Governments and commentators around the world united to complain when President Trump announced he was pulling the US out of the Paris Accord on climate change. Many expressed fears of what this would do to future temperatures.
The US united the world against its stance. Many commentators forecast a loss of US influence and argued the US would no longer lead in renewables and alternative energy. Despite this share markets took it in their stride, and went on to new highs. Should we be concerned? Why did President Trump decide to take the US out of something the rest of the world’s governments are so keen on?
The Paris Agreement was hard won in 2015. It sought to agree a series of voluntary targets to reduce overall carbon dioxide emissions from human processes. It established a fund for the richer countries to help pay for renewable energy projects in poorer countries, the Green Climate Fund.
The advanced countries offered general statements of intent to make very substantial cash transfers to the emerging world to help them with their transition to greener energy and associated development, whilst allowing the emerging countries more latitude to continue to increase their greenhouse gas emissions as they grow. They also made various offers of further reductions in their own carbon dioxide emissions, through plans for more renewable and nuclear energy combined with more energy saving in homes, transport and business.
The President in contrast sees the Paris Accord as a “massive redistribution of US wealth to other countries. It is to give their country an economic edge over the US”. He doesn’t think other advanced countries are paying their way, leaving too much for the US to do.
He made a plea to put Pittsburgh people above Paris, referring to a US city famed for its coal, iron and steel. He argued that the Paris Agreement did not do much to curb greenhouse emissions anyway. He said “the Agreement doesn’t eliminate coal jobs, it just transfers those jobs out of America and ships them to foreign countries.”
His green critique included his assertion that the US expected emissions reductions by 2030 would be wiped out by just 14 days of Chinese emissions, which continue to rise. The US has cut carbon dioxide emissions by 18 per cent between 2000 and 2014 according to their Environment Protection Agency. India, he argued would double its coal industry by 2020 whilst the US closed its down. He cited a study by National Economic Research Associates that forecasts an 86 per cent decline in US coal and a 38 per cent loss of iron and steel by 2040 on unchanged policies.
So, President Trump wants to save and grow domestic coal, oil and gas jobs in the US by not accepting the voluntary targets of Paris. He may anticipate more reductions in US emissions anyway, as the US gets smarter with its energy and more fuel efficient in transport and production. He will not stop all the renewable jobs and growth already happening, but may stimulate more carbon based energy output.
His decisions to back the Keystone XL and Dakota Access pipelines, and his enthusiasm for shale oil and gas seems to be helping an increase in the rig count and a further expansion of output. There are also some new coal mines for metallurgical coal opening up in Wyoming, Alabama, Pennsylvania and West Virginia as he hoped.
Markets decided that the climate worries they have are longer term, whilst the immediate impact on the US economy is moderately positive, with more jobs likely in carbon-based energy forms. President Trump’s belief in US conventional energy is providing some counterblast to Opec’s wish to hike the price.
Europeans concerned about carbon dioxide emissions quite like dearer Opec energy to harness the price system to the task of cutting use even though higher oil prices boost inflation and cut real incomes. President Trump prefers cheaper energy to power more growth. The markets are left in a dilemma, liking the short term effects of President Trump whilst worrying about the longer term issues. They do not agree with the President when he says all the effort at Paris might make just 0.2 degrees difference in due course, so why bother. They still end up boosting the US share market as the economic recovery continues.
John Redwood is Charles Stanley’s chief global strategist