The Road from Paris Might Lead to Lower Emissions

A television at the New York Stock Exchange shows President Trump announcing withdrawal from Paris Climate Accord June 1 2017 BRYAN R. SMITH AFPGetty Images_

Trump’s decision to withdraw from the Paris agreement has produced severe withdrawal symptoms at the New York Times and in environmentalists’ headquarters, or at least in some of them. It will hasten the day when we suffer from droughts, floods, pestilence, storms, and whatever weather phenomenon frightens you most. So say many of the president’s critics at home and abroad. Following the decision in June, The New York Times reported that the U.S. is “weakening efforts to combat global warming. … An American exit could prompt other countries to withdraw from the pact or rethink their emissions pledges.”

Both the The New York Times’ conclusions about the U.S. pullout and apocalypse-soon theory being recycled by Al Gore are, to put it mildly, more likely wrong than right. For one thing, the Paris agreement, even if implemented in full, would not have reduced emissions sufficiently to achieve the goal some scientists say is essential to prevent irreversible warming. For another, as discussed below, the agreement lacks any enforcement mechanism of consequence. If there is a Holy Grail that might cool the planet, it is not to be found in Paris.

The intensity of the battle of Paris belies its importance, both to those who fear the earth is warming, and to those who fear that climate change is a hoax, designed to extend the reach of progressive government and shackle the economy with growth-inhibiting regulations. Best in these fraught times to turn to Resources for the Future, a nonpartisan think tank that over many years I have found to be the most reliable source of what in these days might be called “real news,” or in earlier times solid research. Mark Hafstead, an economist at RFF, earned his doctorate at Stanford and B.A. in Mathematical Methods in the Social Sciences and Economics at Northwestern. His cool appraisal: “Environmental policies are generally going to create winners and losers, with some industries negatively affected, while others will gain. The magnitude of the kinds of gains or losses tend to be overstated by both sides.”

Although many Trump opponents have a knee-jerk tendency to dismiss anything he does as disastrous, in this case the president is actually serving their interests-even if he didn’t intend to. Like all policies, Trump’s policy on Paris will likely have unintended consequences, and these consequences will be quite the opposite of a weakening of the attack on emissions that his critics are predicting.

The Shortcomings of Paris (the Agreement, not the city)

After all, the Paris Agreement is unenforceable, in part because President Barack Obama dared not submit it to the Senate for ratification as a treaty; in part because there is no mechanism other than “name and shame” to assure compliance and some of the nations that signed are not notable for possessing large dollops of shame); and in part because signatories are free to amend their compliance plans whenever they find those plans inconvenient. Which some will at some point, deciding that it is better to provide today’s voters and subjects with higher incomes than future generations with cooler breezes.

The agreement, therefore, was never likely to achieve its goals. Even if it does, two problems remain. First, current commitments do not add up to a sufficient reduction in emissions to hold global warming under the 2.2° Celsius target. Second, it might prove damaging to longer-run efforts to curb emissions: some environmentalists tell me that such “success” might have the unfortunate effect of allowing policymakers to declare victory and turn to more pressing matters, of which critics such as Oren Cass have a ready list that consigns climate change to “its rightful place in the crowd,” which includes the threat of cyberattacks. So those who fear that Trump’s withdrawal from the agreement-or more precisely his initial step on the four-year long process of withdrawal prescribed in the agreement-might reflect on the possibility, perverse though it at first appears, that the president’s action is more likely to achieve the Paris goals than the agreement itself. Here’s why: it has galvanized American cities and states, other nations, and, most important, America’s private sector into action in a way that the Paris Agreement never could. If withdrawal from Paris is what Trump wants, then making certain that such withdrawal proves counterproductive is the obvious policy response for Trump’s opponents.

The Nation’s Governors and Mayors Into the Breach

After the president’s announcement, Never-Trumpers who run several American states and cities promised that they will take all measures available to adopt the Paris targets as their own. More than a few governors are following the lead of California Governor Jerry Brown, who flew to China to set up joint programs for investments in low-carbon energy sources and joint research on climate change-despite the fact that China has refused to agree to reduce its emissions, is constructing or financing the construction of some 700 coal plants around the world which in effect export its pollution, and is ruled by a regime that has published data so unreliable its own officials publicly declared much of it unusable. Those of us who would prefer market-based methods of meeting the possibility that the globe is warming take some comfort that the new partners are flirting with the introduction of at least some sort of market solution-the second-best of cap-and-trade-to the problems they believe their nations are facing.

