Download Is Trump Right or Wrong to Withdraw from the Paris

Is Trump Right or Wrong
to Withdraw from the
Paris Agreement?
A cost-based analysis by climate risk
analytics firm CARBON DELTA
David Lunsford, Oliver Marchand, Elke Schaper, Sara Stocker, Amir Habchi
June, 2017 - Zürich, Switzerland
CARBON DELTA AG
Wunderlistrasse 45
8037 Zürich
Switzerland
Contact: [email protected]
Website: http://www.carbon-delta.com
IS TRUMP RIGHT OR WRONG TO WITHDRAW
FROM THE PARIS AGREEMENT?
The decision of U.S. President Donald Trump to pull out of the Paris Agreement has
sent chills across the globe. Trump left the Paris Agreement on the grounds that it
would be overly costly and very unfair to the U.S. economy, killing hundreds of
thousands of jobs and harming industries he suggested were already stricken by the
twin-forces of globalization and technological change. Analysts all over the world are
analyzing all aspects of the move by Trump. One major question being whether Trump
has a legitimate reason for his claims of unfairness towards the US - most of them
assuming that this is yet another unjustified national political move. As co-founders of
a climate risk analysis startup-firm, we had the same preconception. So on a flight from
Zurich to London, we ran our economic impact models focusing on the US, China, India
and the EU. It turns out we were wrong, but so is Donald Trump. Here’s why.
The data says that Donald Trump actually has a point.
It is widely accepted that the US has ambitious climate goals. In the first 15 years of
implementing its pledge under the Paris Agreement, the per capita emission reduction
costs for the US would indeed exceed that of the other countries we studied. Highly
developed nations have few low-hanging fruits to curb carbon emissions. For
developing nations such as China and India, cheaper, more cost efficient, infrastructure
investments suffice to comply with the proposed cuts in greenhouse gas (GHG)
emissions. To us, this meant: Trump is right. In the first years with commitments under
the Paris Agreement, the economic burden would be much larger for the U.S.
compared to China, India and the EU. But this was not the end of the story.
Why Donald Trump is essentially wrong nonetheless.
When comparing longer term per capita reduction costs, both China and India
approach U.S. spending levels on emission reductions at around the year 2035. At this
stage, large investment is required for developing nations to reach deeper reduction
levels, as cheaper opportunities run out. According to Carbon Delta’s analysis, by the
year 2050, both China and India will have strongly surpassed the US and EU on their
per capita spending levels for emission reduction goals, even as these countries
continue to grow their populations and further industrialize their economies. In 2050
the US and EU are far behind India and China and these countries endeavor to meet
the longer term goal of climate stabilization below 2°C.
A note on fairness and the prisoner’s dilemma of climate change reductions.
In our model, we focused on Trump’s main assumption: That the current Paris
Agreement was unfair as it is economically harsher on the US than on the other major
emitting countries. Clearly, this is a one-sided notion of fairness. Once again, climate
change is a textbook example of the prisoner’s dilemma to the world: All countries
would benefit from its implementation. Yet, for a single country, if all other countries
follow strict reduction targets, defecting from the agreement would be beneficial from
a purely short-term economic perspective. If all countries choose to defect though, the
negative effects would be carried by all countries alike, including the US. Also, other
arguments of fairness are apparently completely ignored by Trump: How are historic
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IS TRUMP RIGHT OR WRONG TO WITHDRAW
FROM THE PARIS AGREEMENT?
emissions weighted compared to future emissions? How much leeway is given to
developing countries to catch up with developed nations’? What are the values of
leadership and technological opportunities?
These are all legitimate questions of fairness, and so, all other future costs of climate
change aside, we focused on the economic burden of complying with the Paris
Agreement’s NDCs (“Nationally Determined Contributions”) for the largest four GHGemitting countries: China, US, India and the EU.
Background
With Michael Bloomberg leading a task force warning investors about climate risks, the
subject of climate change risk has definitely reached the interest of asset managers,
pension funds and reinsurance companies. Carbon Delta is a Zürich-based
environmental fintech startup that also emerged from this trend. We provide climate
risk data for the financial industry, computing the Climate Value-at-Risk for over
25,000 companies.
To dissect Donald Trump’s claims, we focused on two metrics:
1. he total mitigation costs necessary to achieve the NDCs and afterwards implement
the long term 2°C-target, also agreed under the Paris Agreement; and
2. the per capita contribution for emission reductions in relation to gross domestic
product (GDP).
All attempts at quantifying the long-term costs of mitigation actions must make certain
assumptions, including the future demographics of countries under the study,
population and economic growth rates, business-as-usual emission levels, reduction
requirements and carbon prices. We used the same economic models that Carbon
Delta designed to assess the impact of climate change on over 25,000 different publicly
listed companies.
The below section summarizes our results for the United States, the European Union,
China and India - the four largest GHG-emitting countries in the world.
