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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.