The economic and diplomatic consequences of Trump’s Paris withdrawal

The economic and diplomatic consequences of Trump’s Paris withdrawal

By Luke Vargas   
Published
President Donald Trump announces the U.S. withdrawal from the Paris Agreement on climate change during a Rose Garden ceremony on June 1, 2017. (Courtesy: White House)

“Wake” is a weekly foreign policy broadcast produced by Talk Media News and hosted by Luke Vargas from our studio at U.N. Headquarters in New York.

The following is a complete transcript of Episode Nine, “Climate Shocks: Economics & Diplomacy.”

Subscribe to weekly episodes of “Wake” on iTunes or Google Play, and follow the broadcast on Twitter @WakeOnAir.

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Luke Vargas: The scientific consensus is that climate change will wreak havoc on the planet if left unchecked. That’s why more than 190 countries signed on to the Paris Agreement. President Trump’s pullout from Paris is one sign the U.S. administration thinks it can dodge the issue of climate change and isolate itself from a changing planet.

But other countries are taking the risk of climate change a lot more seriously. What do they know that the Trump administration does not, and how might that hurt America?

We’re taking on those questions next on Wake.

Thanks for tuning. We’re coming to you from U.N. headquarters in New York for the first of a two-party look at Climate Shocks: How the U.S. will be affected by climate politics and by climate change itself.

This week, we’re focusing on financial risks and the risks to American diplomacy and America’s global sphere of influence that could accompany Trump’s withdrawal from the Paris agreement.

And we begin in Beijing, with two experts from Wood Mackenzie, the giant energy analysis firm. Frank Yu is Wood Mackenzie’s Principal Consultant for Asia Pacific Power and Renewables.

And Paul McConnell is the research director for Wood Mackenzie’s Global Trends Team.

Luke Vargas: Frank and Paul, welcome to the show.

Frank Yu: Thank you.

Paul McConnell: Luke, thank you for having me.

Luke Vargas: Frank, I’ll put it to you simply. As the United States walks away from a leadership role in global climate affairs. Which countries stand to benefit the most?

Frank Yu: Well, I think China may be, politically, is the country that could be the best beneficiary of this move.

China is going to kick off its nationwide carbon trading market this year, and China is hoping to play a bigger role in international economic and climate affairs. So this actually gives China a better opportunity to become a leader, to organize, to have much more of a say in global climate affairs and in climate talks.

Luke Vargas: What does leadership in global climate talks look like going forward? Is it merely financial, about being taken seriously in the marketplace and selling renewable technologies around the world? Or is China going to derive other benefits from being seen as the biggest emitter in the world that also takes the threat of climate change seriously?

Frank Yu: Well I believe that the role China plays is more like cooperation with other countries. So you see that China raised the One Belt, One Road initiative and also set up the Silk Road Fund and other [initiatives] like the [Asian Infrastructure Investment Bank] in order to finance infrastructure and energy products in Asia, and in Africa and in Europe.

So this actually gives China more opportunity to lead this effort, to help to promote technological transfer, cooperation on low-carbon technology and also research and development in renewable technologies in China.

I believe that this will be like a good thing for the global community, to move faster into a low-carbon economy.

Luke Vargas: Paul, what about that? Frank mentions that China is also embarking upon these transformative economic projects like the Silk Road Initiative, which is seeing them pour billions of dollars into upgrading infrastructure across Asia and linking together as many as 60 economies.

Is the Chinese calculus, is taking on climate change a demonstration to the world that the country isn’t afraid to take on big projects, while the U.S., for example, can’t even pass an infrastructure bill?

Paul McConnell: Yeah, it’s clear that China is using this to cement its role as a leader on the world stage.

Now if you think from a climate perspective back where we were maybe 15 or 20 years ago, China didn’t often engage. Now we’ve got a complete turnaround coming into the Paris climate talks. And I think this event here, the U.S. pulling away from Paris, just gives China that extra momentum, that extra reinforcement of this new position.

And building on that international cooperation like Frank says, enabling infrastructure, I mean, China after all has got more solar power manufacturing capability than the rest of the world put together, and we do see a drive toward lower-carbon growth in other emerging markets, as well as in the West.

