The strategic consequences behind Trump’s Paris Agreement decision
To begin with, the decisions facing the Trump administration over the Paris Climate Agreement are not as simple as they are often portrayed. The administration has essentially four options: (1) stay in the Agreement and leave the commitments and domestic policy architecture meant to achieve them unchanged, (2) stay in the Agreement but revise or eliminate the US commitments and domestic concomitant policy architecture, (3) initiate the process to withdraw from the Agreement – a process that takes four years from initiation, or (4) withdraw from the UN Framework Convention on Climate Change (UNFCCC), the umbrella body under which the Paris Agreement is housed.
The latter option would take effect immediately and would by extension automatically nullify US participation in the Paris Agreement, but would carry a more severe diplomatic fallout. It would leave the US with very little leverage to shape any multilateral climate efforts, Paris Agreement or otherwise. The administration is unlikely to bear such costs for minimal, if any, gains. The first option is no longer practicable, as the administration’s dismantling of a suite of Obama-era climate policies is already underway.
This leaves the second and third options. The political winds in Washington appeared to be pointing to the Trump administration embracing some form of the second option – stay in the Paris Agreement but revise downwards US targets, or simply treat them as irrelevant as the administration pushes ahead with its domestic policy agenda. The administration’s decision was to be made at a highly-anticipated meeting on April 18th that pitched the Paris Agreement’s most significant detractors – Senior Advisor Steve Bannon and Environmental Protection Agency Administrator Scott Pruitt – with those who were thought to be open to remaining in the Agreement – a group that includes Secretary of State Rex Tillerson, National Security Advisor H.R. McMaster, and National Economic Council Director Gary Cohn.
The meeting was suddenly canceled that morning due to apparent scheduling conflicts, adding to the uncertainty over to the new timing and political context for the decision. The administration has repeatedly indicated that it would like the matter to be settled prior to the G7 Summit in Italy in late May, where it can expect to be pressed hard over its climate policy intentions, given that only two years prior the group of industrialized nations sent a strong message in calling for a complete decarbonization of the global economy by the end of the century.
Before pulling the cord on the Paris Agreement, however, the Trump administration should weigh the strategic dimensions of such a decision, particularly those with long-lived and perhaps non-intuitive consequences.
Enhancing a “climate trade war”
First, it increases US exposure to losses from prospective “green protectionism” or “green industrial policy” on the part of its trading partners. Former French President Nicolas Sarkozy, during his failed campaign to return to l’Elysée, threatened to impose a carbon border tax on all US goods entering the EU should the US withdraw from the Paris Agreement. Similar serious, less political proposals for how a sort of “climate trade war” could arise have also been made by a number of leading economists.
The idea took hold only a few years ago as a very economic debate, but could quickly catch fire amid the dry tinder of rising protectionist sentiment and a United States that is perceived to be retreating on climate. The US could quickly find many of its major trading partners – from Canada to China to the EU – with some form of carbon price, giving them leverage and reason to use it. For the US, the question then becomes: if one’s goods are to be taxed for their carbon content regardless, why not capture that revenue domestically rather than sending it abroad?
Giving China an(other) opportunity
Second, it will likely enhance China’s geoeconomic leverage vis-à-vis its new vintage of development and financial institutions. The Asian Infrastructure Investment Bank (AIIB), the New Development Bank (“BRICS Bank”), the Silk Road Fund, and the broader “One Belt, One Road” strategy are all China-backed initiatives to promote the export of the country’s spare capacity and capital while simultaneously shaping the contours of international economic governance. Some of these efforts have been given an environmental mandate, as well, with the inaugural head of the AIIB, Jin Liqun, declaring that it will be “lean, clean and green.”
With the United States unlikely to allocate any additional capital during the Trump administration to meet its commitments to the multilateral Green Climate Fund (GCF), China is likely to sense an opportunity. On the one hand, Beijing’s rhetoric can be expected to continue emphasizing the importance of the GCF and bemoaning the lack of follow-through on the part of the United States. In private, however, Chinese leadership is acutely aware of the GCF’s torpid trajectory, owing to not only a stingy American government but also a cumbersome and overly-political GCF design. China will quickly seek to capitalize on the vacuum with a push for so-called “South-South” aid and investment flows from China to other developing and least-developed countries. These investments, unlike those channeled through the legacy institutions such as the World Bank, IMF, or Western development agencies, are also likely to come with fewer strings attached in the way of commitments to governance or human rights.
