The Impact of the US Withdrawal from the Paris Agreement

While the Trump administration’s decision to withdraw from the Paris Agreement has environmentalists concerned and fossil fuel supporters cheering, its true impact is yet to be determined. However, based on industry trends and market shifts, there are a few key predictions that can be made for the coming months and years.

Prediction No. 1: The climate-related corporate efforts that are already under way will continue.

Even before the U.S. said it would take part in the Paris Agreement, it had already reduced domestic emissions significantly. While not yet at the 26 to 28 percent reduction the country originally committed to regarding the Paris accord, as of 2016 energy-related carbon dioxide emissions had declined by 14 percent since 2005. This drop is a direct result of the increased use of natural gas and renewable energy sources, combined with a decrease in coal-fired generation.

While the U.S. can’t completely eliminate the use of coal-fired plants, with 30 percent of the country’s overall generation still obtained from this source, many power producers are committed to building non-coal facilities, as well as upgrading transmission and delivery infrastructure. These commitments will continue regardless of the Paris Agreement. Many energy companies will voluntarily make efforts to reduce emissions, especially due to the extensive supplies of natural gas and the decreasing costs of renewables. At the same time, some corporate buyers of power will be looking to purchase more of their electricity from greener sources.

Prediction No. 2: Companies may worry less about compliance, but they still have to plan.

While energy companies won’t have to worry about potential increases in operational costs associated with satisfying Paris-related compliance goals in the near term, they may not escape regulations internationally or at the state level in the U.S. In particular, their international divisions could still face new regulatory requirements in countries that are planning to remain involved in the agreement.

At this point, we can’t know for certain how each individual nation is going to approach this. Still, although the Paris Agreement is itself going to be unenforceable, that doesn’t mean energy companies will be free from having to adhere to new legislation altogether. In many cases, companies are likely to adopt their own customizable policies, such as can be seen with ExxonMobil’s Corporate Citizenship Report, with one of the goals being to remain in the good graces of the world’s legislative bodies.

Prediction No. 3: With or without the Paris Agreement, it will take time for the U.S. to go green.

Even if the U.S. were still part of the Paris Agreement, it would take years for the country to truly go green. Consider the fact that 81 percent of the energy consumed in 2016 was derived from fossil fuels. Millions of homes rely on natural gas, and despite the growth of electric cars, gasoline-powered vehicles aren’t going anywhere any time soon. Meanwhile, there are about 6.4 million Americans working in traditional energy or energy efficiency jobs.

Simply put, it’s going to require a significant amount of time and resources to reduce the nation’s ties to fossil fuels. Clearly, the U.S. and its industries will continue to evolve, opening new opportunities for alternative and renewable energy, but realistically, this is not a quick or simple change.

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Michael W. Hinton is the Chief Strategy and Customer Officer at Allegro Development Corp., a Dallas-based developer of commodity trading and risk management software for companies who buy, sell, produce or consume commodities. Headquartered in Dallas, Allegro has offices in Calgary, Houston, Jakarta, London, Singapore and Zurich, along with a global network of partners. Visit Allegro's website at www.allegrodev.com . 

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