So it’s definitely an opportunity here for China. And the world is moving toward a lower carbon-based growth quite naturally, not to say that it will be there anytime soon, but that is the way we see things going, so there is certainly an opportunity here.

Luke Vargas: Paul, you mention the tremendous domestic market in China for things like solar panels, which paired with government subsidies, should keep Chinese renewable companies profitable for some time. But beyond that, how are American companies trying to build solar panels or wind turbines affected by Trump’s pullout from Paris? Are there clear predictions you can make in that regard?

Paul McConnell: I don’t know if there is a direct causation. Certainly it’s been a tough time for manufacturers, on the solar side specifically, over the last few years, but that’s really because costs have come down so far and so fast that it’s been very difficult to compete.

You see companies in the U.S. really just struggling in the face of Chinese competition. I don’t think the Paris decision will change that. And in Europe, there’s a similar story.

I think the benefits really come from being able to install capacity at a low cost. It’s not really a great story for manufacturers in Europe or the U.S.

Luke Vargas: Frank, Paul mentions the advantage China has over Europe and the U.S. it terms of installing solar energy capacity at a low cost. What are those costs?

Frank Yu: In terms of solar renewables, China has supplied more than 50 percent of global solar panels per year. Really China has a very strong manufacturing value chain in China, and also in Vietnam and Indonesia, in other Asian countries. And we have seen that solar panel costs have gone down by 80 percent in the past around 10 years. And just this year the cost is down another 30 percent compared with last year.

So we see the Chinese manufacturing capabilities really pushing down solar panel costs. And then countries like India, Vietnam, United Arab Emirates and Saudi Arabia are going to benefit from this. We have seen the auction power price has been as low as $.04 per Kilowatt hour in India, and we also see very low prices in other countries.

So this will be definitely pushing the penetration of solar energy in the energy mix in China and also in the rest of Asia.

French President Emmanuel Macron has created a website to attract American climate scientists and engineers to France.
French President Emmanuel Macron has created a website to attract American climate scientists and engineers to France.

Luke Vargas: Finally, in the wake of Trump’s announcement, we’ve seen other world leaders trying to fill the void. French President Macron gave a big speech in English telling American climate scientists and engineers to come to France. Both of you are on the ground there in China.

What is the government and business community there saying? Are they trying to attract scientific talent, too? Do they want “green” U.S. companies to relocate there? Or is this a victory they don’t want to share? Paul?

Paul McConnell: I’m here on the ground but I’m not a native to Beijing, and often we hear in the West about the pollution issues. And they are real here. It’s not too bad today, but pollution was pretty bad earlier in the week.

And we’ve heard from some of our contacts here that the Chinese are very concerned about the problem and they recognize that they need to something about that. Now, part of that will be to move away from coal and move toward cleaner energy, and we think those things will happen anyway.

So what I think the Trump position does is it really allows China to make some capital out of something that was going to happen anyway. That’s my read of the situation.

Courtesy: Governor Jerry Brown
Courtesy: Governor Jerry Brown

Luke Vargas: Frank, any final thoughts?

Frank Yu: On the Trump pullout of the Paris, we believe that it’s not going to have a major disruption to the current international cooperation on carbon mitigation. Many in the United States formed a green alliance, and the mayors of major cities they have [pledged to] uphold the commitment to cut carbon emissions.

And the Governor of California [Jerry Brown] has just set off to China to meet the Chinese leader in order to work better with each other to push low-carbon technology like EV into California.

So I believe this event is not really going to change the way we see the low-carbon transition into the future. So in some sense it’s going to provide more opportunities for the early adopters who are prepared to invest more into the future.

Luke Vargas: From Beijing tonight, Frank Yu and Paul McConnell at Wood Mackenzie, thank you both.

Frank Yu: Thank you very much.

Paul McConnell: Thank you.

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Luke Vargas: Before we move on I want to share a few thoughts about what Frank and Paul had to say.

