Future Fund punts on a grim future

It was a delightfully frigid winter’s evening when I rugged up under two jackets and braved the Antarctic winds to hear Bill McKibben speak at the Melbourne leg of 350.org’s Do The Maths tour, the kind of night cold enough to send certain cretinous News Ltd. trollumnists into paroxysms of self-congratulatory glee at the thought of Melbourne having turned on to greet a global WARMING activist (because, like, it’s cold in winter, hee-haw!)

Winter in Melbourne generally means one thing: football. Melbournians in their tens of thousands routinely endure the most bracing of conditions to watch their beloved teams slug it out and, if the saturation-level promotion of the betting odds are anything to go by, quite a few of them like to take a punt on the results. Australia has always had an ingrained gambling culture, many would say it’s in our blood, so had these keen punting minds been at the Athenaeum Theatre and not the footy on Friday night they would be appalled at the bet they’re unwittingly taking with their future retirement savings.

In a sold-out house, packed literally to the rafters (if you’ve ever been in the upper stalls of the Athenaeum you’ll know what I mean), McKibben was met with a rousing reception as he outlined the Terrifying New Maths of Global Warming and put forward a prescriptive divestment strategy to prevent this equation from playing out to its disastrous end.

As a keen observer of the ‘debate’ (for want of a better word, I use it loosely) raging around climate science over recent years, McKibben wasn’t telling me anything I didn’t know in regards to the cold, hard maths underpinning his argument. The international community, in all its wisdom, has decided that 2° C. is the ‘safe’ threshold beyond which we cannot pass if we are to avoid catastrophic climate change, that means we can only afford to emit another 565 gigatonnes of CO2 into the atmosphere before we cross the proverbial Rubicon to a point of no return. On the other hand, the known fossil fuel reserves marked for extraction by the energy industry will add an additional 2,795 gigatonnes if burned – five times more than than we can afford to emit and still avoid catastrophic warming. And that’s just what’s been ear-marked for extraction, it’s the basis on which fossil fuel companies project their future profitability, which underwrites the massive loans currently being used to finance the behemoth mining developments, like that in the Galilee Basin here in Australia, a reserve that alone will make up 6% of the distance between now and our 2° C. limit if it’s allowed to be dug up and burned as per the business model.

So far we are 0.8° C. of the way to the 2° C. limit and already seeing this excess greenhouse gas manifesting itself around the globe; ocean acidity has increased in response to higher CO2 by 30%, the Arctic has warmed by a dramatic 3° C. above average, summer sea ice levels have gone into terminal decline, while permafrost has become decidedly less permanent as vast swathes of the tundra literally rot in front of our eyes. Closer to home the last few years have seen extreme rainfall events tearing up the east coast of Australia, followed by extreme heat events that saw temperature records for intensity and duration tumble all across the country as an enormous dome of heat cloaked the interior, driving up temperatures to the point that the BoM had to add a new colour gradient to its temperature forecast map. If this is what a mere 0.8° C. looks like then even if we do manage to contain warming within 2° C. we will incur significant costs and be required to make significant adaptations. Going beyond that point really doesn’t bear thinking about.

So, in this context, it is worth pausing to reflect on the investments being made for our future. Collectively, Australians have around $1.4 trillion (that’s trillion with a ‘t’) squirreled away in superannuation funds, most of which is being invested a myriad esoteric ways that the average punter is blissfully unaware of. Although disclosure standards are lax, to say the least, with 55% of all super funds globally being invested in dirty energy globally (compared to a miserly 2% going into clean energy) there is a very good chance that, unless you use a fund manager that explicitly refuses to invest in fossil fuels, you too are taking a blind punt that we can exceed our carbon budget fivefold and still come out on top.

Most super funds, however, are run by private enterprises which, regardless of what of what one might think about the shortsightedness of the decision, are beholden to maximising short term profit for their shareholders. Social conscience plays a very distant and, more often than not, entirely tokenistic second fiddle to the almighty profit motive. That’s the nature of the market, if you don’t like it you can use the power of your capital by moving to a fund more in line with the values you hold dear. It’s not a great system, necessarily, but it is the one that we have.

The same can’t be said about the Future Fund. The fund was set up with great fanfare by Peter Costello as a way to give back some of the windfall of the mining boom (from which his government gained enormous political capital, bribing its way through election after election and frittering away a once in a lifetime economic legacy on middle-class welfare, without once taking into consideration the cost to future generations). it would provide the means to pay for the future superannuation costs of the public sector and ease the burden on future budgets. Since then it has expanded to administer a number of funds set up in the wake of the global financial crisis.

With over $85 billion being currently invested by the Future Fund it is easily the largest public chunk of change being fluttered on the market by Australia and, according to estimates, it currently invests $2.5 – $3 billion of that chunk directly in fossil fuel industries.

So while the odds of backing the fossil fuel industry are being calculated on the basis of projections that it can multiply the levels of greenhouse gasses in the atmosphere by five times beyond what scientists tell us is a safe level, all the while reaping profits from ever expanding prices, the Future Fund – a public institution investing public funds, ostensibly in order to provide for our future – is enthusiastically backing those odds to the tune of billions. The Board of Guardians at the fund are essentially betting against the world taking action to prevent catastrophic climate change and, regardless of the obvious ethical quandary posed by a “future fund” wagering against the future, this is a very bad bet indeed.

Coal prices are depressed globally and suddenly some of the pie-in-the-sky projections have become more realistic, the massive overcapitalization in coal development is looking considerably less profitable. While mainly a result of a glut on the supply side as coal miners scrambled to cash in on the record highs of a few years ago, increasingly the industry is being squeezed by demand too, even without inevitable yet still unaccomplished global agreement to make fossil fuels more expensive, natural developments such as the GFC and the gas boom are threatening to pop coal’s bubble.

And on the horizon things look even less rosy for the future of the coal industry.

Aside from many advanced economies implementing their own emission reduction schemes in lieu of a global agreement – schemes which, in Australia at least, have already achieved significant reductions in coal-fired power production – the real 800 kg gorilla in the room is China’s recent announcement that it intends to peak its coal demand in 2016. It’s impossible to overstate the impact this long-term decline in demand will have on an industry that’s staked its future on the world not acting to reduce carbon pollution. Like Napoleon noted way back in the 18th century, China is a sleeping dragon but when it wakes the earth will tremble. The coal industry could be feeling those tremors a lot sooner than it has banked on.

That’s not a gamble I’d be willing to take with my life savings.

If they win that bet, we lose. If we win then the money we are currently spending on these developments will be akin to us having built the Snowy River hydro system and then turned off the river. They’ll become white-elephant monuments to our own shortsightedness.

That’s not a gamble a public institution tasked with funding our future should be taking, period.


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