Categorized | Global Economy, US, World

The Paris Agreement: Thinking Long-Term About US Power and Wealth

Image by US State Department

US President Donald Trump’s decision to pull the country out of the Paris climate agreement may eventually end in a U-turn. After all, unpredictability has by far been Trump’s favourite foreign policy strategy. Yet should this one promise be kept its implications for global cooperation on climate change would be catastrophic. In the long term, Trump’s stance on the issue is detrimental to both the power and wealth of the United States.

Without the world’s largest economy the efficacy and survival of the Paris agreement are at risk. In a recent statement UN Secretary-General António Guterres tried to offer reassurance that the agreement will not collapse if only one country leaves. If that country is the United States, however, its departure does matter. Indeed, the US alone accounts for 15 percent of global CO2 emissions, which makes it the world’s second largest emitter after China. This already shows why a sans US Paris agreement will not address global warming effectively, and the joint statement by the “G19” (excluding the US) reiterating the importance of the agreement at the Hamburg summit won’t change much. In addition, a US retreat from the unenforceable deal will further legitimise non-compliance by other governments as they begin to face higher short-term economic costs to meet the agreed standards.

Paris and US Power

The whole controversy around “environmental cooperation” boils down to power, and the “absolute” and “relative” gains from interstate relations. Economic liberalism has long stressed the importance of absolute gains from economic cooperation. By forcing countries to sell those goods they have a comparative advantage in producing, and to buy everything else, free trade makes everyone better-off. Nonetheless, sceptics have righteously claimed that the political nature of relative gains matters more. To protect national or domestic “sectarian” interests, states will use economic barriers and power against other states. Despite the absolute benefits of cooperation, gaining more in relative terms remains a crucial political goal. A perfectly liberal economic order is but a utopia in an intrinsically realist global political system.

The issue of relative gains also applies to “environmental cooperation”. On the one hand, the absolute gains from a sustainable environment will benefit every state. Generally, all countries seem to have understood this – all except three: Syria, Nicaragua, and the United States. On the other hand, those countries that depend most heavily on “fossil-fuel” wealth will gain the least until they successfully diversify their economies. Their economic power, dependent on oil and gas reserves, may suffer considerably in the meantime. Yet despite the relative large contribution of oil to the GDP of several American states (including Texas, where Trump’s decision has been particularly popular), the US is not one of the countries that will gain the least. More importantly, complying with the Paris agreement will not damage its power status.

If anything, pulling out will. The US has much to lose from exiting the deal in terms of its leading position on the international stage, heavily based on its commitments to international cooperation. Indeed, the Paris accord is only one of the many agreements that safeguard the country’s dominant global role. Hence, telling the world it can no longer trust America with that role poses a great challenge to its soft power, which, for many, still makes the US the world’s only hegemon. Certainly, this one move alone cannot undermine America’s global influence, but Trump’s entire foreign policy attitude is founded on the “America first” rhetoric. His withdrawal from the TPP and previous statements about NATO reflect the same logic and ideology.

Wealth Gain or Wealth Loss?

In addition to American power, leaving Paris will likely harm American wealth. Contrary to what Trump says the long-run impacts of greenhouse gas regulations on US GDP are very difficult to estimate. The National Economic Research Associates’ (NERA) report that Trump cited states that it only takes into account the potential economic costs of complying with the Paris accord. However, as argued by Adam Lusher, the costs of not complying with the agreement could be even worse. One of these is the knock-on effect on the fast-emerging solar, wind, and other low carbon emission energy sectors, which already employ 800,000 workers (compared to 1.1 million in the traditional fossil fuels sectors).

Of course, regulating free-markets always comes with costs, summarised in the word “inefficiency”. The oil-drilling and fracking industries, for example, contribute 1.6 percent to US GDP, employ several hundred thousand American workers, and provide citizens with relatively cheap oil and gas. Limiting their activity would surely take some wealth away from Americans. Yet sometimes efficiency is not the only thing that matters. The indirect effects of free markets on everything that’s not strictly involved in an economic activity are known as “externalities”. In oil drilling and fracking, these are the potential oil and gas leaks that can contaminate drinking waters or pollute the ocean, or the dependence they create on methane and oil, both responsible for climate change. Unlike other externalities, however, greenhouse gas emissions will eventually affect the economy itself, since any economic activity relies on the planet’s health.

Sometimes the cost of externalities exceeds the cost of regulations. According to NASA, climate-related externalities include compromised infrastructure, reduced water supplies and agricultural yields, increasing wildfire, floods and tree diseases, and non-quantifiable health effects. This adds to the losses in the clean energy sectors and the $15-23 billion of existing US property that will likely be underwater by 2050. The Alternative Energy and Cleantech Research at Citi estimates that all this could cost the US up to $44 trillion by 2060. On the other side of the argument is, of course, the $3 trillion production and employment losses in sectors such as oil drilling, fracking, iron, and coal. From a long-term, budget perspective, however, it would be more rational to offer welfare and retraining programmes to displaced coal miners than pay $44 trillion over time for the irreversible effects of global warming.

Thinking long-term is not one of Trump’s preferred strategies, nor is getting economic facts right. The Paris agreement might not force every country to meet the right emission targets, but it is still a first important commitment to tackling climate change, one that the international community can build on in the future. Since withdrawing from the accord will legally take four years, one way US citizens can think long-term is by waiting for Trump’s four-year mandate to end, and exercising their voting power differently next time.

Image courtesy of U.S. State Department

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About Gianmarco Capati

Gianmarco Capati holds a BA in International Affairs from John Cabot University, and will shortly pursue an MA in International Political Economy at King's College London. His interests range from the politics of global finance to questions of power and wealth in the globalized world economy.

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