Australian universities divesting from fossil fuels is costly, ineffective, and ultimately bad for students.
At the University of Melbourne, students set up a camp-out with tents, workshops and entertainment, as well as stripped naked. Meanwhile, earlier this month Monash University announced they would be joining the Australian National University and Swinburne University in divesting from fossil fuels.
In practice divestment leaves universities with a less diversified profile, reducing returns and increasing risk.
The Fischel Report, a major investigation into the question by a former Dean of University of Chicago Law School, found that over the past 50 years, a divested portfolio would have returned 23 percent less on investment. This amounts to millions of dollars of lost revenue every year.
On top of the direct losses to the portfolio, there are also substantial indirect costs. Divestment necessitates additional analysis costs, to determine which stocks are acceptable and unacceptable, as well as administrative costs to process and execute the divestment.
The ethnical questions about what to sell, and what not to sell, are in themselves quite arbitrary. The Australian National University faced strong criticism about their divestment choices when they announced not only divestment from fossil fuel producers, but also miners of nickel, gold, and copper.
In the end students are the ones who are going to suffer the most as a consequence of losses to university investment portfolios. Lower endowment income means higher student fees, inferior facilities, and fewer scholarships.
Additionally, for all the costs, divestment is not going to have any impact on the targeted companies. Stock prices reflect company value and future profits and dividends. Universities are a relatively minor part of the stock market. If universities divest others will happily buy their stocks, leaving the stock price, and therefore incentives to modify behaviour, unchanged.
Divestment proponents, faced with the extraordinary high costs and low impact of divestment, are forced to make superficial moral arguments against fossil fuels. Their case ignores the necessity of conventional fuels to the Australian economy, and global economic development and poverty alleviation.
Universities, even if not invested in these fuels, still require them every day to fulfil their basic energy needs. Campuses — with all the lighting, computers, and research machinery — are energy intensive places. In this respect universities differ little from the rest of the economy that is dependent on conventional fuel sources to deliver us prosperity.
There are still an estimated 1.3 billion people across the globe who do not have access to electricity. These people need conventional energy, like Australia's gas and coal resources, to raise their standard of living. This is why China has been building a new coal fired power station almost every week for years and why coal consumption in South East Asia will triple by 2040.
Renewable energy sources are simply too expensive, and unreliable, to provide the energy to lift these people out of poverty and deliver opportunity and wealth. Throughout the world massive government subsidisation of wind and solar power has significantly raised electricity bills for little increased energy production. Additionally, when the wind is not blowing, and the sun is not out, we still need conventional sources of energy.
Resource companies are perfectly legitimate operations, and an important pillar of our economy. In a time when graduates are increasingly struggling to get jobs it is nonsensical to disparage students, many of whom study courses relevant to these companies, from employment opportunities.
Universities should prioritise maximising returns from their investment portfolios and educating students, not ideological brinkmanship.
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