insist  that  the  University  commit  itself  to  its  proclaimed  noble  intentions  and  divest  now  against  the  injustice  of  white  rule  in  Black  South  Africa.  I  urge  new  students  to  question  the  morality  of  the  institution  they  have  just  entered.  

22  Zimmer,  Robert.  "Address  Delivered  at  Columbia  University  ."  Office  of  the  President.University  of  Chicago,  21  Oct  2009.  Web.  18  May  2013.    23  Wright,  Natalie.  “Say  yes  to  divest”.  The  Chicago  Maroon.  7  May  2013.  Web.  Feb  2014.  24  McGranahan,  Gordon,  Deborah  Balk,  and  Bridget  Anderson.  "The  Rising  Tide:  Assessing  the  Risks  of  Climate  Change  and  Human  Settlements  in  Low  Elevation  Coastal  Zones."  Environment  and  Urbanization  19.17  (2007):  17-­‐37.  Google  Scholar.  Web.  27  Feb.  2014.  <http://eau.sagepub.com/content/19/1/17.full.pdf>.  See:  "TABLE  1:  Population  and  land  area  in  the  Low  Elevation  Coastal  Zone  (LECZ)  by  region,  2000"  (p.  24)  

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25  Dasgupta,  Laplante,  Meisner,  Wheeler,  and  Yan.  “The  impact  of  sea  level  rise  on  developing  countries:  a  comparative  analysis.”  Springer.  12  July  2007.  Web.  Feb  2014.  26  “Sea  Level  Rise:  Understanding  and  Applying  Trends  and  Future  Scenarios  for  Analysis  and  Planning.”  Report  by  Massachusetts  Office  of  Coastal  Zone  Management  (CZM).  December  2013.  Web.  Feb  2014.  27  Sheth,  Jeevna,  and  Preston  Thomas.  "Administrators  Field  Student  Queries  on  Univ.  Finances."  The  Chicago  Maroon.  The  Chicago  Maroon,  25  Oct.  2013.  Web.  27  Feb.  2014.  <http://chicagomaroon.com/2013/10/25/administrators-­‐field-­‐student-­‐queries-­‐on-­‐univ-­‐finances/>.  28  Ansar,  Caldecott,  and  Tilbury.  “Stranded  Assets  and  the  Fossil  Fuel  Divestment  Campaign:  what  does  divestment  mean  for  the  evaluation  of  fossil  fuel  assets?”  Stranded  Assets  Programme.  Smith  School  of  Enterprise  and  the  Environment,  University  of  Oxford.  Oxford,  England.  2013.  Web.  Page  55.  Feb  2014.  29  O’Shaughnessy,  Lynn.  “20  biggest  college  endowments.”  CBS  Moneywatch.  4  February  2013.  Web.  Feb  2014.    30  “Coal  Divestment  Update.”  Brown  University.  Office  of  the  President.  27  October  2013.  Web.  Feb  2014  31.Hendey.  “Does  Divestment  Work?”  Institute  of  Politics.  Harvard  University.  2014.  Web.  Feb  2014.  32  As  Harvard  Guide  to  Divestment  argues.    33  See  30  “Coal…”                          

       

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Section  IV:    

The  FINANCIAL  Case  for  Divestment  

                                                           

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The  Costs  of  Divestment  and  Risks  of  Non-­‐Divestment    Risk  of  Fossil  Fuel  Divestment    The  financial  risk  added  to  an  investment  portfolio  from  fossil  fuel  divestment  is  extremely  small.  The  investment  management  firm  Aperio  LLC  adds  a  0.5978%  tracking  error  to  a  portfolio  that  divests  from  a  “comprehensive  list  of  companies”  in  the  oil,  gas,  and  consumable  fuels  industries,  corresponding  to  an  absolute  portfolio  risk  increase  of  0.0101%.1  This  figure  and  others  from  similar  firms  indicate  that  the  financial  risk  of  fossil  fuel  divestment  is  negligible.  In  fact,  if  climate  change  risk  assessment  is  implemented  into  risk  calculation,  the  act  of  divestiture  may  actually  decrease  overall  risk  taking  into  account  the  volatile  tendency  of  fossil  fuel  pricing  as  well  as  the  impending  threat  of  a  carbon  bubble,  as  outlined  below.    The  Carbon  Bubble    Perhaps  the  most  dire  threat  to  the  well-­‐being  of  the  University’s  endowment  is  the  potential  collapse  of  the  carbon  bubble,  a  term  made  popular  by  the  2011  report  Unburnable  Carbon—Are  the  World’s  Financial  Markets  Carrying  a  Carbon  Bubble?  published  by  the  nonprofit  Carbon  Tracker  Initiative.  The  report  outlined  a  hypothetical,  likely  scenario  in  which  many  of  the  world’s  fossil  fuel  assets  will  not  be  able  to  be  brought  to  market,  tanking  their  value  and  with  it  the  portfolios  of  investors  around  the  world.  The  following  pages  attempt  to  describe  the  origins  of  such  a  bubble  and  outline  the  consequences  for  the  global  economy  as  well  as  the  University  of  Chicago.    Origins  and  Structure  of  the  Bubble    The  2009  United  Nations  Climate  Change  Conference  in  Copenhagen,  Denmark  resulted  in  the  adoption  of  the  Copenhagen  Accord,  a  non-­‐binding  international  agreement  that  set  the  benchmark  for  limiting  the  rise  of  the  global  average  temperature  to  2  degrees  Celsius  from  pre-­‐industrial  levels.  This  figure  has  been  widely  touted  by  climate  scientists  over  the  past  20  years  as  being  the  maximum  temperature  increase  that  can  occur  without  causing  catastrophic  damage  to  human  civilization.  The  UN  conference  in  Cancun  the  following  year  affirmed  this  goal  and  recognized  the  possibility  of  having  to  amend  the  target  maximum  temperature  increase  to  1.5  degrees  Celsius.2    In  attempts  to  determine  the  type  and  magnitude  of  action  that  will  need  to  be  taken  in  order  to  achieve  such  an  ambitious  goal,  questions  have  been  raised  as  to  just  how  much  greenhouse  gas  (GHGs)  can  be  released  into  the  atmosphere  while  keeping  the  climate  relatively  stable.  An  acclaimed  study  by  the  Potsdam  Institute  for  Climate  Impact  Research  published  in  2009  estimated  a  “carbon  budget”  for  humanity,  that  is,  the  amount  of  carbon  dioxide  that  can  be  released  into  the  atmosphere  while  still  maintaining  an  80%  chance  of  avoiding  a  global  temperature  increase  of  2°  C.  According  to  the  study,  the  carbon  budget  for  the  global  economy  