Also much-watched is the agreement by nine states, including New York, Connecticut, and Massachusetts, to reduce power-plant greenhouse gas emissions by 30 percent in addition to the 40 percent reduction achieved since 2009. The Regional Greenhouse Gas Initiative (R.G.G.I.) involves the sale of emissions permits to utilities, and the trading of those permits among themselves. The states claim that permit sales provide funds for energy efficiency and help to low-income consumers, and that other benefits are substantial.

Not to be outdone by the states in expressing their loathing of all things Trump, hundreds of mayors adopted a resolution calling for their cities to fill the gap left by Trump’s withdrawal from the Paris Agreement. They will try to run their cities 100 percent on renewable energy by 2035-a target selected to assure that they will not be around to be held accountable when it is missed-and to do so without hurting their economies by driving up costs and taxes that would encourage businesses to seek more hospitable venues. All of these pledges assume that if renewables are not available, there will be a grid, fed by nuclear power, coal, and natural gas, to keep the lights on. As Charles McConnell, head of Rice University’s Energy and Environment Initiative, puts it, “Fossil fuels … are the foundation upon which renewable power must stand.” To help develop local emissions-reductions programs, former New York Mayor Mike Bloomberg has set up a $200 million fund to encourage inventive policies at the civic level, among them policies-including transportation, zoning, and building codes-to cope with climate change.

There is considerable debate as to the potential emissions-reducing effect of changes municipalities and states can make in their regulations if mere self-interest proves insufficient. Yes, regulations: after all, the history of environmental advance is the history of the combination of reliance on market forces and in some cases direct regulation. Morgan Stanley, which has become something of a cheerleader for the potential of new technologies, says “Technology is creating opportunities, particularly with intelligent building systems estimated to cut energy consumption in half.” That, reasons the bank, will accrue to owner/investors’ bottom line, attract more tenants, and ultimately increase property values. Even if we discount for any self-interest of Morgan Stanley and its clients might have, it is clear that solar panels, insulation, and solutions of the recent past will have technological helpmates in the future.

The result, in short, is that Trump’s withdrawal from Paris might replace one-size-fits-all regulations with measures crafted to suit the conditions of each locale, and make local politicians accountable to the voters for their energy policies, which the bureaucrats of EPA, protected by civil-service rules, definitely are not. In this scenario, the president’s action would lead to the transfer of power from the White House to state capitals and city halls. It is an irony of this saga that Trump might well prove to be the president who encouraged a return of federalism, with the states serving as the “laboratories of democracy … [trying] novel social and economic schemes without risk to the rest of the country,” as envisioned by Supreme Court Justice Louis Brandeis in 1932.
Other Nations Renew and Strengthen Their Vows

In addition to governors and mayors, there are the leaders of the other signatories of the Paris Agreement. Many were sincere, but it is unrealistic to expect politicians, especially successors to those who signed the Agreement and therefore have no firm attachment to it, to sacrifice economic growth to emissions reduction, should such a trade-off seem necessary, when the easier alternative is to revise their compliance plans. But given Trump’s unpopularity in many overseas countries, it is politically expedient for local politicians to attack him. Any excuse will do, and withdrawal does just that, at the same time providing a platform from which to reaffirm their commitments to their plans to reduce emissions.

In Germany, for instance, where only 5 percent of citizens say they trust Trump, chancellor Angela Merkel reiterated just how strongly she supports the Paris agreement in preparation for last month’s G20 meeting and her own re-election campaign: “Since the decision of the United States to leave the Paris climate agreement, we are more determined than ever to make it a success…. The Paris agreement is irreversible and it is not negotiable.” A display of virtue that just might offset opposition to her disastrous immigration policy, or at least divert attention from it and from a green energy policy that has resulted in rising energy costs and increased reliance on Vladimir Putin’s natural gas.

In place of any enforcement provision, the agreement now has repeated oaths of fidelity to its goals by almost every leader of world consequence. Not the same as a real enforcement procedure, but a bit more binding a commitment than was hitherto available. There is no question that the richer countries’ anti-Trump public outbursts of determination to achieve the Paris goal make it more difficult for them to forget Paris. And those oaths might provide the missing force for compliance by less-developed countries, especially those that do not have the technical capacity to provide measurements to prove they are indeed holding to their promises. After all, repudiation rather than evasion would forfeit a slice of the annual $100 billion the developing countries were promised for signing on.

Enter the Private Sector

Even more important from the point of view of those who worry about climate change is the private sector. More than 900 American firms and investors joined Secretary of State Rex Tillerson in urging Trump not to retreat from Paris. They failed, and now have made a new pledge, distinct from the national pledges made in Paris, to reduce the nation’s carbon emissions by the same amount as Obama believed his EPAregulations would do-a difficult target, but one that points in the direction of lower emissions, sans Paris. And a task force commissioned by the Financial Stability Board, a group of regulators, has adopted guidelines for greater disclosure about the risks companies face from climate change, and the development of metrics and targets to measure performance in coping with these risks. To encourage compliance, activist investor and consumer groups are putting pressure on major corporations to fill the Trump-created gap. To cite one example, activist pressure produced a 62 percent vote at the Exxon Mobil annual meeting in favor of greater disclosure of information of the possible effect of climate change on the value of their investment.

