The Norwegian government has affirmed its plans to divest its coal related holdings. On June 5, parliament voted to go through with the divestment, which will see the country’s $890 billion government pension fund (NGPFG) – otherwise known as the oil fund – disassociate itself from any company that derives more than 30 percent of their revenues or power production from coal. According to the Institute for Energy Economics and Financial Analysis, the divestment will cover around $5.4 billion – easily the single biggest fossil fuel divestment to date.
It’s all well and good, but it may not all be true – at least not to the extent advertised. In fact, the evidence suggests meaningful divestment will be hard to come by in the medium-term. According to three environmental groups – Future In Our Hands, Greenpeace Norway, and German NGO Urgewald – Norway’s recent divestment efforts have been mostly hot air.
In 2014, the NGPFG, under the direction of Norges Bank Investment Management, divested from more than 50 coal companies including Peabody Energy, Arch Coal, and Coal India. Today, 23 percent of world coal production can be tied to companies with NGPFG investment – down 19 percent from 2013. However, the fund’s coal industry holdings actually grew by nearly $400 million in that same period. The fund’s stake in oil and gas companies also rose about $2 billion, or roughly 7 percent.
The spike is largely the result of the fund’s downstream activity in Asia, where coal has gained some ground after years of high natural gas prices. In China and Japan, coal investments increased 32 percent and 21 percent respectively. In India, the fund withdrew from 13 coal companies, though it reinvested some $50 million dollars into Reliance Group – one of Asia’s biggest developers of coal-fired power. In all – and in these three countries – planned expansions in which the NGPFG holds shares amount to more than 160,000 megawatts of additional coal-fired capacity.
Such “pretend” divestment highlights the tricky intersection of risk-based, climate change-motivated, profit-driven decision-making. Further, it demonstrates that coal is alive and moderately well – at least depending on where you look.
Global coal demand is expected to grow at an average rate of 2.1 percent per year through 2019. Emerging economies from South Africa to Southeast Asia may soon supplant China as the primary drivers of growth and look to offset OECD declines.
Developing countries aside, the broader divestment movement is challenging the status quo in OECD countries and the NGPFG still has a chance to get it right. The Norwegian parliament’s latest decision will take effect next year. At that time, several of its dirtiest investments will meet the chopping block.
At $956 million, the fund’s single largest sell-off will be UK utility SSE, whose coal operations are suffering through historically low UK consumption. The NGPFG will divest $685 million and $320 million from Germany’s E.ON and RWE respectively. In the US, the fund will dump its $434 million share in Duke Energy – the US’ largest electric power holding company and fourth largest carbon emissions source in the power sector. Holdings in American Electric Power Co. and Dominion Resources – both top 10 US emitters – are also likely to be cut.
Norway’s exit is by no means complete, but the new exclusion criteria limits opportunities for the type of counterproductive reshuffling documented by Greenpeace Norway, et al. To be sure, such opportunities still exist, but for coal, the writing on the wall is only growing larger.
First published at Oilprice.com