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What a US withdrawal from the Paris climate deal means for energy

President Donald Trump announced June 1 that he intends to pull the U.S. out of the Paris Agreement on climate change after putting the brakes on other domestic climate policies forged by the Obama administration.

The decision, which may take over three years to take effect, could affect the U.S. and global energy sectors in a number of ways. The Paris agreement was formally joined by more than 140 countries and included a nonbinding pledge from the U.S. to reduce its economywide greenhouse gas emissions by 26% to 28% from 2005 levels by 2025. Trump had already undermined a key pillar of Paris compliance after directing the U.S. Environmental Protection Agency in late March to review and likely revoke its Clean Power Plan, which was estimated to cut domestic utility sector carbon emissions by 32% from 2005 levels by 2030.

The U.S. power sector is still on track to cut greenhouse gas emissions in the next decade. But other changes are in store for the energy sphere if the U.S. withdraws from the Paris pact.

US emissions will still fall

Federal tax incentives and state and local policies to spur U.S. renewable energy development will still decrease utility carbon emissions in the coming years, with or without the Clean Power Plan or Paris climate agreement. The Sierra Club has estimated the U.S. could meet the rule's projected 32% carbon emissions cut as soon as 2021, almost 10 years ahead of EPA's estimate.

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But the power sector cannot provide all the Paris agreement's emissions reductions, and some analysts question whether the U.S. can achieve its promises under the Paris accord if it withdraws.

Consulting firm Rhodium Group said that absent new policies from the Trump administration, the U.S. is on course to cut its greenhouse gas emissions 15% to 19% from 2005 levels by 2025 — well below the 26%-28% commitment made in the Paris agreement. That outlook assumes the elimination of the Clean Power Plan and other regulations or policies explicitly targeted for repeal in a March 28 executive order from the White House.

Eliminating the Clean Power Plan's mandatory emissions limits and the Paris agreement's nonbinding ones is unlikely to drive a major resurgence in U.S. coal demand but could slow demand losses for the fuel at the expense of lower-emitting energy sources.

Rejecting the Paris deal could also make tracking other countries' emissions more difficult. The U.S. and other participants in the United Nations Framework Convention on Climate Change, or UNFCCC, are required to report their greenhouse gas emissions data. The U.S. would still have those requirements as long as it remains a member of the UNFCCC, but reporting standards could be further enhanced under the Paris deal.

If the U.S., which has long been an advocate for strong transparency, is no longer part of Paris negotiations, it could not push for more stringent standards for countries such as China and "you could end up with weaker reporting requirements," said Steve Herz, an attorney and senior international policy adviser for the Sierra Club.

Tech companies disadvantaged

One key concern for the U.S. energy sector is the potential loss of technology transfer opportunities if Trump exits the Paris pact. Pulling out of the deal could cut the U.S. out of export opportunities for clean energy technologies, such as carbon capture and sequestration or renewable energy equipment and systems.

"Staying in Paris provides more certainty for U.S. clean technologies both in the U.S. and international markets," said Jon Sohn, a climate policy expert and counsel at law firm Dentons. "Now many of the markets and rules will be written by China, Europe and basically everyone but the U.S."

Despite hoping for the best on the domestic demand front, renewable energy groups were alarmed by the trade implications of the Paris exit. The Trump administration's decision could "risk not just our climate, but also the role of American companies in leading the way to a global renewable energy boom that presents a multi-trillion dollar business opportunity," said Gregory Wetstone, president and CEO of the American Council on Renewable Energy.

Major U.S. coal producers, including Cloud Peak Energy Inc., have said staying in the deal will allow the U.S. to promote carbon capture and sequestration, which could support continued coal use even in a carbon-constrained economy. Proponents of a Paris exit said the U.S. can still participate in global climate dialogues and advance technology interests through forums such as the UNFCCC, but policy experts said the U.S. will be at a competitive disadvantage. As countries look to boost renewable energy deployment, they could increasingly look to the European Union, China and other Paris agreement signatories rather than the U.S. for partnerships and technology procurement, Herz said.

China, Canada and the EU will meet in New York in September for a ministerial meeting to discuss the clean energy transition and climate change. Those talks could also focus on technology trade, discussions that could isolate U.S. companies without greater government support for international collaboration.

"The U.S. being seen as a bad actor on an issue of such global concern will make it more difficult for US companies to get their foot in the door in other markets," Herz said.

The U.S. could also face trade sanctions and taxes on its exports as a result of the Paris exit. Former French President Nicolas Sarkozy previously suggested an EU carbon tax on U.S. products in retaliation for a potential Paris deal withdrawal, something France's new President Emmanuel Macron said he would consider. And one Mexican government official said the country could weigh a carbon tariff against the U.S. if Trump rejected the Paris agreement.