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from  the  years  2000  to  2050  is  approximately  886  gigatons  of  carbon  dioxide  (GtCO2),  with  321  GtCO2  of  that  budget  already  having  been  consumed  within  the  first  decade  of  the  century.3  More  recent  estimates  that  assume  higher  levels  of  GHG-­‐reducing  aerosols  in  the  atmosphere  and  higher  reductions  of  non-­‐CO2  GHGs  are  slightly  more  generous,  allowing  humanity  525  GtCO2  for  a  50  percent  chance  of  staying  under  a  1.5-­‐degree  increase  and  1075  GtCO2  and  900  GtCO2  for  50  percent  and  80  percent  chances  of  staying  under  a  2-­‐degree  increase.4    The  total  potential  CO2  emissions  of  unburned  fossil  fuel  reserves,  including  oil,  coal,  and  natural  gas  is  estimated  to  be  approximately  2860  GtCO2,  far  exceeding  any  of  these  carbon  budgets.  If  the  aversion  of  a  2+  degree  increase  is  to  be  achieved,  most  of  this  carbon  will  have  to  remain  unburned,  and  the  subsequent  loss  in  future  utility  will  cause  the  value  of  unusable  fossil  fuel  stocks  to  effectively  fall  to  near  zero.5    A  carbon  bubble  has  many  possible  catalysts.  Specifically,  the  bubble  would  be  caused  by  a  combination  of  governmental  action  to  prevent  the  burning  of  excess  fossil  fuels  combined  with  increasing  competition  with  alternative  energy  sources.  The  following  paragraphs  attempt  to  outline  some  of  these  trends  and  their  implications.    The  most  mainstream  policy  mechanism  idea  for  governments  to  limit  the  burning  of  fossil  fuels  is  through  a  carbon  pricing  scheme,  in  which  companies  and  private  individuals  pay  a  tax  in  order  to  burn  carbon.  The  two  most  common  types  of  carbon  pricing  schemes  are  the  carbon  tax,  a  predetermined  amount  of  money  per  ton  of  carbon  dioxide  burned  designed  to  financially  disincentivize  emissions,  and  an  emission  trading  system  (also  known  as  “cap-­‐and-­‐trade”),  a  state-­‐constructed  market  where  a  fixed  number  of  permits  to  burn  carbon  are  traded  between  private  parties  and  gradually  reduced  as  time  progresses.    Many  governments  around  the  world  have  already  began  to  implement  carbon  pricing  schemes.  In  2005,  the  European  Union  launched  the  European  Union  Emissions  Trading  Scheme  (EU-­‐ETS),  a  power  plant-­‐focused  emission  trading  system  that  is  projected  to  reduce  emissions  in  that  sector  by  2020  with  more  ambitious  reductions  on  the  way.6  Other  countries  that  have  either  implemented  or  have  plans  to  implement  an  emissions  trading  system  in  the  next  few  years  are  Australia,  New  Zealand,  and  South  Korea.  Furthermore,  countries  that  have  either  enacted  or  are  in  the  process  of  enacting  a  carbon  tax  include  South  Africa,  China,  India,  South  Korea,  Taiwan,  Australia,  Finland,  France,  Denmark,  Ireland,  the  Netherlands,  Sweden,  Finland,  Norway,  Switzerland,  Costa  Rica,  and  several  US  and  Canadian  states,  provinces,  counties,  and  cities.    Although  the  current  political  climate  makes  it  difficult  to  determine  whether  the  United  States  will  implement  a  carbon-­‐pricing  scheme  within  the  next  five  to  ten  years,  action  is  already  being  taken  to  prevent  excess  consumption  of  fossil  fuels.  Currently,  the  Environmental  Protection  Agency  places  caps  on  the  rate  of  carbon  

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pollution  from  new  power  plants  and,  as  part  of  President  Obama’s  Climate  Action  plan  released  in  September  2013,  new  caps  on  existing  power  plant  emissions  are  likely  to  be  implemented  within  the  next  couple  of  years.7  Additionally,  the  planned  removal  of  fossil  fuel  subsidies  from  government  budgets  around  the  world  is  picking  up  traction,  with  estimates  that  doing  so  could,  directly  by  itself,  avoid  1.6  GtCO2  through  disincentivizing  use.8    That  figure  is  only  a  minute  fraction  of  the  potential  CO2  reductions  the  removal  of  carbon  subsidies  will  potentially  bring.  Most  of  the  decreases  in  fossil  fuel  consumption  as  a  result  of  subsidy  removal  are  likely  to  be  resultant  of  a  trend  of  which  subsidy  removal  is  merely  one  component:  the  gradual  increasing  competitiveness  of  renewable  energy  with  fossil  fuels.  Technological  innovation,  driven  by  the  vast  amount  of  research  being  put  into  renewable  energy  development  through  governmental  programs  such  as  the  American  Reinvestment  and  Recovery  Act  and  the  Chinese  National  Renewable  Energy  Law  has  caused  the  production  costs  of  solar,  geothermal,  tidal,  and  wind  power  to  plummet  dramatically.9  Differences  in  regulatory  policy  and  structure,  levels  of  renewable  and  fossil  fuel  subsidies,  geographical  factors,  and  speculative  market  conditions  make  it  impossible  to  determine  an  exact  critical  point  at  which  oil,  gas,  and  coal  futures  will  be  more  highly  priced  on  various  major  stock  exchanges.    This  has  already  occurred  in  some  regional  markets,  most  notably  in  Australia.  Financial  analysis  done  by  the  Bloomberg  New  Energy  Finance  firm  in  February  2013  found  that  unsubsidized  wind  energy  futures  from  new  Australian  plants  are  estimated  to  be  80  Australian  Dollars  (AUD)/MWh,  compared  to  143  AUD/MWh  for  new  coal  and  116  for  new  natural  gas.10  Accordingly,  the  analysis  showed  that  the  four  largest  Australian  banks—Australian  National  Bank,  Commonwealth  Bank,  Westpac,  and  the  ANZ—are  avoiding  investment  in  new  coal  and  gas  development  as  a  combination  of  rising  natural  gas  prices  in  the  Asia-­‐Pacific  market  combined  with  production  cost  decreases  of  10  percent  and  29  percent  for  wind  and  solar  power,  respectively,  in  the  past  two  years.  By  2020,  unsubsidized  photovoltaic  solar  production  will  be  more  cost-­‐effective  than  solar.11  This  trend  is  occurring  despite  the  fact  that  Australia  has  one  of  the  largest  coal  reserves  in  the  world,  and  as  governmental  action  combined  with  renewable  energy  technological  advancement  make  fossil  fuels  prohibitively  expensive  in  other  markets,  coal  exports  from  the  country  will  diminish  drastically  as  well.12      Of  course,  no  bubble  forms  without  widespread  investor  miscalculation  of  the  long-­‐term  viability  of  assets,  and  the  carbon  bubble  is  no  exception.  The  amount  of  carbon  reserves  listed  on  the  New  York  Stock  Exchange  (NYSE)  has  increased  by  37  percent  since  2011,  indicating  that  investors  are  unprepared  for  a  stranded-­‐asset  scenario  where  most  listed  fossil  fuel  reserves  will  be  rendered  worthless.13  A  minority  of  individuals  in  the  investment  community—most  notably  Henry  Paulson,  Jeremy  Grantham,  and  Michael  Bloomberg—have  warned  about  a  possible  carbon  bubble.  The  2013  Global  Investor  Survey  on  Climate  Change  found  that  23  percent  of  fossil  fuel  asset  owners  in  2012  took  action  to  divest  or  avoid  investment,  a  14  