The result is that the 900 signatories of the stay-in-Paris declaration, which include energy-guzzling new-economy firms such as Amazon and Google, now have their corporate reputations on the line with customers and investors, and can expect to be reminded publicly if they forget their pledges when the tide of Trump hatred recedes as a motivating force. Some executives are using notional carbon taxes when making capital-allocation decisions. For example, Exxon requires all managers vying for the company’s resources to include in their request-for a refinery, or a fracking project, or a pipeline-the cost of carbon emissions caused by the project, in the same way that they include the cost of labor and capital. The result is that most emissions-creating projects will be disadvantaged in the capital-allocation game, just as if Congress and the administration had adopted a carbon tax. Many environmental groups recognize that the private sector has moved from enemy to ally. Marty Spitzer, head of climate and renewable-energy policy in America for the World Wildlife Fund, told The Economist, “There used to be rhetoric and little action. Now I see fundamental changes.”

Those skeptical of the ability of the private sector to bring down emissions should remember that the Paris agreement was non-binding and non-enforceable because it does not have the status of a legal treaty. Replacing those weak reeds we have the renewed public commitments of other nations and our own city and state governments, and all the forces impelling private sector players to honor commitments: activist investors, self-interest, reputation, the rising clout of green millennial consumers. Surely these have a reasonable prospect of being more powerful than the name-and-shame weapon of Paris.

And more efficient. In effect, the private sector will select the least-cost way of meeting its self-imposed goals, with results rather like the successful Clean Air Act’s combination of regulations and incentives to minimize costs. Before the American withdrawal, the nation’s plan for compliance was rooted in the Clean Power Plan, developed by the Environmental Protection Agency, not notable for its concern with the costs of its regulations. And in contrast to the transparency increasingly demanded of the private sector, the EPA has refused to reveal to Congress the data on which it based its policies, which its former director acknowledged wouldn’t lead to short-term reductions in global CO 2 emissions (she asserted that the plan was designed just to be a starting point for global initiatives, though that position has been criticized as an ex post justification). That was the state of play under the unenforceable Paris Agreement.

Match that against the situation created by the unintended consequence of the president’s withdrawal. Hundreds of private-sector executives, with decision-making power over the deployment of resources, including R&D expenditures, now have their reputations at stake. This should be a relief to environmental campaigners, who otherwise would have to rely on an EPA run by a Trump-appointed administrator who says “I would not agree that [human activity] is a primary contributor to the global warming that we see.” No matter. The force of any remaining EPA regulations cannot match the more powerful force for emissions reduction: the market’s appraisal of the value of their companies, including in that appraisal the risk of lost value due to a too-large reliance on carbon-heavy resources.

Is this a perfect approach to reducing emissions? Certainly not. Is it more likely to have an impact on our emissions than the Paris accords? Almost certainly. Would it be better to attack any emissions problem by imposing a carbon tax? Yes. Or by a combination of taxes and regulations more sensible than the Obama EPA preferred and less ineffective than whatever the Trump EPA comes up with? Again, yes. Are all of these measures useful outlets for anti-Trump rage, a sensible way of reacting to one of his policies with which many disagree? Surely.

The Costs of Withdrawal

That does not mean that withdrawal will be without costs. Two are non-trivial. One is the loss of a central talking shop, a place where scientists of all countries can interact. But a seat at the table of that talking shop did not come cheap: There is widespread concern that many developing countries won’t use the promised $100 billion in annual payments for its intended purposes. And that the $100 million needed to cover the two-year cost of the bureaucracy established to move papers around among the signatories is excessive. My guess is that our scientists and other interested parties will find ways to exchange information with the remaining signatories, as they did before they had Paris, even obtaining funding for emissions-generating travel to scientific meetings.
The second cost is more serious: The credibility of commitments made by future presidents has been reduced by the decision of a sitting president to dishonor the commitment of his predecessor. True, that commitment did not represent the wishes of a majority of the elected representatives of the American people-consider Obama’s refusal to submit the deal to the Senate for its advice and consent. And the accord does contain provisions designed to force a predecessor to tighten the screws on U.S. emissions regardless of the wishes of his elected successors. Whether they are enforceable is uncertain.

Are We Really Out?

