The Business Case for U.S. Policy Leadership in Combating Climate Change: Part one

The Paris Agreement

As voters in the United States cast their ballots in last year’s presidential election, leaders representing nearly every country gathered in Marrakech, Morocco at the annual United Nations conference on climate change. The 2016 conference theme focused on how to implement the historic agreement reached the previous year in Paris. The Paris Agreement sought to keep future warming due to climate change below levels that might spell disaster for society as we know it. I was in Marrakech representing Georgetown University the week after the election. The key message that emerged was that countries remained committed to achieving the Agreement’s goals with or without support from the United States. While the United States had been instrumental in passing the Agreement, its continued leadership was in question due to statements made by Donald Trump during his campaign.

On April 26 of this year, a sign-on letter from 16 major companies including BP, Shell, Rio Tinto—three of world's largest fossil fuel and mining corporations—Walmart, Apple, and others, urged President Trump to remain in the Paris Agreement. The letter stated, “the agreement expands markets for innovative clean technologies, generating jobs and economic growth. U.S. companies are well positioned to lead, and lack of U.S. participation could put their access to these growing markets at risk.”

This letter is one example of many efforts that were mounted to convince skeptics within the new administration that it is in their interest to remain in the climate agreement. However, on June 1, President Trump announced his intention to withdraw the United States from the Paris Agreement. The decision was immediately labeled by some as a “fatal blow” to President Obama’s climate legacy and claims were made that the United States had “ceded leadership to China.” But what exactly does that mean? Has President Trump dashed all hopes of a sustainable climate future, as some believe?

In trying to make sense of this difficult political debate, which is far from over and rife with misleading information, it’s important to keep the following themes in mind.

First, the future of the Paris Agreement, of collective international goals toward combatting climate change, and even of U.S. commitments, are all yet undetermined. Under the United Nations’ rules, the United States cannot technically leave the Agreement until November 4, 2020. Between now and then, the Trump Administration will continue to make many decisions that impact U.S. carbon emissions and the climate. It is worth noting that the U.S. has already reduced total carbon emissions by more than any other country. Existing U.S. laws combined with energy market shifts that seem to be favoring cleaner sources are projected to further reduce emissions each year for the foreseeable future. It may be possible for the United States to reach the first round of its emissions-reduction goals as outlined by the Paris Agreement (from now until 2025) from the actions it has already taken.

Second, the conversation about U.S. climate leadership is not over. Cities and states are stepping up and passing new policies every day to incentivize the American clean energy economy. A coalition of over 1,400 cities, states, and businesses that collectively represents nearly one-third of the entire U.S. economy has vowed to meet the Paris goals despite the direction taken at the federal level. There are also a host of federal government programs still on the books that continue to incentivize clean energy and energy efficiency projects.

Finally, some climate change remains inevitable. Scientists now have a remarkable ability to build a record of Earth’s average temperatures stretching back 800,000 years. The evidence shows that there have been many periods of warmer and colder climates and that we are again in a natural warming cycle as we come out of the last ice age. However, the evidence also shows that since the start of the Industrial Revolution (1850-1900), when human civilization started to rapidly increase its releases of climate-changing greenhouse gasses (GHG) into the atmosphere like carbon dioxide, we have been experiencing an unusual acceleration of warming. The critical question is what maximum limit of warming is acceptable, and under what timeline, in order to reduce the most severe risks and impacts of climate change and to allow ecosystems to naturally adapt. The Paris Agreement states that this limit is around two degrees Celsius of warming over what the average temperature was prior to the industrial revolution, i.e. “pre-industrial levels”. This matches the best-case climate scenario from the Intergovernmental Panel on Climate Change (the international body tasked with assessing the latest climate science), which shows that if major action is taken to reduce human causes of GHG emissions, the planet may stay within the 2 ˚C threshold by the year 2100.

In other words, a 2 ˚C warmer world by 2100 might be considered within the range of a naturally warming climate. If, however, we reach 2 ˚C by mid-century or sooner (as some climate models suggest based on current GHG emission rates) then we are on track to at least double the natural warming rate by 2100. A 2˚C rise in global average temperature is still a very different world than the one in which we currently live and which will require large-scale governmental adaptation plans to address the higher sea levels and significant ecological shifts that will occur. However, while a 2˚C rise by 2100 is theorized to be manageable, if difficult, a rise of just two degrees more, to 4˚C, could be catastrophic to the natural world and to human civilization that depends upon it. The climate debate is therefore centered around when we cross the dreaded two-degree threshold. Can we take immediate corrective action working under the framework of the Paris Agreement in order to push the needle as far toward 2100 as possible? Or will we continue to experience business-as-usual and realize our worst climate change nightmares?

The Greatest Market Failure the World Has Seen

For most of the last 200 years since the start of the Industrial Revolution, no one has paid for the damages generated by the uninhibited release of human-driven global warming pollution into the atmosphere. For this reason, climate change has been called the result of the greatest market failure the world has seen. "The problem of climate change,” says British economist Sir Nicholas Stern, “involves a fundamental failure of markets: those who damage others by emitting greenhouse gases generally do not pay."