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percent  increase  from  the  previous  year.14  Divestment  action  was  taken  both  by  investors  with  explicit  sustainability  focuses  as  well  as  mainstream  value-­‐neutral  funds.  Most  investors  remain  enthusiastic  to  invest  in  the  industry  however,  as  oil  and  gas  stocks  currently  yield  lucrative  returns.      Wasted  Capital,  Stranded  Assets,  and  the  University  of  Chicago’s  Risk  Exposure    Despite  the  reality  that  only  one-­‐fifth  of  current  proven  fossil  fuel  reserves  can  be  burned  if  catastrophic  climate  change  is  to  be  avoided,  fossil  fuel  companies  and  national  governments  around  the  world  continue  to  invest  in  the  research  and  development  of  additional  reserves.  In  2013,  the  largest  200  fossil  fuel  companies  in  the  United  States  spent  $674  billion  on  exploring  and  developing  potential  carbon  reserves.15  Considering  that  current  carbon  reserves  already  exceed  long-­‐term  carbon  budgets,  this  capital  was  effectively  squandered,  calling  into  question  the  wisdom  of  investments  in  companies  with  such  financially  reckless  practices.    The  rupture  of  a  carbon  bubble  would  result  in  trillions  of  dollars  of  carbon  assets  being  stranded,  meaning  that  their  value  would  depreciate  very  rapidly.  According  to  some  estimates,  as  much  as  $23  trillion  worth  of  current  reserves  is  under  threat  of  being  stranded.16  Public  data  on  the  University’s  market  exposure  to  fossil  fuel  is  scarce,  save  for  a  statement  last  year  by  the  Office  of  Investments  estimating  the  proportion  of  the  University’s  portfolio  invested  in  fossil  fuel  assets  to  be  three  to  four  percent.17  We  recommend  that  the  University  implement  climate  change  risk  assessment  as  a  means  of  determining  precise,  accurate  risk.  We  believe  that  the  results  of  risk  calculation  using  climate  change  risk  assessment  will  give  the  University  strong  incentive  to  divest.      What  if  the  Carbon  Bubble  Doesn’t  Exist?    Whether  or  not  a  carbon  bubble  exists  in  the  global  energy  market  is  a  question  that  has  been  the  focus  of  vigorous  debate  over  the  past  five  years.  The  primary  arguments  in  favor  the  negative  are  varied,  but  generally  fall  into  two  categories:  1)  that  investors  will  anticipate  carbon  regulation  well  ahead  and  transition  away  from  investment  slowly,  gradually  deflating  the  bubble,  or  2)  that  said  carbon  regulation  won’t  occur  and  all  known  fossil  fuel  assets  will  be  sold  and  burned,  thereby  yielding  returns.    These  arguments  have  merit,  and  the  fact  that  the  carbon  bubble  hypothesis  is  a  fairly  recent  development  means  that  there  will  be  debate  for  years  to  come.  However,  as  many  experts  have  pointed  out,  in  the  two  alternative  scenarios  posed  by  carbon  bubble  skeptics  it  is  still  favorable  for  the  long-­‐term  bottom  line  of  investors  to  sell  their  assets  in  fossil  fuel  reserves.  If  the  bubble  is  anticipated  and  gradually  deflated  over  time,  asset  values  will  still  depreciate,  albeit  at  a  slower  rate.  If  carbon  regulation  is  not  put  in  place  and  assets  are  sold  and  burned,  the  

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destruction  of  manufactured  capital  and  holdings  by  the  resulting  cataclysmic  climate  change  will  easily  outweigh  any  profit  made  from  carbon  investment.      The  Direct  and  Indirect  Financial  Impact  of  Divestment  on  Industry    Corporations  can  only  function  because  entities  such  as  universities,  cities,  public  pension  funds,  foundations,  and  private  individuals  invest  in  them.  When  any  person  or  group  disinvests  from  a  corporation,  that  company  has  slightly  less  financial  power,  depending  on  the  size  of  their  investment.  While  a  single  university’s  divestment  from  a  certain  corporation  wouldn’t  make  any  noticeable  difference  in  the  corporation’s  asset  value,  divestment  has  substantial  concomitant  financial  effects.    From  the  standpoint  of  a  university,  divestment  is  used  to  establish  resistance  against  a  social  harm,  and  often  aims  to  motivate  similar  schools  to  follow  suit,  contributing  to  larger  collective  action.  With  enough  support,  a  group  of  investing  parties  can  socially  stigmatize  a  particular  company  or  industry,  creating  a  negative  image  around  those  corporations  because  of  some  effect  they  engender.  Stigmatization  of  an  industry  motivates  suppliers,  workers,  and  consumers  to  withdraw  support,  causing  financial  hardship.  This  is  clearly  done  with  the  overarching  goal  of  affecting  business  practices  rooted  in  social  values  (in  this  case,  environmental  protection),  and  often  ultimately  manifests  itself  in  the  form  of  new  legislation.18    Empirical  investigation  into  the  historical  track  record  of  divestment  movements  indicates  that  fossil  fuel  divestment  would  have  direct  and  indirect  economic  effects  on  the  target  industry.  A  collection  of  peer-­‐reviewed  studies  on  divestment  compiled  by  Oxford  researchers  supports  the  causal  claim  made  in  this  report  regarding  fossil  fuel  divestment.  Table  5  of  Ansar  et  al.  (2013,  64)’s  report,  displayed  below,  summarizes  the  effects  of  divestment  on  its  targeted  industry  by  drawing  upon  the  case  studies  of  nine  campaigns.  