I think there’s a tendency to see President Trump, the way he’s disrupting political norms, and then to buy into his brand in a way, to impart a power onto some of his decisions which really aren’t decisive or powerful.

After listening to Frank and Paul, it sounds like Trump’s decision to leave the Paris agreement isn’t going to derail the global transition to a low-carbon future. China was already shifting away from coal and toward renewables, and pulling out of Paris agreement just gives them more market share to take over.

Trump says the world is going to take America seriously again with his decision, that they’ll no longer be laughing at us because the Paris Agreement was so tipped against us. But it seems like the main impacts of his pullout are that U.S. businesses will be less competitive in the industries of the future, and that our adversaries have a clearer lane to expand their spheres of influence.

Instead of dramatically reshaping the world, maybe Trump is just taking a seat and watching history pass him by.

To weigh in on that and other topics in Nate Aden, a research fellow at the World Resources Institute who’s in Stockholm tonight. Nate, welcome to the program.

Nate Aden: Glad to be here.

Luke Vargas: And also on the line, from the Brookings Institution in Washington is Samantha Gross, fellow at the Cross-Brookings Initiative on Energy and Climate, and formerly a climate and clean energy official at the Department of Energy. Samantha, thank you for joining us.

Samantha Gross: Thank you for having me.

Luke Vargas: Samantha, I recently saw a news cartoon from Australia, in which there are a bunch of chairs around a table adorned with flags, for France, the UK, Australia. There’s a sign on the table that says Paris Climate Accord. And then there’s a high-chair for a baby, and it’s got the American flag on it.

Is that how the U.S. pull-out is being seen? That Trump is childish, that he’s shooting himself in the foot, and that he can’t be taken seriously after this?

Samantha Gross: I think there is some truth to the United States with the high chair next to it. But I think it’s important to point out a couple of things about how the deal was negotiated. The U.S. really pushed for flexibility in the Paris Agreement. It’s a non-binding agreement in which each country proposed their own goals, and this flexibility really allowed the agreement to go forward and be accepted by nearly every country.

But after being a proponent of this flexibility, it’s a real finger in the eye of our allies for us to pull out.

And one other thing thing that’s really unfortunate about the speech that happened when we pulled out, is that it brought back some arguments that the Paris process had largely set aside in order to reach agreement, old arguments about responsibility and developed versus developing world.

Trump’s speech revisited these with comments about China still being able to increase its emissions and build coal plants, for example.

So I hope that Trump’s withdrawal and his speech last week doesn’t bring the world’s focus backwards, and focusing on things that the world largely got past during the Paris agreement. I hope we can continue to focus on how to achieve a low-carbon economy instead of getting wrapped about the axle on the details of the agreement.

Luke Vargas: Samantha, what other elements of U.S. diplomacy do you think could be complicated by the Paris pullout? Could there be fallout here that extends to other issues?

Samantha Gross: Well when you think about the consequences of President Trump withdrawing from Paris you have to remember that our allies are largely democracies with elected leaders. And this action could make it more politically difficult for our allies to cooperate with us.

You picture the possibility of leaders potentially facing backlash from their voters for cooperating with a U.S. leader that they dislike and that they don’t trust.

Cooperation that’s clearly in both party’s best interest – things like counterterrorism cooperation – those will likely continue. But on less urgent issues – things like trade, travel, information sharing – our allies may be less inclined to cooperate with this administration.

And I don’t we’ll ever really see or understand the full fallout, it’s just another facet of this administration’s dislike of multilateralism and international agreement.

Luke Vargas: Nate, Frank Yu mentioned that U.S. states and companies have been pledging their support for the Paris agreement in recent days. To what extent can they help to effectively keep the U.S. “within” the Paris Agreement, even if Trump officially pulls us out? Is there a silver lining here?

A selection of signatories of the We Are Still In climate action pledge.
A selection of signatories of the We Are Still In climate action pledge.

Nate Aden: Yeah, I’d say that there is. Certainly hundreds of U.S. companies have been acting. So there’s the U.S. Climate Alliance, there’s the “We Are Still In” group, and these companies are really what are determining U.S. greenhouse gas emissions, not the administration or anyone else in Washington.

