While the Trump administration has set out to reverse a range of Obama administration policies, the shift on climate change is potentially one of the starkest. President Obama declared that “no challenge poses a greater threat to future generations than climate change,” and not only made federal government action on climate a priority of his administration, he also personally led a coalition of international leaders to address the issue. Donald Trump, on the other hand, put climate change squarely in the political crosshairs during his campaign for president, repeatedly calling it a “hoax” designed to benefit China at the expense of U.S. manufacturing. Early moves as president, including appointing a cabinet and inner circle that are unabashedly the most “anti-climate” in U.S. history and proposed budget cuts to key agencies, have seemed to confirm this direction.
The damage that a motivated anti-climate U.S. administration could do to the planet is considerable, but there are many reasons to believe that climate action can and will move forward with or without U.S. government support. Any attempt by the Trump administration to fundamentally break with the climate mainstream in the United States and globally will do the most damage to America’s own preparedness and economic competitiveness. Self-interest dictates that the Trump administration move climate from the political crosshairs to the economic crossroads sooner rather than later. Whether it heeds these realities remains to be seen.
A Firm Foundation: The Paris Agreement
The landmark Paris Agreement will not easily be consigned to the scrap heap of history. With 194 signatories, ratification by 133 parties, and entry into force a mere 11 months after adoption, the agreement commands the greatest level of global support ever witnessed for a major international deal in any arena. This unprecedented support has many sources—increasing recognition of the dangers that unchecked climate change poses for each and every country; an inclusive, transparent, and fair process involving all countries; strong roots in the real economy; and unprecedented inclusion of business, finance, and civil society from around the world in the process and the agreement itself.
The Paris Agreement at its heart is a cooperative agreement that embodies a strong burden sharing formula that delivers an outsize collective benefit if everyone does their part. The pressure against overt backsliding is great, as transparency is built in and any moves to walk away from commitments will not only be seen as an act of bad faith, but also a potential catalyst to other actors’ backsliding, which could fundamentally undermine the agreement and impact all countries concerned. While President Trump cannot “cancel” the agreement as he claimed previously, the administration could try to withdraw the United States from the deal. The political and diplomatic cost of attempting to become the world’s greatest free rider would be high. The environmental and economic costs would be even higher.
The agreement not only rests on a broad intergovernmental foundation, it also benefits from a pragmatic and flexible design that enhances its resilience to political shocks in any individual country. The agreement acknowledges that each country can set its own voluntary commitments and that these can be achieved in their own way. Every government has the right and responsibility to pursue its own policies to achieve its agreed ends. President Trump does not have to do things the Obama way. He can meet U.S. commitments under the agreement by following a “conservative climate policy” or designing his own way.
In addition to this flexibility, the Paris Agreement is more resilient than most intergovernmental agreements because it involves, for the first time, an extraordinary range of commitments by subnational political entities, companies, and private finance that provide a much wider and stronger base of support.
At the same time, the Paris Agreement acknowledges that increasingly ambitious action on the climate front is required, and that this will only happen through competition in the economic and political marketplace. In this sense, the Paris Agreement is a cooperative agreement that helps to direct competitive energies toward an economic crossroads where all can benefit as producers and consumers of cleaner and more efficient energy systems, infrastructure, and production processes. Both countries and companies that outcompete their peers will benefit disproportionately given both the size and the dynamism of the markets being created by this economic transformation. This is the single largest economic opportunity of the twenty-first century. Consistent with this, the United Nations Framework Convention on Climate Change has become a marketplace for solutions, with ever more businesses and finance entities engaged and ever more transactions happening in and around the margins of the annual Conference of the Parties. The race to the top is on, and any country that does not fully participate in it will leave business and investment opportunities on the table.
The Economic Crossroads
The transition to a cleaner, more efficient, and more resilient economic infrastructure for both production and consumption in the face of physical and economic landscape-transforming climate change is the global economic crossroads of the twenty-first century. At this crossroads, all nations, businesses, sources of capital, and people meet. Those who recognize not only the threats but also the opportunities, and who act accordingly, stand to reap the rewards of economic dynamism and political stability, while those who do not will remain trapped in the convulsions of twentieth-century economics and politics.
The fundamentals of this economic transition are strong, with dramatically decreasing technology costs and record deployment of renewable energy at its core. 2015 marked the first time that renewable technologies accounted for more than half of net additions to installed power capacity worldwide, reaching a record growth of 153 gigawatts of added capacity, according to the International Energy Agency. For every dollar of new investment in power generation capacity in 2015, 70 cents were spent on renewables, accounting for $288 billion in investment. Decreases in the cost of technology that have in part driven this growth are expected to continue in the medium term, with generation costs for onshore wind projected to fall 15 percent and offshore wind experiencing the greatest decrease among all technologies with a 40 percent drop anticipated by 2021. Such cost decreases, in concert with ongoing policy support and improved financing conditions, are expected to translate into global renewable electricity capacity growth of 42 percent by 2021.
While the United States will continue to deploy large amounts of renewable capacity, the near-term story is dominated by emerging markets. China has emerged as the biggest player in renewable generation, investing $103 billion in 2015, double that of the United States and some 36 percent of total world investment, according to a report from the Frankfurt School. Until 2021, the International Energy Agency says China will continue to lead the renewable investment landscape, deploying 37 percent of the expected capacity.