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One  of  the  most  relevant  precedents  discussed  in  the  report  is  the  1970s  and  1980s  divestment  movement  of  colleges  across  the  United  States  that  targeted  investments  in  companies  doing  business  in  Apartheid  South  Africa.19  By  the  mid-­‐1980s,  155  colleges  and  universities  had  divested  from  companies  conducting  business  in  the  country,  and  the  U.S.  Congress  passed  the  Comprehensive  Anti-­‐Apartheid  Act  of  1986,  which  outlawed  all  new  loans  and  investments  in  South  Africa.20  Stigmatizing  the  tobacco  industry  in  the  1960s  led  to  increased  consumer  awareness  of  tobacco  health  risks  and  the  enactment  of  the  1969  Public  Health  Cigarette  Smoking  Act,  which  banned  tobacco  product  advertisements  on  radio  and  television  and  mandated  warning  labels  for  cigarette  packages.21    The  timelines  of  previous  divestment  campaigns  indicate  the  fossil  fuel  divestment  movement  has  empirical  grounding  for  efficacy  against  fossil  fuel  companies.  Already,  22  cities,  two  counties,  20  religious  organizations,  nine  colleges  and  universities  and  six  other  institutions  have  committed  to  fossil  fuel  divestment.22  Additionally,  the  January  2014  announcement  that  seventeen  foundations  would  divest  nearly  $1.8  billion  dollars  from  fossil  fuel  industries  in  a  coordinated  action—after  the  Ansar  et  al.  (2013)  piece  was  written—lends  credibility  to  divestment  as  a  logical  and  efficacious  tool  for  targeting  industrial  practices.23    The  divestment  movement  is  currently  entering  into  its  second  ‘stage’  which  consists  of  university  and  select  public  institutions  taking  part.  The  full  arc  of  a  typical  divestment  campaign  is  pictured  below.  

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   One  of  the  indirect  effects  the  University  of  Chicago  divesting  from  fossil  fuels  would  be  the  catalyzing  of  this  second  stage.  Divestment  by  a  major  university  would  encourage  peer  institutions  to  divest,  and  push  the  campaign  toward  the  third  stage  of  action  by  the  wider  market.      The  early  signs  of  wider  market  action  itself  are  evidenced  in  recent  technological  innovations  to  the  investment  profession.  In  December  2013,  the  financial  information  firm  Bloomberg  LLP  released  the  ‘Carbon  Risk  Valuation  Tool’,  an  investment  instrument  that  evaluates  the  financial  strength  of  the  top  oil,  coal  and  natural  gas  companies  as  a  function  of  five  pre-­‐built  scenarios,  effectively  attempting  to  track  carbon  bubbles  and  risk  to  assets  from  climate  change.24  Additionally,  former  Treasury  Secretary  Hank  Paulson  and  Bloomberg  Philanthropies  have  recently  partnered  to  form  the  ‘Risky  Business’  initiative,  an  attempt  to  “quantify  and  publicize  the  economic  risks  the  United  States  faces  from  the  impacts  of  a  changing  climate.”25  Support  for  fossil  fuel  divestment  has  been  expressed  by  a  variety  of  financial  and  political  leaders  ranging  from  World  Bank  president  Jim  Yong  Kim  to  Barack  Obama.    Divestment  can  cause  industry  change  through  the  process  of  social  stigmatization.  Stigmatization  would  ultimately  cause  asset  values  to  decrease  because  of  (1)  expected  legislation  around  an  industry,  such  as  a  cap-­‐and-­‐trade  carbon  pricing  scheme  and  (2)  newly  negative  connotations  of  industry  practices  that  change  patterns  of  consumption.  If  legislation  is  expected  in  the  near  future,  the  likelihood  of  divestment  increases,  and  vice  versa.  Stigmatization  can  also  lead  to  decreased  corporate  market  value,  as  is  the  case  with  the  Russian  firm  Rosneft,  which  produces  more  barrels  of  oil  per  day  than  ExxonMobil,  but  as  of  June  2013  was  valued  at  $88  billion  compared  to  ExxonMobil’s  $407  billion  because  of  “weak  corporate  governance.”26  In  both  of  these  ways,  divestment  can  lead  to  corporate  business  practices  that  are  more  aligned  with  the  divestment  campaign’s  goals,  whether  they  are  (1)  enforced  by  laws  brought  about  through  divestment-­‐fueled  public  pressure  for  legislation  or  (2)  motivated  by  the  financial  situation  of  losing  investors  because  of  prior  practices  or  anticipated  legislation.      _________________________________________________________________________________________________  1  Geddes.  “Do  the  Investment  Math:  Building  a  Carbon-­‐Free  Portfolio.”  Aperio  Group  LLC.  2013.  Web.  Feb  2014.    2  “Copenhagen  Accord.”  Framework  Convention  on  Climate  Change.  United  Nations.  7-­‐18  December  2009.  Web.  Feb  2014.    3  “Unburnable  Carbon—Are  the  world’s  financial  markets  carrying  a  carbon  bubble?”  Carbon  Tracker  Initiative.  Web.  Feb  2014.  4  See  3  “Unburnable…”  5  See  3  “Unburnable…”  6  “The  EU  Emissions  Trading  System.”  Climate  Action.  European  Commission.  February  2014.  Web.  Feb  2014.  7  “What  EPA  Is  Doing.”  United  States  Environmental  Protection  Agency.  September  2013.  Web.  Feb  2014.    

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8  “IEA  analysis  of  fossil-­‐fuel  subsidies.”  International  Energy  Agency.  2011.  Web.  Feb  2014.  9  Gloystein.  “Renewable  energy  becoming  cost  competitive,  IEA  says.”  Reuters.  23  November  2011.  Web.  Feb  2014.    10  “Renewable  energy  now  cheaper  than  fossil  fuels  in  Australia.”  Bloomberg  New  Energy  Finance.  7  February  2013.  Web.  Feb  2014.  11  Parkinson.  “Energy  costs:  Business-­‐as-­‐usual  no  cheaper  than  100%  renewables.”  RE  new  economy.  5  August  2013.  Web.  Feb  2014.  12  See  11  Parkinson.  13  See  11  Parkinson.  14  “Global  Investor  Survey  on  Climate  Change.”  Ceres.  2013.  Web.  Feb  2014.  15  See  3  “Unburnable…”  16  Fullerton.  “The  Big  Choice.”  Capital  Institute.  19  July  2011.  Web.  Feb  2014.  17  Peereboom.  “Group  to  detail  impact  of  energy  investment.”  Chicago  Maroon.  29  October  2013.  Web.  Feb  2014.  18  Ansar,  Caldecott,  and  Tilbury.  “Stranded  Assets  and  the  Fossil  Fuel  Divestment  Campaign:  what  does  divestment  mean  for  the  evaluation  of  fossil  fuel  assets?”  Stranded  Assets  Programme.  Smith  School  of  Enterprise  and  the  Environment,  University  of  Oxford.  Oxford,  England.  2013.  Web.  Page  65-­‐66.  19  Dreier,  Peter.  “Obama  Embraces  the  Divestment  Movement:  From  Apartheid  to  Climate  Change.”  Huffington  Post:  Politics.  29  June  2013.  Web.  www.huffingtonpost.com.  20  Glass,  Andrew.  “House  overrides  Reagan  apartheid  veto,  Sept.  29,  1986.”  Politico.  29  September  2010.  Web.  www.politico.com/news.  21    “Selected  Actions  of  the  U.S.  Government  Regarding  the  Regulation  of  Tobacco  Sales,  Marketing,  and  use.”  Centers  for  Disease  Control  and  Prevention.  November  2012.  Web.  Feb  2014.    22  “Commitments.”  Gofossilfree.org.  2014.  Web.  Feb  2014.    23  Doom.  “Foundations  With  $1.8  Billion  Vow  Fossil-­‐Fuel  Divestment.”  Bloomberg.  30  January  2014.  Web.  2014.    24  “Bloomberg  Carbon  Risk  Valuation  Tool.”  Bloomberg  New  Energy  Finance.  November  2013.  Web.  Feb  2014.  25  “Next  Generation,  Bloomberg  Philanthropies,  Office  of  Hank  Paulson  Launch  New  Climate  Risk  Initiative.”  26  See  1  Ansar  et.  al.  Page  68.    

