Financial Losses Associated with Fossil Fuels

The losses associated with fossil fuels are staggering and it is not just oil-producing states and companies that are feeling the heat. Pension funds going long on oil are getting killed as they hope that prices will rebound. With oil prices around $50 per barrel, the IEA estimates that OPEC states have lost half a trillion dollars a year in revenues since the oil price fell from over $100 a barrel in 2011-2014 to current levels. The declining price of oil is also creating volatility in the stock market and significantly impacting the petro-economies of both Russia and Canada.

As reported by the Star, a new study from the Canadian Centre for Policy Alternatives indicates that fossil fuel holdings in Ontario’s five largest pension funds lost a total of $2.4 billion. Here is their review of the amount of money lost due to falling oil and coal prices from June to December 2014:

Ontario Teachers’ Pension Plan: $1.77 billion
Ontario Municipal Employees Retirement System: $192 million
Healthcare of Ontario Pension Plan: $53 million
Ontario Pension Plan: $154 million
Ontario Public Service Employees Union Pension Trust: $188 million

California pension funds have been decimated by the declining price of fossil fuels. This has caused the state to pass legislation forbidding big pension funds from investing in coal. Others institutions are getting out of fossil fuels altogether. A recent report from consultancy Arabella Advisors found that 430 institutions, including the Canadian Medical Association, have committed to phasing out their fossil-fuel investments.

A Corporate Knights Capital report estimated that the CPPIB has lost $7 billion (US) in value since 2012 due to the decline in the values of carbon-intensive industries. Bill & Melinda Gates Foundation Trust Endowment has lost $1.9 billion, and the University of Toronto pension and endowment fund lost $419 million.

More than 100 institutional investors representing $8 trillion in assets have signed the one-year-old Montreal Carbon Pledge. Those that took the pledge have committed to “measure, disclose and reduce portfolio carbon footprints.” Signatories include Addenda Capital, The Co-operators and the United Church.

“If they’re putting money into fossil-fuel stocks, it should be incumbent on managers and trustees to justify why they’re doing that,” said Marc Lee, a senior economist with Policy Alternatives.