This is not a political decision, this is the environmental impact of our economy.

If you look at U.S. emissions, they actually peaked back in 2007 and they have been been dropping intermittently since then.

Last year. U.S. greenhouse gas emissions were at their lowest point in 25 years. That wasn’t a political decision, that wasn’t due to any White House memo. That was due to changes in the economy that are way beyond any presidential statement or Tweet or anything else. They’re due to large energy shifts in terms of shifting away from coal to natural gas, to renewable energy,  more efficiency – so for example household electricity use is way down now. It’s not because households are being deprived, it’s that they’re using using LED lights, for example, which use much less electricity than conventional lights.

So this idea that the administration is going to reduce these multi-decade trends is not founded in reality.

I would agree with Samantha that this is a very detrimental gesture. It’s part of this administration’s general abdication of moral and political leadership internationally, and it will have implications. But it will not be able to reduce U.S. company efforts to address climate change in the short-run.

The long-term impacts remain to be seen, and they may be significant.

But, for example, last year we had nine percent growth in renewable energy capacity globally. It’s more than 2,000 gigawatts now of global renewable electricity generation capacity. It’s growing very fast, and that train has left the station, regardless of what anyone in any government in the world says, including in Washington.

I would say that this gesture, probably the most immediate impact is a decentralization of U.S. climate policy, in the sense that it’s moving it from discussion in Washington to discussion in state and city and business networks, where, really, that’s where the rubber meets the road, that’s where emissions decisions are happening.

And that’s been happening for years, but this is sort of a political reflection of that decentralization. It’s also happening internationally. The earlier conversation mentioned Governor Brown from California visiting China. It was very unusual, in that China actually signed a memorandum of understanding with California directly. That’s a sign of the times.

It’s no longer just about national capitals, it’s about other networks and decentralization becoming more and more important. And so I’d say that’s sort of the story here, rather than one person exhibitng what one commentator called a “vacuous political melodrama.”

California Governor Jerry Brown meets with Chinese President Xi Jinping in Beijing.
California Governor Jerry Brown meets with Chinese President Xi Jinping in Beijing.

Luke Vargas: Nate, I guess I’m heartened to hear that, at least in your eyes, the emissions curve isn’t going to be affected solely by President Trump’s decision making. But that maybe isn’t a comfort for American corporations which – and this is not evidence of their evil intentions – but they want to make money off of the transition to the economy and the energy infrastructure of the future.

Are they nervous that their brands are going to be damaged in the global marketplace because of the policies undertaken by leadership in Washington?

Nate Aden: Certainly. You had more than a thousand U.S. companies sign up and publicly urge the administration to remain in the Paris Agreement before the decision was announced, and that was the low-carbon U.S.A. Initiative.

And then the moment that this announcement went through you had two very high-profile U.S. companies immediately announce their disappointment with the decision. Jeff Immelt, the CEO from General Electric, was one of the first CEO’s to announce this – obviously an iconic U.S. company.

And then actually you had the CEO from Goldman Sachs, Lloyd Blankfein, actually provide his first Tweet ever – this drove him to join Twitter and have his first Tweet ever, to say that: “Today’s decision is a setback for the environment and for the U.S.’s leadership position in the world.”

Obviously these are two high-profile companies. I would say, though, that these Tweets and this entire episode are also indicative of another aspect here, which is that climate policy and climate change has really been focusing on the environment and on impacts on countries and countries’ economies, but it’s clear from all of this dialog and the things that have happened in the U.S. over the last several months that we really need to look at the human impacts of climate change. That there’s a lot of anxiety about how this is affecting people’s livelihoods and taking away people’s opportunities, in terms of how we address climate change.

So there’s a very clear need to really look at the day-to-day human, and the impacts on everyone of climate change and climate policy.

The U.S. is the only country in the world where climate change is a partisan issue. In other countries it’s like asking them: Is the sky blue? Is the earth round? It’s not a partisan issue.

But here in the U.S. it’s become this very divisive, partisan issue. And so there’s a need to move beyond that, and I think part of the key to that is focusing on the people aspect of this.

