Bookmark and Share

David Brodwin's blog

What Trump’s Rejection of Paris Agreement Means for Business

On June 1st, President Trump announced that the United States would pull out of the Paris Agreement on climate change, calling it “draconian” and claiming without evidence that the agreement hurts jobs. The announcement has led many business leaders to question what the Agreement is really about, why Trump pulled out, and what all this implies for business, going forward.

What the Paris Agreement does …  and what it doesn’t do

The Paris Agreement, is a pact to protect the climate, signed by 195 nations in December 2015.  The signers include all the major industrialized nations whose carbon dioxide emissions are warming the planet.  China and India are both on board. Under the agreement, each country pledges to reduce its carbon emissions by an amount roughly proportional to its size.  Each country has wide latitude to define its own path towards reducing emissions. Typically, the path involves a combination of shifting from coal and oil towards renewable energy sources, and tweaking the economy to be more energy-efficient. That mostly means better-insulated buildings and more efficient cars and trucks.

Importantly, the agreement is non-binding and there is no enforcement mechanism. No nation, including the U.S. can be coerced by others to do things it can’t afford to do.

Why most businesses like the Paris Agreement.

Even though the agreement involves regulation, which many businesses oppose on principle, most business leaders want the U.S. to remain in the agreement. Even major oil, gas, and coal companies like Exxon, Shell, and BP have argued that we should stick with the agreement, along with big Tech companies and other global corporations. The reasons for staying are explained in detail here; in essence they are:

  • Climate change is a real threat and we need to address it before it gets worse
  • Failure to be proactive cedes U.S. influence and undermines the competitiveness of U.S. companies
  • We have more influence on global energy policy if we have a seat at the table than if we don’t.
  • Pulling out doesn’t do anything to protect coal jobs.  Coal is dying anyways due to the low cost of fracked gas. And clean energy creates more jobs than coal offers.

So Why Did Trump Pull Out?

Several factors are behind President Trump’s decisions to pull the U.S. out.

  • It was a campaign promise, and Trump has been stymied on other campaign promises such as Obama care repeal and wall-building.
  • It is consistent with the mainstream of Republican policy denying climate change and opposing any moves to abate climate change. (A small but growing number of Republicans, however, recognize the climate threat and seek ways to make progress on the issue.)
  • It is consistent with Trump’s pledge to protect and expand jobs in coal-producing parts of the U.S.
  • The nationalist part of the Trump Administration opposes the agreement simply because it upholds the position of the U.S. as a leader with a major stake in international cooperation.
  • The Paris Agreement is a holdover from the Obama Administration, which the Trump Administration seeks to discredit.

How did Business React?

Scorn for Trump’s decision came quickly from across the business community.  Tesla CEO Elon Musk quit Trump’s presidential advisory panel in protest, joined by Walt Disney’s CEO Bob Iger.  Goldman Sachs CEO Lloyd Blankfein and GE’s CEO Jeffrey Immelt tweeted in disapproval.  CEOs from Apple, Google, Microsoft and Facebook joined in the criticism, as did many other business leaders.

What will Business Do Next?

With or without the Paris agreement, the work to protect the climate will continue, and business will play a leading role. American Sustainable Business Council helps to organize individual business leaders and provide them with an effective platform to speak out on this issue. We invite all business leaders, from any size company, to participate in our campaigns, most importantly in calling for a price on carbon at the federal and state level. Work with us to get your voice into the media, and join us in lobbying in Washington and at the state level.

Businesses will continue to shift to become more energy-efficient and less carbon-intensive if for no other reason than it is good for the bottom line, and it creates good will with customers and employees. That means investing in energy-efficient buildings and data centers, reengineering production processes, and streamlining supply chains.  All that saves money.

Energy producers are shifting their mix to renewables because some renewable energy sources (like wind) are now cheaper than fossil fuel.  The NY Times recently detailed how wind is taking over from coal in the production of base load electrical power.  At the same time, investors are pushing energy companies to take seriously the need to accelerate their transition. Exxon’s shareholders just passed a resolution calling on the energy giant to take action. They don’t want Exxon to sink more assets into projects that don’t have a long term future.

Paris, or no Paris, the shift to clean energy will continue. The question now is whether the U.S. will lead, follow, or be pushed out of the way. Business has a strong voice in deciding the answer.

David Brodwin is a co-founder and board member of American Sustainable Business Council.

Big Energy Is Big on Paris

President Donald Trump is scheduled to meet this Friday with the leaders of the G7 nations in Italy. On everyone's mind will be the uncertain fate of the international climate agreement forged in Paris, which Trump has said he would abandon.

