What do we need to know about the U.S. withdrawal from the Paris Climate Agreement last week?
The Paris Accords were brokered in 2015 and agreed to by 195 countries, with the goal of reducing emissions through individual government plans. On Thursday, the president withdrew the U.S. from the agreement. I spoke with dozens of business and political leaders last week to gauge their reaction in the wake of the decision from the White House about what it would mean for their companies, and the country.
How is the business community reacting??
I asked American and foreign CEOs alike, and across the board I received negative responses. One executive I spoke with told me even though he believed this was a bad agreement – it is not binding; China’s commitments did not kick in until the year 2030 –he would have signed it anyway because it is important for the U.S. to keep our commitments.
He noted this move was in stark contrast to Trump’s admonition of NATO allies to keep their commitments just last week. Another told me this was a tragic decision, pointing out the fuel mileage standards linked to this effort have been putting money back in Americans’ pockets because they have to buy less gas. This in turn means they can spend it in other places, boosting the economy. Overall, the sources I spoke with were disappointed and exasperated about this announcement.
As for the economic impact, it is hard to tell. We don’t yet know the details. but businesses are worried about the announcement, and the climate that it creates. One source at a major consumer products company said the company was worried about possible retaliation and boycotts, or efforts to discourage buying American products. On top of this, they said they are very reliant on emerging markets for sales growth, so not only do they worry about product perception, but that many of these countries are likely to bear the brunt of climate change.
What is Trump’s motivation for doing this?
I think the motivation is unclear. There was no time constraint for this decision, so Trump could have done this at any time. Many people i spoke to told me the timing doesn’t make sense. There is simply no upside to policy-making on the fly! One CEO thought trump may believe this is a bad deal, and this is how he thinks deal-making works. Others wondered whether this was a pivot to change the headlines and reset the news cycle after weeks of negative press. but not one felt he was sincere in his intentions.
How does this impact American businesses?
The main result for American businesses is uncertainty. there are few details about what actions would be taken, and companies do not know how that will play out. They usually have weeks or months to process policy changes of this magnitude. This time they had hours.
A source at one of the big 3 auto companies noted that this move likely means that higher mileage standards introduced by Obama could be rolled back, which would benefit the company, but she said the company’s executives are not celebrating because they acknowledge that climate change is real. She also gave examples of the planning challenges this presents for the industry.
Take electric cars: currently the business model for electric cars is partially built on customers being able to take advantage of tax credits for electric vehicles. Those could be threatened now that the Paris Accords are not on the table. The same is true for auto models that were built to comply with new fuel efficiency regulations. Many of these models were money losers, but necessary to get fleet mileage up. These new moves nullify these efforts and in turn the resources spent on them.
The president focused on jobs and the fossil fuel energy sector as beneficiaries in his remarks, but the clean energy industry is likely to suffer, right?
The clean energy sector will see less investment due to this move, which means it will grow more slowly and create fewer jobs. As President Obama noted in a statement, renewable energy sector was one of the strongest streams of job creation in recent years. The traditional energy sector – fossil fuels – will likely benefit from less stringent emissions expectations. In terms of jobs in the fossil fuel industry, it just isn’t going to happen.
Coal production peaked in the U.S. around 2010, and since 1980, employment in coal mines has been on the decline. As of February, coal mining employed just over 50,000 people. In comparison, wind energy alone now employs 85,000 people. So, while I am sympathetic to coal miners, that trend line will not be reversed just because Trump scrapped this agreement.
How will this impact America’s brand and reputation in the world?
I expect this to be the most important outcome of Trump’s decision, tom. American leadership around the world matters. Other nations look to our country as an example, and we are expected to honor our commitments. Reneging on this hurts our reputation and brand, and some business leaders I have talked to worry that it will spark a backlash. One leader I spoke to said this cedes leadership on this issue, an issue which we had been a leader, to China.