Luke Vargas: Samantha, there’s a part of the Paris deal called the Green Climate Fund. The idea is to help spur something called technology transfer – that is, to help poor countries to acquire green technology quicker than their budgets might otherwise allow them to. Listening to Trump talk about the Green Climate Fund, he makes it sound like flushing money down the toilet. What do you make of Trump’s argument? How are other countries viewing the Green Climate Fund?

Samantha Gross: When we speak about the Green Climate Fund, an important part to start with is that President Trump made several misleading statements in his Rose Garden talk last week. His statements about billions and billions of dollars and nobody else was even close, are quite misleading.

The U.S. pledged $3 billion to the Green Climate Fund and has already contributed $1 billion of that.

In terms of other countries’ contributions, the U.S. is the largest absolute contributor, at least in terms of pledges, but we’re actually much further down the list on a per-person or per-unit of GDP basis. We come out on top because we’re a very large and very wealthy country.

A selection of projects supported by the Green Climate Fund.
A selection of projects supported by the Green Climate Fund.

The Green Climate Fund is just one mechanism to help developing countries reduce greenhouse gas emissions and also adapt to a changing climate. There’s a much larger amount of private sector investment that’s also happening.

And the Green Climate Fund projects, they’re transparent, you can go to the website and see what projects are underway and look at their budget. The Green Climate Fund works with the private sector to leverage its funds on some projects. It’s a very good mechanism, but it’s certainly not the only one.

As far as other countries’ participation, there are many countries that have pledged and donated funds. The secretariat is in place in South Korea; it’s a serious organization taking on a serious issue. I completely disagree with his comments about throwing money away.

Luke Vargas: Nate, bear with me here. The U.S. sometimes gives these big military assistance packages to other countries – like Israel, for example –  and we don’t this as throwing money away, because while another country gets the cash, it’s U.S. companies that win the contracts. If he wanted to, couldn’t Trump see the Green Climate Fund in such a strategic light?

Nate Aden: Yeah, I think that it is a strategic investment in the sense that the U.S. benefits from other countries’ growth, and that’s been part of the story of U.S. success. We helped the rest of the world to recover after World War II and subsequent conflicts, and that has really been part of the foundation of the U.S. international leadership that’s been abandoned.

I think, though, with the Green Climate Fund, it’s not as simple as just the U.S. spending money and then having that go to U.S. companies. It’s also about moral and political leadership and really the existential threat that climate change poses to many countries.

This is very real. For a lot of Americans it’s kind of abstract. It might mean, you know, some warmer days sometimes, but for some countries such as Fiji, which is hosting the next climate conference this year, they are looking at their country disappearing in the next few decades.

That’s going to cause massive disruption that’s going to undermine markets, it’s going to undermine the ability of countries and companies to continue to prosper the way that we have.

So I’d say that in terms of impact to U.S. companies, the largest impact is the massive uncertainty and risk that is being created by ignoring the problem and not addressing it now. It’s going to be a lot more expensive to address these problems later, and military solutions and just beefing up our military budget are not going to solve the problem. It’s not an effective solution as we’ve seen in Syria.

We need to have a multi-level approach to these issues, and ignoring the development and international finance mechanisms is going to make the problem worse and more expensive in the long-run.

Luke Vargas: Samantha, is the U.S. going to surrender our global sphere of influence – in Asia, in Latin America or Africa – when we don’t lead on climate, or use things like the Green Climate Fund to push U.S. products into other countries?

Samantha Gross: To some extent. We see this administration backing away in rhetoric, if not yet in action, from many aspects of multilateralism and spreading goodwill and influence, reconsidering things like trade agreements and alliances and our aid spending. It’s not just about climate. You see this administration backing away from Paris as part of a much larger pattern.

But specifically with respect to climate, the U.S. influence isn’t just from the federal government. As Nate spoke to earlier, many U.S. large businesses wanted to stay in the Paris agreement. They’ve been very public about their support for climate action. And U.S. cities and states mobilized very quickly to say that they still supported climate action.

And so to the extent that these businesses do business abroad and U.S. states and cities cooperate with their counterparts abroad, I think we may maintain more influence than we think.