       

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Section  V:    

GLOBALIZATION—  Addressing  

Counterarguments                                                      

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Global  Economic  Effects  of  Divestment    The  demographic  and  population  differences  between  the  United  States  and  countries  in  the  developing  world  do  not  warrant  cross-­‐national  conclusions  against  taking  action  on  climate  change.  Clearly,  China’s  population  of  1.35  billion  and  India’s  population  of  1.22  billion  are  greater  than  the  United  States’  count  of  316  million.1  The  United  States  emitted  5.49  billion  metric  tons  of  carbon  dioxide  in  2011,  a  figure  outstripped  by  China’s  fossil  fuel  consumption  of  8.72  billion  metric  tons.  Russia  ranked  third  with  1.79  billion,  India  was  fourth  with  1.73  billion,  and  Japan  ranked  fifth  with  1.18  billion.2  The  United  States  is  responsible  for  29  percent  of  carbon  emissions  from  the  top  five  polluting  nations,  a  significant  amount  considering  it  only  has  5  percent  of  the  world  population.  An  American  renewable  energy  revolution—catalyzed  by  divestment—would  make  significant  progress  in  mitigating  climate  change  and  set  an  example  for  other  countries  who  rely  heavily  on  fossil  fuels.    The  industrial  activities  and  fossil  fuel  reserves  of  companies  originating  in  the  United  States  contribute  the  more  to  the  problem  of  climate  change  than  that  of  any  other  country,  warranting  a  response  that  is  focused  on  investment  here.  The  two  largest  oil  and  gas  companies  in  China  are  PetroChina  and  Sinopec,  producing  4.4  and  1.6  million  barrels  of  oil  and  natural  gas  (energy  equivalent  to  oil)  per  day,  respectively.  India’s  main  producer,  Indian  Oil,  produces  1.30  million  barrels  per  day.3  U.S.  oil  production,  however,  outstripts  that  of  both  of  China  and  India,  with  ExxonMobil  fourth  internationally  (5.3  million  barrels  per  day),  Shell  seventh  (3.9),  Chevron  ninth  (3.5),  and  ConocoPhillips  21st  (2.0).4                    Divestment  is  aimed  at  influencing  a  complete  transition  to  renewable  energy  as  soon  as  possible.  Although  Chinese  fossil  fuel  consumption  is  likely  to  continue  to  rise,  at  least  in  the  short  term,  Chinese  investment  in  renewable  energy  outpaces  that  of  the  United  States,  and  the  country  has  been  much  more  ambitious  in  setting  policy  goals  for  renewable  energy  consumption:  China  currently  gets  8  percent  of  its  energy  from  “non-­‐fossil  sources”  and  aims  to  increase  that  to  11.4  percent  by  2015  and  15  percent  by  2020.5    The  direct  purpose  of  institutional  divestment  isn’t  simply  to  financially  cripple  the  fossil  fuel  industry  but  rather  to  a)  take  part  in  critiquing  it  for  facilitating  and  perpetuating  horrific  climate  change  and  b)  affect  climate-­‐saving  policy  change.  Universities  can  set  an  example  for  the  rest  of  the  world  by  divesting  and  bringing  about  strict  legislation  regarding  carbon  fuel  extraction.                    U.S.  oil  and  gas  companies  own  a  significant  portion  of  the  global  fossil  fuel  market,  seeing  as  three  American  companies  rank  in  the  top  ten  in  terms  of  market  capitalization  and  profitability.  Universities  divesting  from  fossil  fuels  and  reinvesting  in  renewable  energy  development  will  certainly  have  an  impact  on  mitigating  climate  change.    

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 Effects  of  Divestment  on  Employment    Oil  and  gas  companies  do  employ  large  populations  of  people,  especially  in  developing  nations.  There,  energy  companies  often  have  more  economic  power  as  compared  to  more  economically  diverse  countries  like  the  U.S.  However,  potential  job  losses  in  the  fossil  fuel  sector  as  a  result  of  divestment  will  be  offset  by  job  gains  in  the  renewable  energy  industry.  A  transitional  lag  in  employment  will  be  short-­‐lived  due  to  skyrocketing  energy  demand  in  the  developing  world.    The  fear  of  the  loss  of  jobs  in  transitioning  to  a  renewable  energy  economy  is  unjustified.  A  recent  report  on  American  Energy  by  World  Watch  shows  that  renewable  energy  creates  more  jobs  per  unit  of  energy  produced  and  per  dollar  spent  than  fossil  fuel  technologies  do.  U.S.  Secretary  of  State  John  Kerry  said,  “This  six  trillion  dollar  market  is  worth  millions  of  American  jobs…and  we  had  better  go  after  it.”  Another  group,  EcoWatch,  reported  that  in  2012,  solar  energy  added  14,000  new  jobs,  up  36  percent  from  2010.  On  the  other  hand,  the  fossil  fuel  industry  slashed  4,000  jobs  in  2011  and  175  U.S.  coal  fired  power  plants  are  on  the  verge  of  closure  over  the  next  five  years.    Solar,  wind,  hydroelectric,  nuclear,  and  geothermal  energy  production  happen  all  around  the  globe,  nullifying  concerns  about  equitable  employment  distribution.  Germany,  Italy,  and  Spain  produce  the  most  solar  energy;6  the  United  States,  India,  and  Germany  are  leaders  in  wind  energy  production;7  China,  Brazil,  and  Canada  are  leaders  in  hydroelectric  energy  production;8  the  United  States,  the  Philippines,  and  Indonesia  are  atop  geothermal  energy;9  and  the  United  States,  France,  and  Russia  are  leaders  in  nuclear  energy  production.10    Renewable  energy  jobs  will  exist  in  all  locations  and  in  large  quantities,  as  they  do  now  in  the  fossil  fuel  industry.  Most  importantly,  renewable  energy  jobs  are  far  more  resilient  because  of  the  relative  price  stability  these  sources  have.    Lastly,  the  potential  impact  from  allowing  climate  change  to  continue  unmitigated  would  cause  exponentially  more  significant  problems  than  any  temporary  hardship  from  a  renewables  transition.  A  policy  brief  by  the  World  Health  Organization  estimates  that  climate  change  currently  causes  roughly  150,000  deaths  per  year—mostly  occurring  in  developing  countries—and  that  number  will  surely  increase  with  the  continued  prevalent  use  of  fossil  fuels.11  Reducing  fossil  fuel  use  can  only  ultimately  help  the  employment  and  safety  of  humans  around  the  globe.    As  pointed  out  elsewhere  in  this  report,  divestiture  action  is  not  likely  to  impart  financial  hardship  on  fossil  fuel  companies  in  the  short  term.  Divestment  by  the  University  of  Chicago,  therefore,  is  unlikely  to  have  considerable  impact  on  the  financial  stability  of  third  world  residents.  Considering  that  the  World  Bank  is  no  longer  offering  loans  for  new  coal  projects  except  in  exceptional  circumstances,  one  

