Donald Trump has announced he will pull the U.S. out of the Paris Climate Agreement, a move that keeps one of his campaign promises while breaking several others when it comes to the economy and jobs. The climate agreement has long been a hot-button issue in the U.S., so Trump's move shouldn't be altogether surprising. However, given that under the pact, the U.S. got to set its own non-binding targets on carbon emissions reduction, it was never a very onerous agreement on the U.S. Instead, it pushed growing economies like China and India to use cleaner energy sources than the coal they were using to drive their growth.
Ironically, exiting the Paris accord would likely leave the U.S. alone among the nations of the world in explicitly abandoning climate action, especially after reports that China and the European Union will forge ahead with the climate deal even if the U.S. pulls out. Moreover, losing our seat at the table could mean that the deck will be stacked against U.S. companies and workers, costing thousands of American jobs.
Here's an initial look at who will be affected and where some industries sit.
Promises kept and broken
It's certainly true that Trump promised on the campaign trail that he would pull the country out of the Paris accord if elected. Following through on that promise will give him credit in some circles. But it could also cost thousands, or even hundreds of thousands of people their jobs.
It's uncertain how severe adverse impacts of the U.S. abandonment of the Paris accord will be, but they could cause significant pain to the nation's economy. According to the January 2017 U.S. Energy and Employment Report from the Department of Energy, there are 160,119 people employed in extracting coal and using it in electric power generation. By contrast, 475,545 people work in wind and solar electricity generation. That's three times as many wind and solar jobs on the line. If Trump's goal here is to advantage coal over wind and solar, then this will lead to a net loss of U.S. jobs.
It's possible that trade partners will now put carbon tariffs on U.S. exports as punishment for leaving the Paris agreement. We will also likely see U.S. companies have a harder time negotiating deals overseas, especially in energy, where the U.S. would love to sell equipment and natural gas to foreign buyers. There's a reason ExxonMobil (NYSE:XOM) spent time lobbying Trump to stay in the deal.
The result of this will also lead to China taking an expanded leadership role in future climate negotiations, and trade in related industries. China already dominates solar manufacturing and is investing heavily in batteries and electric vehicles, two technologies U.S. companies would like to both develop and manufacture. If you wonder why Elon Musk quit Trump's business council after he announced he was pulling the U.S. out of the Paris accord, it's at least in part because he sees the prospects for exporting Tesla's (NASDAQ:TSLA) electric vehicles and batteries as dimmer today than they were a few days ago.
Ironically, while Trump's decision will make business more difficult for U.S. companies, it won't have much effect on the fundamental economic forces driving the global decline of coal, or growth of renewable energy.
You can't stop a boulder rolling downhill
One core problem with the U.S. exiting the Paris accord is that it doesn't change anything about energy economics. It doesn't make coal cheaper; it doesn't make the U.S. less sunny or solar power more expensive, and it won't stop wind turbines from generating electricity when the wind blows.
As the saying goes, the train has left the station when it comes to renewable energy. A large utility company recently signed a contract for solar plus energy storage at under 4.5 cents per kWh. According to Lazard, you can't build a natural gas, coal, or nuclear plant for that cost in today's market.
And the costs of wind, solar, and energy storage are falling like rocks. According to Lazard, over the last five years, the average cost of solar energy has come down more than 50% and is continuing to drop. In most of the U.S., either wind or solar can compete on cost alone with fossil fuels for new generation needs. That boulder is rolling downhill, and there's no stopping it.
The international law of unintended consequences
The truth is that we won't know the full impact of Trump's choice to abandon the accord for some time. But early indications don't look good.
If Europe decides to slap a carbon tariff on imports from the U.S., or if Japan decides it will buy the natural gas it needs from someone else, there will be negative consequences for U.S. businesses and the U.S. economy. Should China take the lead on writing the next sets of trade rules -- as our renunciations of both Paris and the TPP make more likely -- you can bet those new agreements won't favor the U.S.
Maybe the worst-case scenario is that this action leads to trade retaliations from other countries, which draw counter-retaliations from Trump, and eventually, a trade war.
The United States faces a world of unintended consequences thanks to this choice to leave the Paris Climate Agreement. But Trump kept a campaign promise, so I guess we can give him that.