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Jun 23, 2017

Leaving Paris: Cui Bono?

What the United States leaving the Paris Climate Agreement means for the future of sustainable investment—and the future of our country.

History records that in 49 BC, Pompey the Great was defeated by Julius Caesar, all but ensuring Caesar’s eventual victory in the Great Roman Civil War. Although a well-known general and statesman of the Republic, Pompey was said to have a fatal flaw that may have contributed to his undoing: a hubris so large that his name lives on today in the English adjective “pompous.” Pompey cared much about symbolic actions and events and sometimes gave those priority over real events on the ground. Defeat ensued.

President Donald Trump’s speech withdrawing the U.S. from the Paris Agreement was a pack of lies. Trump said, “As of today, the United States will cease all implementation of the nonbinding Paris Agreement and the draconian financial and economic burdens the agreement imposes on our country.”

How can the U.S. possibly have “draconian” burdens placed upon it by something “nonbinding”? That the president used both phrases in the same sentence shows he’s not even trying to establish a cogent argument for withdrawal. Maybe he knows no such argument exists. Instead, he is trying to ignore the problem. But to ignore climate change is to ignore real facts on the ground, in the air and in the seas. It also means ignoring economic and diplomatic reality.

As a Spiegel Online editorial said, “His speech was a break from centuries of enlightenment and rationality. The president presented his political statement as a nationalist manifesto of the most imbecilic variety. It couldn’t have been any worse.” The other Latin phrase I considered to title this post was ex nihilo nihil fit—nothing comes from nothing.

The decision to withdraw makes it seem as if Trump isn’t a president in good faith with the best interests of the people at heart. He exhibits disdain for the law, scientific facts and simple economics. The people that really matter to Trump—the Kochs and the Mercers—both supported his withdrawal from the Paris Agreement, so here again we see that science and facts don’t cut it with the only voters Trump cares about.

As Jane Mayer recently wrote in the New Yorker, “Now that they have been flushed from the shadows, the Kochs and their political operatives have proudly taken credit for obstructing the U.S. government from addressing climate change.” The fossil-fuel goliaths are defending their turf mightily and effectively.


That Trump thinks he can renegotiate a “better deal” from outside of this framework is almost certainly fantasy. Over 190 nations are already signatories; they are not going to restart the process from scratch with Trump. Instead, they are going to move forward with the existing deal and modify it on their own terms in the future—without the U.S. or our interests at the table. Moreover, getting a “better deal” on a voluntary agreement makes little sense in concept.

Trump is trying to have the cake of shoring up his support among his core supporters while eating it too by appearing magnanimous enough to entertain future ideas and negotiations. He might be accomplishing the former; the latter is transparently disingenuous.

Trump further couched his decision in terms of American nationalism and economic benefit. The “America first” argument fails under the false belief that the global economy is a zero-sum game. That is, if the U.S. is to win, China and the EU must lose. This is not only false, but isolating the U.S. from those markets by withdrawing from the agreement could cost us dearly. Similarly, the idea that the U.S. economy will grow and even outperform by abjuring innovation and clinging to the energies and technologies of the past would be laughable if not so potentially destructive. Destructive to what? A primary consequence could be erosion of American competitiveness in the world economy.

As Varun Sivaram and Sagatom Saha argue in Foreign Affairs, “Without strong government support for energy innovation, the United States will fall further behind in the global race to command the industries of the future, from next-generation batteries to meltdown-proof nuclear reactors. China already dominates the production of existing clean energy technologies, and it is ramping up its investments in new ones in order to extend its lead for decades. The United States cannot afford to move in the opposite direction.” This is important. It’s not surprising to see large numbers of business, political and cultural leaders strongly criticizing the withdrawal and Trump himself.

Exiting Paris means the U.S. is ceding leadership in economic development and job and wealth creation to the rest of the world.

Technological innovations in energy, and across many industries, are some of the best drivers of wealth and portfolio returns as we move forward. Exiting Paris—along with only Syria and Nicaragua—means the U.S. is ceding leadership in these crucial areas of economic development and job and wealth creation to the rest of the world, notably to China, India and the EU. India prime minister Narendra Modi says solar will be the foundation of the new economy and is banning internal combustion cars by 2030. China, now the de facto low carbon economy leader, is already on track to exceed its stated Paris goals. Clearly, India and China are delivering on the ground. They are doing so because they wish to elevate their international stature by assuming the mantle of leadership, but, more important, they are doing so because the economics have become irresistible.

Wind and solar have now become cheaper than coal and rival natural gas, which they will also surpass in price competitiveness. As a result, both today are among the fastest-growing industries in the world. The International Energy Agency is predicting that solar generation will supply 25 percent of the world’s electricity by 2050. Given that IEA solar prediction has always been unrealistically timid, I feel comfortable saying this is the minimum proportion of solar juice we’ll be enjoying by then. Most projections and goals are much higher. Solar in 2017 is likely to top 85 gigawatts of installed capacity globally (double what it was in 2014), but that is something like 4 percent of the world’s more than 20 terawatt hours of annual demand.

The solar growth story is there. “Unstoppable” looks like the appropriate word to me, Paris or no Paris. It’s becoming a common refrain that, as Mark Bauhaus, a partner in Just Business recently said in the San Francisco Chronicle, “the business opportunity in the so-called decarbonization of the economy is ‘bigger than the Internet.’” Trump’s symbolic action could have real, damaging effects on the U.S. economy. Does the United States really not want to participate in growth instead?

Could Pompey have defeated Caesar? Certainly. We must always resist the temptation to view historical events as having previously been foregone conclusions. But in perceiving the reality he wanted to believe in, rather than the reality that actually confronted him, Pompey put himself at a material disadvantage. The outcome may not have been certain, but the playing field, with the advantage of existing in the real world, was tilted in Caesar’s favor. Today, it is the businesses, countries, cities and regions that accept settled science (including many in the United States) that are moving forward into what’s next, rather than clinging with pride and fear to what was.


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