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form  of  fossil  fuel  development  in  underdeveloped  nations  will  likely  be  hindered  with  or  without  divestiture  action.12    

_________________________________________________________________________________________________________________________________________________  1  “The  World  Factbook.”  Central  Intelligence  Agency.  February  2014.  Web.  Feb  2014.  2  “International  Energy  Statistics.”  U.S.  Energy  Information  Administration.  Web.  Feb  2014.  3  “Refining.”  Indian  Oil  Corporation  Ltd.  Web.  Feb  2014.  4  “The  World’s  25  Biggest  Oil  Companies.”  Forbes.com.  2014.  Web.  Feb  2014.  5  “ChinaFAQs:  Renewable  Energy  in  China  –  An  Overview.”  ChinaFAQs.org.  July  2013.  Web.  2014.  6  “The  World’s  Top  10  Solar  Energy  Companies.”  The  Energy  Collective.  December  2013.  Web.  Feb  2014.  7  “Top  Ten  Countries  Where  Wind  Turbines  are  used  most  Efficiently.”  Mariah  Energy  Development  Corporation.  January  2011.  Web.  Feb  2014.  8  “Which  countries  get  the  most  energy  from  hydropower?”  Greenbang.  April  2012.  Web.  Feb  2014.  9  “Top  Ten:  Geothermal  Energy  Locations.”  Energy  Digital.  April  2011.  Web.  Feb  2014.    10  “Top  10  Nuclear  Generating  Countries.”  Nuclear  Energy  Institute.  2012.  Web.  Feb  2014.  11  “Climate  Change.”  The  Health  and  Environmental  Linkages  Initiative.  World  Health  Organization.  2014.  Web.  Feb  2014.    12  Choudhury.  “World  bank  to  stop  financing  coal  projects.”  Responding  to  Climate  Change.  July  2013.  Web.  Feb  2014.                                              

 

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Section  VI:    

REINVESTMENT—  Actions  following  Divestment  

                                                 

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Reinvestment  Strategies:  Alternatives  to  Fossil  Fuel  Investment    Investing  in  Renewable  Energy    Companies  that  produce  and  sell  renewable  energy-­‐defined  here  as  energy  generated  directly  or  indirectly  from  the  sun  or  other  natural  environmental  sources,  such  as  solar,  wind,  hydroelectric,  and  geothermal  processes-­‐  constitute  one  of  the  fastest-­‐growing  and  increasingly  profitable  sectors  of  the  global  economy.  Considering  the  enormous  growth  potential  of  the  renewable  energy  industry,  adapting  investment  portfolios  to  accommodate  shifting  methods  of  energy  production  should  be  a  matter  of  concern  to  all  investors.  Companies  that  generate  electric  power  from  renewable  energy  or  produce  goods  and  services  supporting  renewable  energy  infrastructure  could  receive  capital  previously  invested  in  fossil  fuel  companies.  Reinvestment  could  also  occur  in  the  form  of  purchasing  equity  in  organizations  that  offer  or  are  committed  to  energy  efficiency  solutions  and  renewable  energy  usage.    Transferring  investments  from  fossil  fuel  companies  to  the  renewable  energy  industry  is  supported  by  some  mainstream  investment  circles.  British  investor  Jeremy  Grantham  of  the  asset  management  firm  Grantham  Mayo  van  Otterloo,  renowned  for  correctly  anticipating  various  financial  bubbles,  is  skeptical  of  investing  in  fossil-­‐dependent  industries  and  promotes  renewable  energy  projects:    

“...on  one  hand,  I  think  the  progress  of  solar  and  wind  is  moving  faster  than  most  investors  realize  and,  on  the  other,  I  expect  the  continuous  rise  in  the  price  of  hydrocarbons  as  we  continue  to  move  through  the  cheap  stuff  and  move  on  to  the  more  expensive  stuff  in  terms  of  getting  it  out  of  the  ground.  And  I  don’t  think  that  if  you  put  billions  of  dollars  into  a  new  tar  sands  project  that  you  will  see  a  decent  return  on  it.  It  will  be  underpriced  by  solar,  wind  and  other  alternatives  which  are  moving  at  considerable  speed.”    

 Regional  economic  trends  within  the  United  States  toward  the  adoption  of  wind  energy  qualify  Grantham’s  projections.  According  to  the  Federal  Energy  Regulatory  Commission,  100  percent  of  the  energy  capacity  added  to  the  United  States  in  March  2013  power  grid  was  solar  power.1  Wind  energy  is  an  increasing  source  of  electricity  all  over  the  States,  especially  Iowa  and  Texas.  Many  energy  efficiency  investments  are  paying  back  quickly,  too,  in  a  matter  of  months.    The  large-­‐scale  deployment  of  renewable  energy  technology  is  rapidly  becoming  a  global  trend  as  a  result  of  skyrocketing  oil  prices,  imminent  worldwide  government  carbon  regulation,  financial  insecurities  surrounding  the  dependence  on  fossil  fuels,  and  escalating  degradation  of  natural  resources.  Germany,  in  the  aftermath  of  the  Fukushima  Daiichi  nuclear  disaster,  committed  to  a  clean  energy  campaign  of  unprecedented  scale  by  announcing  plans  to  close  all  of  its  nuclear  plants  by  2022  while  expanding  renewables,  efficiency,  and  natural  gas.2  Firms  like  Mercer  and  private  equity  firm  WHEB  Group  advised  investors  to  transfer  their  coal  and  oil  