No one can be certain what the next turn in administration policy will be. Under the terms of the accord, America cannot exit formally until November 4, 2020, by coincidence the day after that year’s presidential and congressional elections. That means that we will remain a party to the agreement for the rest of Trump’s term. America has already announced an intention to participate in future meetings of the signatories for the next four years, including one scheduled for November of this year to write rules for monitoring and verifying pledges. During that time Trump is willing to “renegotiate” the deal, which Merkel says is not possible. But as a practical matter, the German chancellor would have to be made of stronger stuff than mere iron to resist pressures from other signatories to sit across the table from a willing American negotiator.

Trump has discussed with French President Emanuel Macron the terms that might induce America to remain a participant. Macron says that the president understands “the link that exists between global warming and terrorism,” which puts him well ahead of this writer. Wishful thinking by Macron or not, it opens the possibility that Trump’s withdrawal notice might merely be a tactic to set the stage for a renegotiation, at the same time appealing to his base with a gesture on which he need not act until after the next election.

Perhaps most important, from the point of view of those who fear that the globe is warming: Although Trump’s announcement of the withdrawal gave him a perfect opportunity to repeat his criticism of global warming as a “hoax” designed to give China a leg up on us in world markets, he did not grasp that opportunity. Attempts by reporters to find out whether the president still believes climate change is a fiction have met with zipped lips from administration officials-and this in an administration famous for its leaks.

The man who now wants only marginal changes in NAFTA, is re-thinking his opposition to the Trans-Pacific Partnership, has decided that he was wrong to call for withdrawing our troops from Afghanistan, and says a fence is a wall by another name, might just be planning another surprise. Consider that in his withdrawal announcement, the president said that America will “begin negotiations to reenter either the Paris accord or a really entirely new transaction on terms that are fair to the United States, its businesses, its workers, its people, its taxpayers.” So we’re getting out. But we will start to negotiate, and we will see if we can make a deal that’s fair. And if we can, that’s great. And if we can’t that’s fine. Unless the president believes-or is willing to defer to his daughter who does believe-that the globe is warming, why would he be considering rejoining a club composed of members whose beliefs he does not share?

The Way Forward

The controversy over climate change will go on, but with a new range of policy choices for all contestants. Those who do not believe the science is settled, that climate change is a “hoax” perpetrated by those seeking to expand the reach of government, can now focus on persuading the president that exit means exit, and that he should not re-engage with the partisans of the Paris agreement. If they do, one hopes that those who disagree will abandon the obnoxious phrase climate-change “deniers,” a favorite of Al Gore, likening them to those who deny the existence of the Holocaust, and in the process causing them to shut their ears to any further argument.
Those who are certain the planet is warming, with grave consequences either already visible or yet to come, now have an expanded menu of options:

  • They can devote their energies and resources to supporting any of the wide range of newly activated programs at the state and local levels.
  • They can use the next four years to improve the transparency and monitoring of the Paris signatories’ emissions (we still have a seat at the table), and to developing modifications of the Paris agreement that make it a better and more equal deal for America.
  • They can continue to support the development of less carbon-intensive technologies.
  • Those who are more patient can continue to press for the most efficient solution, a tax on carbon, in the sure knowledge that the deteriorating American fiscal condition will sooner or later lead to a hunt for the few trillion dollars needed to fund growth-inducing tax cuts or-dare I say it-the increases in revenues needed to meet the needs of an ageing population and a nation with expanding security requirements.

Those not certain that the claims of the weather- model builders warrant a drastic response, and suspicious of climate-change advocates so unsure of their ground that they attempt to bar their critics from access to scientific journals and criminalize dissent, also have more room for policy maneuver. They can acknowledge the possibility that the globe is warming, that some sort of insurance against that risk is worth having, and move on two fronts. They can support emissions-reduction programs that have an ancillary effect they do support:

  • road pricing to alleviate congestion;
  • safer integration of cycling into the transport network;
  • a more robust electric transmission system that resists cyber-attack and accommodates increased electrification of road transport;
  • privatization of the air traffic control system to improve the efficiency and safety of our airline system and incidentally reduce fuel consumption; and
  • programs to lower energy use and costs of lower-income households.

And they can continue to press for a carbon tax, the surest and most efficient way to curb emissions while at the same time (1) providing revenues that allow reformers to eliminate or reduce regressive payroll taxes and growth-inhibiting taxes on work and risk-taking, and (2) avoiding the rigidities, costs, and inefficiencies of regulation.

It would be foolish to argue that our post-Paris world is the best of all possible worlds. But it would be equally foolish to moan that it is the worst, or even worse than before President Trump started down the long road of withdrawal from the agreement reached by some 200 nations in the waning days of 2015. Better to explore the new options open to all participants in the dispute over climate change.