Table 1 – Total Mitigation Costs by country (mUSD)
2030
2035
2050
United States
121'293
222'923
611'116
European Union
15'927
78'912
228'249
China
2'400
270'614
1'214'012
India
3'154
315'573
1'258'962
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IS TRUMP RIGHT OR WRONG TO WITHDRAW
FROM THE PARIS AGREEMENT?
Table 2 – Impacts on GDP per capita
2030
2035
2050
United States
0.53%
0.87%
1.79%
European Union
0.07%
0.33%
0.83%
China
0.01%
0.82%
2.44%
India
0.04%
2.55%
4.49%
Cross-National Comparison of Mitigation Costs
Expected US leadership on mitigation efforts
The United States’ current overall GHG emissions are second only to China. On March
31, 2015, the United States submitted what has been dubbed a moderately ambitious
NDC, pledging to reduce its net greenhouse gas emissions by 17% below the 2005 level
by 2020 and 26–28% below the 2005 level by 2025 while making “best efforts to reduce
its emissions by 28%”. With an annual per capita emission level of roughly 22.5 t
CO2eq, the United States´ participation in and support of the NDC-agenda has so far
been considered instrumental to limit global warming to 2oC. Yet, its reduction
commitment alone would not be sufficient to limit global warming to below 2°C, unless
other countries make comparatively bigger efforts to offset the United States’ ambition
level. While the now dismantled Clean Power Plan introduced in August 2015 would
have gone some way towards meeting the NDC target for 2020, achieving the more
ambitious 2025 target would require the implementation of current policies to be
expedited and strengthened.
The European Union is economically not fulfilling it’s role
The European Union, long one of the driving forces of international climate change
politics, has committed to lowering its emissions by 80-95% in 2050 relative to a 1990
baseline. In doing so, the European Union is in pursuit of one of the most stringent
mitigation goals of all parties to the Paris Agreement. Nevertheless, the costs of
accomplishing this ambitious GHG emission reduction goal are lower than the costs of
the targets set forth by the US, China and India.
China is a late starter for mitigation efforts
During the COP 15 in Copenhagen in 2009, China was unwilling to commit to a climate
deal that would have hampered its then soaring economy, thereby derailing the
Copenhagen climate summit. Since then, China has become an important driver of
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IS TRUMP RIGHT OR WRONG TO WITHDRAW
FROM THE PARIS AGREEMENT?
global climate change governance, contributing to much of the positive momentum
that was infused into climate change politics recently. Having merely committed to
lowering its emission-intensity within its NDC, China is still allowed to moderately
increase its emissions up to 2030. This explains the relatively low initial total mitigation
costs and impact on per capita GDP. However, after 2030, the costs associated with
reaching a long-term GHG target of 2°C will increase considerably.
India becomes the climate champion over time
Following Donald Trump’s decision to withdraw, India was quick to air its unwavering
support for the Paris Agreement. Caught between a balancing act of transitioning its
economy to a lower carbon intensity while allowing economic growth to reduce
poverty, India’s climate pledge has been limited to moderate emission cuts until 2030.
Especially agriculture, the sector which sustains many of India’s poor, has largely been
left out of the near-term GHG emission reduction goal. India’s low mitigation costs up
until 2030 reflect this development strategy. However, the 2°C target imperative will
require India to contribute more decisively to emission mitigations in the long term.
Accordingly, both total mitigation costs and the cost impact on per capita GDP
skyrocket between 2030 and 2050.
Detailed Cost and Financial Impact Analysis
In summary, the below graphs indicate the findings within Carbon Delta’s analysis on
how GHG reduction costs between these four major-emitting countries will converge
and even reverse over time. According to our analysis, the United States would have to
bear comparatively high costs up until 2030 to achieve the GHG reduction goals under
its NDC climate pledge. Hence, the mitigation costs associated with the immediate
future provide some grounds for Donald Trump’s assertion that the Paris deal works at
the detriment of the United States relative to other large emitters. However, the
economic burden falling on the other three countries within this study increases
steeply as of 2030, especially in India and China. Thus, Donald Trump is partly right in
that the US is facing higher costs under the Paris Agreement in the short term, but is
flat wrong in claiming that the role falling on the US to tackle climate change is unfair.
In the end, the question that political leaders should focus on is not one of single
economic metrics, but national and international utility. Since the U.S. is the world’s
largest historical emitter of greenhouse gases, it only makes sense for the U.S. to take
the lead role in tackling climate change. If no country is willing to take the lead, bearing
slightly higher short-term costs than others, then country leaders will surely become
trapped in a prisoner’s dilemma. Unfortunately, this scenario could lead to the worst
outcome for our planet and ultimately bounce back to damage a large swath of
countries, as an estimated USD 2.5 trillion in economic value is estimated to be lost this
century due to climate change.
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IS TRUMP RIGHT OR WRONG TO WITHDRAW
FROM THE PARIS AGREEMENT?
Total Projected Mitigation Costs
Mitigation Costs (mUSD)
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
United States
European Union
2030
2035
China
India
2050
GDP Loss per Capita
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
United States
European Union
2030
2035
China
2050
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India