At the end of September, the CEO of the Caisse de dépôt et placement du Québec (CDPQ), Mr. Charles Emond, announced the withdrawal of his institution from investments in oil production by the end of 2022. This This commitment is part of the actions undertaken by the CDPQ to support the energy transition towards a global economy with zero net carbon emissions by the year 2050.
This is the target recommended by the UN to limit global warming caused by greenhouse gas (GHG) emissions to less than 2 ° C. Even if the objective of reducing GHG emissions receives the approval of most nations, it is still necessary to analyze whether the commitment made by the CDPQ is appropriate to contribute to the targeted objective which is the reduction in GHG emissions. This is the subject of this article. Unfortunately the answer is no.
The CDPQ’s investments in oil production currently amount to $ 4 billion, or 1.0% of its total assets. Even if this share is modest, it is the primary responsibility of this pension fund to evaluate the returns and the risks of its investments. Since the oil crises of 1973 and 1979, forecasting the evolution of the price of oil has been an exercise in which the results are very uncertain and the initiatives aimed at reducing GHG emissions have accentuated the degree of uncertainty. It is quite normal for the CDPQ to revise the allocation of its portfolio to take this new context into account.
However, in this case, in addition to considerations of profitability, there is also the expressed desire to contribute directly to the collective effort to reduce GHG emissions. Pension funds are increasingly under pressure from various groups to withdraw their investments in the production of fossil fuels, which are the main source of GHG emissions. This movement of a financial nature is very vast and it is headed by an organization linked to the UN, the financial alliance for net zero emissions by the year 2050.
This body is chaired by Canadian Mark Carney, former Governor of the Bank of Canada and the Bank of England, and it includes 160 companies controlling $ 70 trillion in assets; their goal is to contribute, through funding, to the realization of projects contributing to the objectives of the Paris Agreement which was signed in 2015 and which is currently being updated during the COP26 meeting in Glasgow. The CDPQ is therefore in good company.
Here is the sequence of effects hoped for by the promoters of these financial initiatives: the reduction in access to financing for oil producers would increase their production costs, which would have to raise their prices; these increased prices would be incorporated into the end products (gasoline, diesel, heating oil, aircraft fuel) purchased by consumers, who would thus be encouraged to reduce their use and to use less carbon intensive products. There is no doubt that an increase in the cost of financing would have a negative impact on the development of projects such as the exploitation of the tar sands, which provides one of the most expensive oils. Does the same conclusion apply to all oil production worldwide? It should be remembered that currently, 55% of world oil production comes from OPEC + member countries. Their oil is extracted by crown corporations that do not issue shares and that receive their funding through loans or advances from their respective governments. Are we going to build walls around these countries to ensure that no additional dollars are at their disposal to carry out their oil operations? Financial capital is very fluid and easily finds loopholes: such a strategy is doomed to failure. In addition, it would lead to a shift in oil production from countries where it is subject to open market conditions to countries where it is under state control; this would accentuate a massive transfer of oil rents to the latter, namely, Saudi Arabia, Russia and the other members of OPEC +.
The creation of inefficient barriers to the production of fossil fuels distracts attention from the real cause of the related GHG emissions: GHG emissions occur because consumers use the services provided by fossil fuels. There is production because there is consumption and it is consumer behavior that must change either through reductions in consumption or through substitution towards less carbon intensive products. The action that the CDPQ is about to take may raise awareness, but it does not reduce GHG emissions in Quebec.
– Jean-Thomas Bernard, adjunct professor, economics, University of Ottawa