While some have dismissed the GCF as an “international climate change slush fund”, they may reconsider such a stance if abandoning, rather than reforming, the institution simply clears the path for Chinese capital, technology and standards to proliferate from Sub-Saharan Africa to Southeast Asia. This risk is heightened when considered in the context of the Trump administration’s withdrawal from the Trans-Pacific Partnership in January, a decision that has undermined US credibility in the Pacific Rim and increased the likelihood of a China-led alternative free trade zone filling the void.
Escaping from reality
Third, the transition to a clean energy future is not a hypothesized future, but a partially-realized reality. 2016 was a banner year for clean energy investment, and clean energy captured more than half (55%) of total global energy investment. The costs of renewable energy technologies such as solar and wind continue to decline more dependably – even if for evolving reasons – than those for conventional energy, such as coal, gas and oil. The energy transition, moreover, is not only driven by the urgent – if at times frustratingly abstract – global climate challenge, but also by concerns that are far more tangible, salient, and proximate to the primary concerns of the world’s great powers.
China, for example, has seen local air quality rise to the top of Party leaders’ agendas as severe air pollution has gripped many of the country’s largest cities. China’s pivot away from coal to cleaner energy sources is at least as motivated by concerns over the legitimacy of its local environmental governance as it is by climate change, even if there are great synergies to be had in addressing their nexus.
Separately, much of the China’s moves to diversify away from oil’s monopoly in the transport sector via electric vehicle incentives and public transit investments can be explained by an ever-increasing reliance on oil imports. China recently topped the United States as the world’s largest crude oil importer, and with more than 55% of these imports coming from the OPEC cartel, it finds its energy security increasingly at the will of a small group of oil producers and an even smaller set of vulnerable oil supply routes. Against this backdrop, massive investments by the Middle Kingdom in new energy and transport technologies will undoubtedly continue.
Ignoring fundamental sub-national actors
Finally, California and other sub-national actors will also press ahead with ambitious climate action, regardless of what emerges from Washington. California represents the largest economy and second largest greenhouse gas emitter among all 50 US states, and is also the fourth largest producer of oil and fifth largest producer of electricity. If the state were a sovereign country, it would represent the sixth largest economy in the world, approximately on par with France.
California’s carbon market recently survived a consequential legal challenge, and the state government has been engaged in an intensive process to outline the strategies that will be used to reach an ambitious 2030 greenhouse gas reduction target: a 40% reduction from 1990 levels. There will remain fertile strongholds of climate progress even if much of the Federal policy landscape is left to lie fallow.
Importantly, sub-national actors are also maturing in their diplomatic capabilities and sophistication, and are increasingly engaging in various bilateral and plurilateral coalitions that cut across cities, states and firms. “C40”, for example, began as a group of 40 megacities committed to improving their environmental accounting and promulgating new and innovative policies, and has since grown to a network of more than 90 affiliated cities of various sizes and commitment levels across 20 time zones and 26 languages.
California is also working on a number of bilateral initiatives related to carbon pricing, including a linkage between carbon markets in California and Quebec, along with extensive technical and political engagement with China over its planned carbon market, one that would immediately become larger than all other extant carbon markets in the world combined. Although formal climate negotiations are most often conducted by the highest political unit, be it the US government or the European Commission, powerful actors below them – from California to Germany – have a more fertile opportunity than ever to “lead from between” in the years ahead.
Joining these sub-national actors are an ever-growing coalition of business leaders, including many Fortune 500 CEOs, who have called for the United States to stay in the Paris accord. For the corporate world, the long-term viability of the societies and markets that they serve is of course threatened by the prospect of worsening climate disruption, but even more immediately the credibility of the United States as an international actor is at stake. These executives live in worlds dominated by facts and pragmatism, rather than rhetoric and ideology. Boards and shareholders are looking for transparent, long-lived, and consistent policy action in the face of climate change, not ambiguity and volatility.
There is understandably a desire among recently-elected administrations to provide “red-meat” to some of the core constituencies that were responsible for their ascent to power. Indeed, by the time that G7 leaders gather in Sicily to address a long list of pressing global challenges, the Paris Agreement may very well have been sacrificed to the proverbial lions. But it would behoove the administration to reflect upon the strategic risks, both immediate and derivative, that a withdrawal from the Paris Agreement – or worse, the UNFCCC – would engender. A surprisingly small number of Congressional Republicans are willing to put their names behind a full Paris withdrawal, while an ever-growing list of Republicans is joining the Climate Solutions Caucus in Congress or backing public calls for a carbon price in the economy.
Perhaps there is indeed hope that prudence will trump politics when it comes to these most consequential of decisions.