IEEFA Update: Pulling Out of the Global Climate-Risk Accord Is Trump’s Biggest Business Blunder Yet

Pursuing Politics Over Economics Is a Dead End

Whatever one thinks of the politics around the Trump administration walking away from the Paris climate accord, it’s a bad business move.

By going back on the agreement, the administration is damaging the U.S. economy on several fronts.

First, it means the U.S. will be stepping back from a new global era in energy production and consumption, declining to take part in tremendous growth opportunities in the renewable energy and alternative transportation sectors. Jobs in this sector are increasing and, more important, the economics of transition deliver lower cost, competitive power and transportation options that create huge, positive ripple effects that go beyond core job creation. The Paris agreement is part of a gathering momentum toward the decline of fossil-fuels economies—which are defined historically by commodity volatility—and the rise of long-term, steady supplies of energy that support economic stability.

As our research has shown, a fast-moving energy industry transition is occurring around the world. Major Asian economies that include Japan, Taiwan and South Korea are plotting futures less reliant on fossil-fuel investment. Change is coming to India, the second-most populous country on the planet, much faster than anticipated.  Japan and China are investing heavily in the global renewable-energy economy. The American energy industry itself is increasingly at odds internally with how to adapt to the transition we see happening, and much of its leadership cannot be happy with what the president did today.

Europe is transforming quickly too. Enel, the biggest utility in the European Union, signaled in May that it would comply with new emission regulations that force it either make expensive retrofits to a fleet of aging coal-fired plants or close them.  Enel, like many energy companies in Europe, is leaning toward the latter option.

Investors in growing numbers are questioning resistance to responsible climate-risk strategies too. Witness how just this week 62 percent of ExxonMobil shareholders voted to press the company to be more open about how it is managing such risk. That is no small number—62 percent—and it is indicative of a an increasingly informed majority of stakeholders who see recognition of climate change as a management imperative.

The risk is real, and so is the wave that is building toward addressing it in a responsible fashion that allows prosperity to go hand in hand with progress.

CONTRARY TO AMERICANS’ BEST INTERESTS, TRUMP IS INSTEAD ALIGNING U.S. ENERGY AND ECONOMIC POLICY NOW WITH FORCES that seek to lift fossil-fuel industries supported by state monopolies in Saudi Arabia, Russia, Iran, Iraq and Libya that want higher oil prices. That much is clear. What’s not clear is how higher oil prices will help American businesses and households.

Another way in which Trump’s move is a blunder stems from the fact that the Paris agreement creates a global framework for more manufacturing development. By opting to bow out, the president is putting American engineering, manufacturing, and supply industries at a strategic disadvantage.  Global financial institutions like the World Bank are profit centers for businesses, and they are deeply invested in the climate accord—which means they are far less inclined to work with companies in countries that refuse to take part.

Third, the U.S. will miss out now on a way for its coal and oil sectors to pursue an orderly reorganization of their markets, which are being profoundly affected by shifts away from traditional fossil-fuel models. Several major coal companies in the U.S. were in favor of the agreement because they knew it would give them a place at the global trade table. They no longer have a seat, while their rivals in Asia, Europe, and Latin America still do. Cash-strapped coal producers in Australia, South Africa, Indonesia, and Russia will be more than glad to fill the 50 to 60 million tons per year U.S. coal producers supplied to global markets.

Fourth, choosing politics over economics is a dead end. While some captains of energy industry may cheer Trump’s decision in hopes of profiting in the short term, most know all too well that few business models can be sustained in the long term by the shallow whim of favoritism.

Tom Sanzillo is director of finance at the Institute for Energy Economics and Financial Analysis.

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IEEFA Update: Shareholder Vote on Exxon Mobil’s Climate-Risk Transparency Suggests a Larger Opening

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