You talk about giving to the Green Climate Fund, but there’s a lot of private investment that’s happening both in resilience products to cope with climate change, and for clean energy investment to help prevent climate. And U.S. businesses are well poised to compete for these opportunities.

And I think there’s some ability in the world to separate the U.S. nation and its businesses from the current U.S. administration, and we’ll see over time how strong that ability is among folks outside of the U.S.

But we’re certainly seeing U.S. businesses position themselves to continue to take advantage of these opportunities. And so I think our sphere of influence is harmed, but may not be quite as harmed as some of us think, just because the state’s footprint in the world is far beyond the footprint of this administration.

Luke Vargas: And a final question, first to you, Nate. I’ve seen some commentators express thankfulness that China is to step up and lead in climate climate policy. But isn’t it just about economics for them? Where is moral leadership and environmental stewardship going to come from on climate change going forward?

Nate Aden: I think there is an opportunity for China to step up and provide more international leadership here, but I would say it is more than an economic issue for China because air quality has become such an acute problem in Chinese cities

You had what’s called the “Airpocalypse” in Beijing several years ago, and now it’s a very hot political issue, where Chinese citizens were accessing the U.S. embassy and consulate Twitter feeds to see how polluted their air was because their government wasn’t telling them. It became a major political issue in China where people said, you have to tell us this information because we know it’s out there.

So the government has been forced to do it. And now they say, you have to clean up the air, this is totally wrong, you’re taking years away from our lives, you’re ruining our health and for the sake of what? So that a few cadres can get rich off their coal-fired power plants? No.

And so, this has become a huge political issue in China that the government is addressing for their own survival. So that’s definitely their core motivation here. And then there is, of course, an economic competitiveness motivation as well.

But I would liken the Silk Road Initiative and the other things that were mentioned earlier to the Monroe Doctrine that the U.S. pursued in the 19th Century. This is sort of this 21st century Monroe Doctrine for China, and it’s really about expanding their sphere of influence and gradually sort of moving out and broadening their circles, but it’s not about the kind of global leadership that the U.S. had been playing for the last 70 years.

I don’t see China stepping into that role anytime soon, so for the time being, I see there being a vacuum here. And it’s going to mean more decentralization, there’s going to be more sources of leadership, but it’s not going to be the same superpower, U.S. leading everything and defining the systems anymore.

We’re moving to a new world here and there’s a lot of uncertainty about where we’re going.

Fiji will host the 23rd Conference of Parties climate summit in Bonn, Germany in November 2017. Courtesy: UNFCCC
Fiji will host the 23rd Conference of Parties climate summit in Bonn, Germany in November 2017. Courtesy: UNFCCC

Luke Vargas: Samantha, any parting thoughts?

Samantha Gross: I would add that I’m definitely grateful that China has been very public in continuing to support the Agreement. It’s very helpful.

And I entirely agree with Nate on the local pollution issues. I’ve been in China on a bad air day and it’s pretty rough.

But there are definitely some things, some holes to fill that the U.S. has really been pushing for and it will be interesting to see who steps forward.

An important one is that the U.S. was focused on transparency and verification measures within the Paris Agreement, and to understand how countries were doing with respect to their goals. And these measures are being negotiated and put in place between now and 2020, which is during the Trump Administration.

So we’re not going to see U.S. leadership on these issues, and it will be interesting to see who steps forward to lead this, because it will be very important to a successful agreement going forward and to help countries increase ambition on their emissions goals going forward.

Luke Vargas: Samantha Gross, fellow at the Cross-Brookings Initiative on Energy and Climate, joining us from Washington tonight. Thank you so much for being with us.

Samantha Gross: Thank you.

Luke Vargas: And on the line from Stockholm, Nate Aden, research fellow at the World Resources Institute, Thank you so much as well.

Nate Aden: Thanks, Luke. My pleasure.

Luke Vargas: If you like what you just heard leave us a review on iTunes or follow the program on Twitter @WakeOnAir.

I’m Luke Vargas, signing off. Join us again next week on Wake.

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