Yet this is not just the story of a single sector in transition, but instead one where the very foundations of markets are rising to the challenge of climate change and positioning themselves to respond. Green financing is emerging as a way to significantly scale up the resources necessary to avoid the worst climate impacts and respond to those that are unavoidable, and represents a critical source of funds to complement public finance. Labelled green bonds have grown from just under $3 billion in 2012 to $81 billion in 2016, which itself represents 92 percent growth on 2015, says the Climate Bonds Initiative. Broadening consideration to those bonds that are climate aligned, 2016 saw a total of $694 billion in outstanding bonds in the market.
Aside from direct investments in climate-related activities, investors are mobilizing to address climate risks. Over 120 investors with more than $10 trillion of assets under management have signed the Montréal Carbon Pledge, committing to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. Meanwhile, Arabella Advisors write that institutions and individuals with $5 trillion in managed assets have committed to some form of divestment from fossil fuel companies, representing a diverse range of institutions across sectors. Building upon these early movements by the financial sector to understand and address climate risks, the Financial Stability Board, at the request of G20 finance ministers and central bank governors, recently handed down a set of recommendations on voluntary climate-related financial disclosures. These recommendations, developed by an industry-led group representing the world’s largest banks, insurance companies, asset managers, pension funds, accounting firms, and credit rating agencies, are intended to guide disclosures that are of use across the financial spectrum in understanding the material risks of climate change. This is a game-changing development. No longer a concern just for scientists, environmentalists, and governments, managing climate change is going mainstream in the markets.
U.S. Policy: Politics as Usual or Do Smart Economics Trump?
As the rest of the world takes steps forward to tackle climate change, will the United States keep its leadership role or abandon it? While the 2016 election has changed many things in the United States, what has not changed are the stakes involved. Even a cursory look at the potential impacts of climate change on the United States paints a grim picture. Cumulative damages to coastal property across the contiguous United States could top $5 trillion through 2100, says the Environmental Protection Agency. Reports from the U.S. Global Change Research Program find that rising temperatures may see heat-related deaths and illnesses increase by tens of thousands annually be the end of the century and agricultural production will be increasingly negatively impacted for most crops and livestock. And a Rand report points out that a large swathe of the country’s infrastructure will be subject to natural hazards of increasing frequency and intensity. Real losses across sectors and disruption of lives and economic prosperity are in store for the United States absent major action to build resilience and contribute to mitigating global emissions.
While clearly an issue of preparedness, climate change also speaks to questions of competitiveness. The responses to a changing climate are not just political, but involve economic actors bringing to market the ideas and solutions that are needed to transition and adapt. In the United States alone, trillions of dollars of investment are needed in the country’s transport, water, and energy infrastructure through 2040, says the American Society of Civil Engineers. As discussions continue over the administration’s promised infrastructure spending, good investments will be those that are climate smart. Perhaps most important will be major investment in a smarter electric grid that can simultaneously advance economic, environmental, and physical security. Looking globally, the Global Commission on the Economy and Climate says that $90 trillion is expected to be invested in infrastructure over the next 15 years to replace ageing infrastructure in developed economies and meet the growing demands of emerging economies. Renewable electricity capacity, a subset of this investment need clearly serving climate goals, will total over $7 trillion in the period through 2040, according to the International Energy Agency. All said, the actions taken to address climate change are not just solutions to a pressing problem, but are opportunities for the private sector to realize growth that benefits the bottom line and the bottom billion.
This double imperative of preparedness and opportunity is recognized throughout the United States, and speaks to the fact that climate action in America is far more than just federal policy. States, cities, and businesses are key in responding to the challenge, and devolution to these constituencies lies at the heart of conservative doctrine since president Ronald Reagan. States and cities have long led the march toward more sustainable economies and societies, from establishing cap and trade programs, to setting efficiency standards, and to fostering the deployment of renewable energy.
A bipartisan group of governors representing 20 states from across the country recently declared their support for the further development of wind and solar resources, while the mayors of 71 cities representing 38 million Americans called on Trump to work with them on climate change. The private sector is also demonstrating its commitment to the issue, with nearly 900 companies and investors coming out in support of the Paris Agreement and its efforts to address climate change.
Hold the High Ground or Become a Hold Out?
Against this backdrop of shifting markets and widespread support for accelerated climate action by countries, states, cities, and the private sector, the Trump administration is faced with a choice—either it can align with the powerful forces moving countries, businesses, and markets forward, or it can get run over by them. The United States has benefitted significantly from first-mover benefits in the marketplace, stemming from its comparative advantages in technology development, private capital formation, and forward-leaning policies at the local, state, and federal level. Frittering away this economic position and the hard-won credibility gained by climate leadership to date would be the ultimate folly.
Climate realities are unforgiving, and the world is poised to leave the United States behind in the economic race of the twenty-first century if it is slow off the mark. Indeed, “America First” policies in this area threaten to leave America last in this highly dynamic, competitive, and cooperative space. Alternatively, if the Trump administration shows foresight and embraces America’s comparative advantages and its formidable climate coalition across sectors, it still can choose the wide-open crossroads over the dead-end crosshairs.
Robert C. Orr is the dean of the School of Public Policy at the University of Maryland.