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investments  into  renewable  energy  industry.3  Major  investors  such  as  Google  and  Warren  Buffett’s  MidAmerican  Energy  Holdings  have  already  invested  about  $2  billion  collectively  in  some  of  the  largest  solar  farms  in  the  world.  Buffett  himself  has  predicted  the  end  of  coal  as  an  American  power  source,  to  be  replaced  by  wind  and  solar  power.    The  renewable  energy  industry  has  continuously  expanded  despite  the  recent  economic  recession.  A  2012  report  by  research  firm  Clean  Edge  found  that  the  combined  global  revenue  for  solar  PV,  wind  power,  and  biofuels  rose  from  $188.1  billion  in  2010  to  $246.1  billion  in  2011,  an  increase  of  31  percent.4  This  expansion  was  mainly  the  result  of  the  double-­‐digit  growth  rates  for  both  wind  and  solar  deployment  along  with  an  increase  in  biofuel  prices.      Solar  Energy    The  American  solar  power  industry  has  been  expanding  rapidly  in  the  past  eight  years,  growing  at  an  average  pace  of  40  percent  per  year  and  is  expected  to  contribute  to  10  percent  of  the  nation's  power  needs  by  2025.  The  cost  per  kilowatt-­‐hour  of  solar  power  has  also  been  dropping  (already  by  more  than  half  between  2007  and  2011  to  14  to  23  cents  per  kWh  for  complete  photovoltaic  systems),  while  fossil  fuel  power  sources  are  becoming  more  expensive.    Projections  indicate  that  solar  power  will  reach  cost  parity  with  the  volatile  fossil  fuel  based  power  sources  by  2015.5  As  shown  in  Figure  1  below,  a  continually  downward  pressure  has  been  exerted  on  the  price  of  solar  energy  cells  from  the  period  of  1977  to  2013.    

 

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The  historic  decline  in  solar  prices  pictured  above  is  a  reliable  trend  with  a  structural  basis.  Increasing  economies  of  scale  in  the  production  of  silicon  solar  cells  are  analogous  to  sustainable  trends  seen  in  silicon-­‐based  based  product  markets  such  as  computers  and  cell  phones.  As  projected  by  the  analysis  of  McKinsey  and  Co.  (2012,  7),  the  market  segments  for  solar  power  are  at  peak  viability  for  returns  when  compared  to  other  energy  sources;  Figure  2,  reproduced  below,  shows  solar’s  comparative  advantage.  

     The  economic  window  of  comparative  advantage  for  solar  energy,  supplemented  by  a  continuing  downward  price  trend  for  solar  cells,  presents  an  opportune  window  for  the  University  of  Chicago  to  reorient  from  fossil  fuels  to  renewable  energy  holdings  in  its  investment  portfolio.  The  figure  above  illustrates  that  with  the  upcoming  introduction  of  new  power  providers  in  domestic  residential,  commercial  

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and  industrial  markets  the  opportunity  for  a  price  decline  is  imminent.  The  solar  photovoltaic  market  already  grew  from  $71.2  billion  in  2010  to  a  record  $91.6  billion  in  2011,  with  projections  of  continued  expansion  to  $130.5  billion  by  2021.  In  2011,  solar  power  revenues  rose  by  29  percent  as  system  installations  increased  by  more  than  69  percent  worldwide.        Wind  Energy    A  2008  report  by  the  U.S.  Department  of  Energy  envisioned  that  wind  power  could  supply  20  percent  of  all  U.S.  electricity.  According  to  the  report’s  (2008,  150)  cross-­‐regional  over  multiple  time  periods,  the  supply  curve  for  wind  energy  is  projected  to  increase  its  ability  to  provide  for  the  United  States’  cumulative  energy  demands  as  a  function  of  increasing  capacity  of  the  existing  transmission  grids.  Under  those  flexible  economic  projections,  Figure  A-­‐8  of  the  report  (below)  projects  that,  under  the  report’s  20  percent  Wind  Scenario,  reductions  “more  than  2,100  million  metric  tons  of  carbon  equivalent  (MMTCE)”  would  take  place  as  a  function  of  wind  energy  expansion  from  2005-­‐30  [3].    

   Notably,  the  model  that  produced  the  above  findings  is  not  contingent  upon  regulation  of  carbon  emissions  or  fossil  fuel  industries.  Instead,  it  relies  on  the  basic  capacity  of  the  existing  United  States  power  grid,  based  upon  certain  market-­‐driven  modifications.      The  projected  success  of  solar  power  becoming  more  of  a  reality:  in  2012,  wind  power  became  the  fastest  growing  energy  source  in  the  United  States,  as  the  country  became  host  to  the  fastest-­‐growing  wind  power  market  in  the  world.6  The  Department  of  Energy’s  more  recent  2012  Wind  Technologies  Market  Report  states  

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that  wind  power  contributed  to  43  percent  of  the  total  electric-­‐generating  capacity  additions  and  $25  billion  in  new  investments  in  the  previous  year.7      The  growth  is  mostly  a  result  of  the  rapid  evolution  of  wind  power  technology.  Turbines  are  now  much  larger,  and  new  ones  generally  have  a  2.3-­‐megawatt  capacity.  Recent  developments  indicate  that  7-­‐megawatt  turbines  will  be  available  soon.8  Technological  advancement  has  allowed  new  wind  farms  to  produce  electricity  in  the  price  range  of  5-­‐8  cents  per  kWh,  making  wind  power  competitive  with  the  cost  of  fossil  fuel  electricity  generation  in  many  markets.9  Though  there  are  installation  costs  associated  with  intermittent  renewable  energy,  unlike  fossil  fuels-­‐which  have  suffered  volatile  fuel  prices-­‐wind  and  solar  power  are  based  on  perennial  sources  and  have  relatively  miniscule  post-­‐installation  costs.      Energy  Efficiency    Energy  efficiency,  defined  here,  refers  to  initiatives  and  products  committed  to  conservation  and  reduction  of  energy  consumption  per  capita  of  economic  utility.  Examples  of  energy  efficiency  initiatives  include  smart  grid  technologies  such  as  modern  wiring  configurations,  smart  meters  and  two-­‐way  power  transmission.  Despite  the  possibility  that  energy  efficiency  improvements  may  increase  overall  consumption  per  the  Jevons  paradox,  they  are  crucial  for  low-­‐cost,  large-­‐scale  deployment  of  renewable  energy.  Other  initiatives  like  net-­‐metering  by  electric  utilities  and  programs  like  CLEAN  LA  that  allow  customers  to  sell  their  excess  power  into  grids  are  expanding,  too.    Efficiency  investments,  valued  at  $837  billion,  make  up  13  percent  of  total  renewable  energy  investments,  and  revenues  are  projected  to  increase  13  percent  annually  through  2020.10  Companies  usually  benefit  from  efficiency  investments  via  lower  energy  costs  within  12  to  24  months.  According  to  the  World  Wildlife  Fund  and  Ecofys  Consultancy,  energy  efficiency  initiatives  will  soon  become  an  integral  aspect  of  all  economic  activity,  saving  businesses  and  consumers  nearly  £4  trillion  by  2050.      Addressing  Concerns  about  Renewable  Energy      The  argument  that  solar  is  economically  effective  only  by  relying  on  government  subsidies  may  hold  at  the  present  moment,  but  if  solar  prices  reach  Citigroup’s  prediction  of    $.25/watt  by  2020,  subsidies  will  not  be  required.  In  fact,  according  to  research  firm  Bloomberg  New  Energy  Finance,  unsubsidized  renewable  energy  is  now  already  cheaper  than  electricity  from  new  build  coal  and  gas  fired  power  stations  in  Australia.  Moreover,  the  2013  IMF  energy  subsidy  report  points  to  the  undismissable  fact  of  how  fossil  fuels,  too,  are  dependent  on  subsidization  with  their  global  total  subsidy  of  $409  billion  being  incomparable  to  the  meager  $60  billion  awarded  to  renewables.  The  IMF  believes  the  resultant  misleading  prices  are  fueling  

