The Price of Quitting the Paris Agreement
An energy-intensive industrial coalition spent tens of millions of dollars to ensure the United States’ withdrawal from the Paris climate agreement. The Competitive Enterprise Institute, the American Energy Alliance, the Heartland Institute, Americans for Prosperity and forty other free-market think tanks that signed an open letter urging Donald Trump to pull out were bankrolled by, among others, ExxonMobil and the Koch Brothers, the Kansas-based billionaires who control refineries and pipelines that process 600,000 barrels of crude oil a day.
James Inhofe, Mitch McConnell, and the twenty other Republican Senators that addressed a similar letter to Trump together received more than $10 million from the fossil fuel industry during the last three election cycles. Troves of additional contributions were given through third-party super PACs. If, as a recent study concluded, it takes about $100,000 to increase the chances by 25 to 40 per cent that a member of Congress will change their position on a regulatory issue, then the fossil fuel industry has its bases covered.
The EU and China have jointly pledged to fill the vacuum of US influence. It’s a welcome development, but it will be important to distinguish concerted action from sanctimonious posturing. The EU cap-and-trade system – which has crashed three times, handed billions of euros to Europe’s largest energy companies and produced a low, unstable carbon price – was a chummy compromise with industry leaders who fought against a simpler and more transparent carbon tax in the mid-1990s. The EU’s 2050 emissions target requires as yet unproven ‘negative emissions’ and carbon-capture technologies, in the absence of an expeditious shift to low-carbon transport and the wholesale retrofitting of buildings. The UK and Germany are subsidising coal plants to remain open while reneging on renewables investments; Japan is opening up to 45 new coal plants; and uncertainty about China’s future economic growth could destabilise its venture into emissions trading.
The Paris Agreement took the path of least resistance (and no country fought harder than the US to ensure it was an agreement rather than a treaty). For the sake of inclusiveness after the shortcomings of the Kyoto Protocol and the failure at Copenhagen, the agreement leaves nations to their own devices when determining their non-binding commitments, which currently fall well short of mitigating the worst risks of climate change. There are strong transparency rules, but weak compliance rules. Lots of talk about responsibility, but nothing of liability. Article 4.3 states that countries must commit every five years to ever greater ‘nationally determined contributions’. But this is wishful thinking. Russia, for example, the world’s fourth biggest emitter, has offered little beyond periodic reminders that emissions fell precipitously after the collapse of the Soviet Union. It seems likely that Putin and Trump will revive the $500 billion Arctic oil development project that was temporarily cancelled because of sanctions enacted under Obama.
There is hope that the federal government can be bypassed. The governors of New York, California and Washington have formed a multi-state coalition – the ‘United States Climate Alliance’ – and more than 60 cities have formed the ‘Mayors National Climate Agenda’. Michael Bloomberg has pledged $15 million to UN climate coffers, and there are plans to form a coalition of US companies and states making ‘parallel’ pledges under the Paris Agreement. I look forward to the governors, mayors and CEOs arriving at the next UN climate meeting in Bonn with their pledges in hand and a swagger for the cameras. But the same issue arises of distinguishing concerted action from sententious platitudes. The UN meetings are not designed for monitoring compliance.
James Baker III, Henry Paulson, George Shultz and other Republican elders have put forward a ‘conservative case’ for a carbon tax with all revenues distributed back to citizens as dividends. The proposal includes a ‘border adjustment’ duty on imports from countries that do not price emissions, so US companies wouldn’t be at a competitive disadvantage. The authors had hoped the plan would appeal to Trump’s mercantalist and protectionist bent. They perhaps didn’t anticipate the same logic might be used against the US. Were the EU to apply an average carbon tariff of $50 per tonne of CO2 on US goods, it would raise more than $14 billion dollars a year, or 14 times the amount the US has contributed so far to the UN Green Climate Fund. The move would supply Trump’s nativist base with isolationist ammunition. But if it helped to defeat the president on 3 November 2020 – the day before the US is legally able to finalise the Paris withdrawal – then the US could conceivably rejoin the agreement. And if it costs $100,000 to change the average congressman’s mind, $14 billion will do.