The Flawed Economics of Divestment

Campaigns to coerce universities, pensions, and institutions to divest from the oil industry are breathtaking examples of economic illiteracy.

Divestment campaigns generally look to divest from fossil fuel extraction and production companies. Even ignoring the economic reality that other investors will immediately snap up their stocks (thereby inflicting zero economic damage on the companies people divest from), there’s a bigger problem: they are divesting from the supply side, but continue to invest—and perhaps expand investment in—the demand side.

Most people fail to understand exactly how critical a role petroleum products—and the petrochemicals extracted from them—play in modern life.

At the most basic level, there are fuels. These include not just the gasoline for cars and buses but also the tractors and combines used by farmers to grow and harvest crops; the truck and airplane fuel that carries goods across the country (as in, anything you’ve ever ordered from Amazon); the fuel that heats millions of American homes every winter; and the fuel for generators that keep hospitals running even during power outages.

But that’s just the beginning. There’s more in a barrel of oil than just fuel—the rest is turned into the building blocks for literally millions of modern-day essentials. These include anything made with plastic (inhalers, food containers, keyboards, MRIs), synthetic materials (seat belts, clothes, tennis shoes), and chemical compounds that create everything from disinfectants to cell phones. Ironically, even solar panels and wind turbines are created from fossil fuels.

The omnipresence and importance of carbon fuels mean that divestment efforts are fundamentally flawed because there is no way to divest from fossil fuels, either personally or institutionally. Short of reverting to a pre-industrial lifestyle, no one can live without utilizing fossil fuels. And no investment is fossil-free—no company can function without consuming fossil fuels and therefore supporting the companies extracting and producing it.

But the bigger point is this: fossil fuels provide reliable, affordable energy and chemical building blocks—two things that currently cannot be replaced by any other energy source. So attempting to demonize a critical part of modern life is not only futile but also an unfortunate waste of time, money, and effort that could be directed to more productive environmental efforts.