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mis-­‐investments,  unjustifiable  on  economic  and  environmental  grounds,  such  as  in  the  rapidly  growing  shale  gas  industry  and  new  coal  plants  in  Europe,  with  the  Keystone  tar  sands  project  perhaps  becoming  the  next  scenario.    _________________________________________________________________________________________________  1  “Energy  Infrastructure  Update.”  Office  of  Energy  Projects.  Federal  Energy  Regulatory  Commission.  March  2013.  Web.  Feb  2014.    2  Dempsey  and  Ewing.  “Germany,  in  Reversal,  Will  Close  Nuclear  Plants  by  2022.”  NY  Times.  30  May  2011.  Web.  Feb  2014.    3  Arnold,  Martin.  "Private  Equity:  Specialist  Funds  Are  Keen  to  Invest  in  Clean  Technology."  Financial  Times.  Pearson  PLC,  3  June  2010.  Web.  25  Feb.  2014.  

Relevant  quote:  “James  McNaught-­‐Davis,  managing  partner  of  UK-­‐based  clean-­‐tech  investor  WHEB  Ventures,  says  the  shortage  of  financing  from  banks  and  other  sources  may  be  creating  more  opportunities  for  specialist  funds  in  this  area.  ‘There  are  quite  a  few  clean  tech  businesses  that  need  capital  to  develop  and  have  owners  who  can’t  or  won’t  provide  the  money,  and  these  are  being  sold  quite  cheaply,’  says  Mr  McNaught-­‐Davis.  ‘It  is  currently  a  buyer’s  market.’”  

4  Pernick,  Wilder,  and  Winnie.  “Clean  Edge  Trends  2012.”  Clean  Edge,  Inc.  2012.  Web.  Feb  2014.    5  See  4  Pernick  et  al.    6  Woody.  “U.S.  Installed  Record  13.2  Gigawatts  of  Wind  Energy  in  2012.”  Forbes.com.  18  January  2013.  Web.  Feb  2014.  7  Wiser  and  Bollinger.  “2012  Wind  Technologies  Market  Report.”  U.S.  Department  of  Energy.  August  2013.  Web.  Feb  2014.  8  “Cost  of  Wind  vs.  Fossil  Fuels.”  Montana  Environmental  Information  Center.  April  2012.  Web.  Feb  2014.  9  See  4  Pernick  et  al.  10  Spedding,  Mehta,  and  Robins.  “Oil  and  carbon  revisited.”  HSBC  Global  Research.  January  2013.  Web.  Feb  2014.                              

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Restatement  of  Objectives    Emphasizing  the  overwhelming  scientific  evidence  indicating  anthropogenic  climate  change  is  occurring  due  to  the  combustion  of  hydrocarbons,  more  commonly  known  as  fossil  fuels;    Expressing  concern  about  the  impending  catastrophic  consequences  anthropogenic  climate  change  will  have  for  the  University,  the  city  of  Chicago,  and  the  global  community  if  immediate  action  is  not  taken;    Feeling  distress  as  students  (international  and  domestic)  whose  futures  will  be  affected  and  limited  by  the  effects  of  climate  change;    Noting  the  University’s  investments  in  companies  that  extract,  refine,  and  sell  fossil  fuels,  thereby  accelerating  the  burning  of  hydrocarbons  and  anthropogenic  climate  change;    Affirming  the  stance  expressed  in  the  1967  Kalven  Report,  which  calls  on  the  University  to  oppose  and  defend  its  interests  from  the  activities  of  segments  of  society  that  would  do  us  harm;    Weighing  the  financial  and  social  risks  associated  with  holding  assets  that  will  become  ‘stranded’  with  unburnable  carbon  reserves  due  to  governmental  and  international  regulation,  natural  disasters,  and  societal  pressure;    Urges  the  following  actions  be  taken  by  the  University  of  Chicago:    (1)  Immediately  freeze  any  new  investments  in  the  most  carbon-­‐intensive  fossil  fuel  extraction  companies.  This  report  will  keep  the  exact  listing  of  targeted  company’s  undefined  in  the  interest  of  dialogue  with  this  University’s  Board  of  Trustees.  However,  a  listing  of  the  top  200  fossil-­‐fuel  companies  as  a  function  of  their  estimated  carbon  reserves  are  summarized  in  the  PATHWAYS  section,  the  raw  data  for  which  can  be  accessed  online  at  http://bit.ly/ReportData.    (2)  Divest  from  direct  ownership  and  any  commingled  funds  that  include  fossil  fuel  public  equities  and  corporate  bonds  within  five  years,  with  the  goal  of  influencing  fossil  fuel  companies  to  stop  exploring  for  hydrocarbon  reserves,  stop  lobbying  in  Washington  and  state  capitals  across  the  country,  and  pledge  to  keep  80%  of  their  current  reserves  underground  forever.    (3)  Implement  climate  and  carbon  risk  assessment  into  the  University’s  short-­‐term  and  long  term  investment  strategies,  in  order  to  more  accurately  predict  and  account  for  the  instability  markets  will  have  due  to  a  changing  climate  and  move  towards  more  sustainable  investment  practices.  These  practices  could  be  recommended  requested  by  the  University  as  a  client  of  its  endowment’s  external  investment  managers.  

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