The idea of “who pays” in the United States climate debate is very important and has been the cause of much political turmoil. Nevertheless, numerous local, state, and federal policy-making efforts (like the Clean Air Act) have made a significant difference reducing GHG emissions over time while the economics of fossil fuel extraction have shifted dramatically. Furthermore, there are now twice as many solar workers as coal miners in the United States. According to a report from the International Renewable Energy Agency, more than 769,000 people were employed in renewable energy in the United States in 2015, compared with 187,000 employed in the oil and gas sector and 68,000 employed in coal mining. Jobs in solar and wind grew by more than 20% in 2015 while oil and gas jobs fell by 18% as the fossil fuel industry struggled with low oil prices.

These trends in energy market shifts are also observed at the international level. As of 2015, the worldwide renewable energy sector employed 8 million people and was growing rapidly. Earlier this year, China announced a plan to invest $360 billion in renewable energy sources by 2020. The Chinese National Energy Administration projects this will create 13 million additional Chinese jobs. According to a report last year from the World Economic Forum, solar and wind are both now either the same price or cheaper than fossil fuel resources in more than 30 countries. Another report last year from the United Nations Environment Programme showed that in 2015, the world added more renewable capacity than fossil fuel capacity to the global energy supply for the first time. Global renewable energy investment grew to $286 billion in 2015, more than double the spending on new coal and gas plants that year.

All of this analysis builds evidence to support the hypothesis that there is a global shift toward clean energy that is projected to uproot traditional fossil fuel extraction. As President Obama wrote earlier this year in the journal Science, “businesses are coming to the conclusion that reducing emissions is not just good for the environment—it can also boost bottom lines, cut costs for consumers, and deliver returns for shareholders... The trend toward clean energy is irreversible.”

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While the market finally seems to be taking corrective action in addressing the climate change market failure (pushed and incentivized by government action) the previous same reports also show that not enough investment is being made quickly enough to meet the Paris Agreement’s goal of limiting temperature increase to 2 °C. Despite the low price of wind and solar, for instance, many investors are still hesitant because of a perceived low-yield and the large amounts of capital needed.

It’s clear from real-world observation that the countries that invest early in policies that incentivize clean energy projects set themselves up for tremendous benefits. According to the World Resources Institute, of the 8 million clean energy jobs around the world, nearly half of them are in China (the country that has invested the most by a long shot), compared to less than one million in the United States. How can U.S. investment and private sector engagement be ramped up to create more jobs?

 Unlocking the Private Sector

 It is now universally recognized that there are not enough public sector funds, i.e. government spending, to meet our global climate goals. The technological and infrastructural makeovers required for a transition from the current energy mix that relies upon fossil fuels to one that primarily utilizes clean energy sources to meet the needs of every component of the global economy will require tens-(to potentially hundreds)-of-trillions of dollars of investment over the next few decades. Only the private sector has a well that deep. As then-U.S. Secretary of State John Kerry argued during a press conference in Marrakech that I attended last year, “it is not going to be governments alone, or even principally, that solve the climate challenge. The private sector is the most important player.”

The good news is that this creates huge opportunities for investors and companies willing to compete. To borrow from the terminology of the current administration, an “America First” energy strategy should be one in which a United States clean energy industry can thrive, employ millions of Americans, manufacture its products on a large scale, and sell those products around the world. The world is in a renewable energy “arms race” of sorts. In order for U.S. businesses to compete, more market certainty needs to be provided to boost investor confidence. The right public policies can help.

As countries strengthen their climate policies in attempts to meet Paris Agreement targets, they will focus on how to incentivize business to invest in large-scale clean energy projects. As evidenced by China, large investments of public funds can be used to inject capital into the market that then helps to leverage and de-risk private funds. There is a history of this in the United States as well, as the Center for American Progress highlights in their 2009 report, “Comprehensive Approach to Building the Low-Carbon Economy.” “This is how we built the railroads, electrified rural America, deployed the National Highway System, and launched a nuclear energy industry. In each case, public investment and public policy created vast new opportunities for jobs and profits in the private sector, enabling market transformation and industry growth... This is a time-tested script.”

The next few decades will be critical to unlocking the private sector in pursuit of meeting global climate goals. In “Part Two: The Next Thirty Years,” the urgency of this timeline is expanded upon, the role and historical responsibility of United States leadership is discussed, and specific policy proposals are suggested.

Will Hackman is a Master of Public Policy student at the Georgetown McCourt School of Public Policy specializing in energy, environmental, and climate change policy and has a Bachelor’s degree in International Relations from Bradley University in Illinois. During the 2010 and 2012 election cycles, Will served as a political fundraiser and campaign manager on four federal races for the U.S. House and Senate as well as a gubernatorial campaign. In 2013, Will joined the public sector conservation community as a marine fisheries conservation advocate. Since then, he has closely worked on federal legislative issues related to energy and the environment. At Georgetown, Will founded a graduate student organization dedicated to developing energy, environmental, and climate change policy solutions (McCourt E&E), he served as the 2016-2017 graduate student representative to the Steering Committee of the Georgetown Environment Initiative, as a Research Assistant to the Georgetown Climate Center, directed the Young Professionals Board of the Sustainable Oceans Alliance, represented Georgetown at multiple United Nations climate change conferences, and is a contributing author on energy, environmental, and climate change topics for the Georgetown Public Policy Review. This fall, Will has been selected to serve as a Student Leader to the McDonough School of Business’s Global Social Enterprise Initiative.