The Paris agreement is a pledge signed by 195 countries to reduce carbon emissions worldwide and slow the pace of climate change. Under the Obama administration, the U.S. joined in, pledging a big cut in our carbon footprint, which makes up 12 percent of the global total. Not surprisingly, then-candidate Trump announced opposition to the agreement, arguing that climate protection is anti-business and anti-jobs.

Then an amazing thing happened. Major companies stepped forward to support the agreement, and they urged Trump to keep America engaged. (Trump has said he would decide by the G7 conference, which starts this week, whether the U.S. stays or goes.) Technology giants were prominent: Apple, Adobe, Facebook, Google and Microsoft lent their name to full page advertisements in major newspapers. Major consumer products and retailing giants like General Mills, Unilver and Walmart joined in. Hundreds of small and mid-sized companies joined, coordinated by Ceres, American Sustainable Business Council and others. And most importantly, major energy companies participated, including Chevron, ExxonMobil, BP, Royal Dutch Shell, Cloud Peak Energy Inc., Arch Coal and Peabody Energy Corp.

The support of the fossil fuel industry is crucial to the future of climate protection. It is essential to counter the Koch Brothers and others who lobby intensively against climate protection efforts.

So why is the energy industry finally getting on board with climate protection? A small part of this probably reflects genuine civic-mindedness and a view toward posterity. What do you say when your granddaughter climbs on your knee, looks you in the eye and says "Grandpa, what did you do when there was still time to save the planet?"

A much larger reason for the energy industry's support is simply self-interest. Energy companies recognize the growing consensus and unstoppable momentum – scientific evidence, public opinion and political will – on the side of climate protection.

Here are seven reasons that smart companies find it in their interest to keep the U.S. in the Paris accord.

Regardless of what the U.S. does, most of the world will continue shifting towards a low carbon economy. Most countries will fulfill the pledges they made in Paris to cut carbon emissions, or they will raise the price of carbon and let market influences do the work. China leads the way and has already taken over big chunks of the renewable energy industry. Businesses worldwide are using less energy in their operations, and they are producing energy more efficiently. U.S. firms that don't follow suit will lose ground to international competition.

Corporate leaders know that they are better off keeping a seat at the table where future decisions on carbon are going to be made, rather than walking away. Simply put, if you're not at the table, you're on the menu. U.S. businesses don't want to be on the menu when (for example) global emissions caps will be tightened, carbon taxes will be imposed and trade rules will be established.

Big energy companies want stability in regulations more than anything else. Stability and predictability matter because it takes billions to finance megaprojects like refineries and liquefied natural gas, or LNG, ports – and these facilities have an economic lifetime of 50 to 100 years. The biggest business risk for energy giants is to plow money into projects like these and then see the investments become worthless when rules change. It's worth it for them to negotiate rules with which they can live.

Many energy giants – like Exxon and BP – actually benefit from carbon caps. That's because these companies have shifted heavily towards natural gas (produced by fracking) and depend less on oil and not at all on coal. Natural gas has become much less expensive than coal, and at the same time it releases only about a third as much carbon emissions for the power generated. As a result, most energy companies simply don't have a business need to defend coal. A climate policy that put a price on carbon provides a competitive advantage to companies that have invested heavily in natural gas.

Energy companies want to maintain a positive image among consumers and investors who care about climate. They don't want pressure from the widespread carbon divestment campaigns, and they don't want to alienate consumers who have become more enlightened about their energy choices.

Energy companies understand they face risk to their share price. Investment analysts now downgrade energy companies that lack a clear strategy for a less carbon-intensive future. These companies need to show the investors that they have a strategy in place, and they are serious about implementing it.

Finally, and cynically, there's little real downside, even for a company that tends to keep pumping out carbon. Under the Paris accord, each country sets goals for emissions reduction, and makes plans to achieve those goals. But there is no mechanism to force a country to achieve its goals, or to punish a country that falls short. And there is no mechanism to force any individual company within a given country to take action. A business can publicly support the Paris accord, even as it lobbies Congress and state legislatures to weaken the goals, undermine the limits and delay the implementation.

Each business has its own reason for supporting the Paris climate accord, and the reasons range from highly altruistic to deeply cynical. But regardless of the reason, the result will likely keep the U.S. in the pact. That will slow the rollback of climate protections under the Trump administration – and put us in a better position to make progress when cooler heads prevail.

David Brodwin is a co-founder and board member of American Sustainable Business Council. This blog is adapted from a column recently published in U.S. News & World Report May 24, 2017.