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Gregory Brew

Gregory Brew

Gregory Brew is a researcher and analyst based in Washington D.C. He is currently pursuing a PhD at Georgetown University in oil history and American…

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Will Trump’s Paris Agreement Decision Help Or Hurt The Energy Sector?

oil pipelines

President Donald Trump’s decision to take the United States out of the Paris climate agreement, which he announced before an audience outside the White House on Thursday, has been met with criticism from other governments. The agreement reached in late 2015 is meant to coordinate international efforts to reduce carbon emissions and prevent the world’s temperature from increasing by 2 degrees Celsius.

Apart from Nicaragua, which believed the Paris agreement didn’t go far enough in combatting climate change, and Syria which has chosen not to accede to the agreement as it remains embroiled in civil war, the United States is the only nation on earth to exit the agreement. Trump’s offer to renegotiate the agreement was quickly rejected by other world leaders, who have vowed to press on with meeting the requirements of the accord.

According to the President and key Republicans who supported his decision, the Paris agreement would impact the American economy in the long-term, depressing growth and affecting the ability of American companies to compete internationally. Advocates of the agreement have argued it will not adversely impact American economic growth, and may even act as a further boon to the growing renewable energy sector.

Arguing for backing out of the agreement was a key factor of Trump’s presidential campaign, which frequently invoked an “America First” economic policy. It is also in line with the administration’s advocacy for greater oil and gas production, and comes as the EPA relaxes or removes Obama-era regulations on carbon emissions

Despite the economic basis for leaving the agreement, President Trump’s choice was made in spite of considerable resistance from the private sector, including major energy companies. The CEOs of Goldman Sachs, Tesla and Walt Disney all criticized the decision, while Exxon Mobil and ConocoPhillips reiterated their support for the agreement a day before Trump announced the U.S. withdrawal. Chevron joined the chorus, arguing that the Paris agreement offered the “first step” in setting up a global framework to combat climate change. Related: Oil Prices Rise As EIA Confirms Strong Draw To Crude Inventories

For decades, the majors were among the world’s most ardent climate change skeptics. Yet big energy has spent the last several years transitioning towards an acceptance of climate change. Major U.S. energy companies all advocated staying in the agreement, placing them at odds with an administration that has positioned itself as very pro-oil.

At the annual investor’s meeting in Dallas, Exxon CEO Darren Woods argued oil demand will continue to grow, despite the policies enacted under the Paris agreement. Woods’ position echoes that of his predecessor Rex Tillerson, now US Secretary of State, who argued for staying in the agreement though he told the US Senate in January that efforts to predict climate change were “very limited,” and regarded the issue as an “engineering problem” requiring changes in technology, not energy consumption. While both Exxon and Conoco have advocated staying in the agreement, neither company joined a petition of twenty-eight major U.S. corporations, officially urging President Trump not to withdraw the US.

This equivocal position from Exxon was matched by that of Shell, which vowed that it would continue to take “internal actions” while working with the Trump Administration on new climate change policies. BP chief executive told Bloomberg on Thursday that the energy sector would have to “transition” towards low-carbon energy sources. Related: Clash Between Qatar And The Saudis Could Threaten OPEC Deal

While the majors have altered their stance on climate change in the last decade, chiefly to match changing politics in Europe and Asia and to improve public relations with populations growing more and more concerned about environmental issues, domestic energy companies are less concerned. The API has thus far taken no stance on withdrawing from the Paris agreement, while the Texas Alliance of Energy Producers argued the regulations would impose high costs on energy producers struggling with low prices.

Some within the industry have argued that the international agreement, which is voluntary, may have little actual impact; that the transition away from high-carbon energy sources is already underway, driven by technological innovation and changing economics, particularly the low price of solar and power and the improved competitiveness of natural gas, which emits less carbon than coal.

While the U.S. withdrawal signals less political support for the international accord, renewable energy companies like First Solar Inc. will continue to profit from the growing global demand for cheap solar power, while some oil and gas companies will suffer from low prices. The U.S. leaving the agreement will not stop Berkshire Hathaway from continuing its investment strategy into renewable energies, nor will it arrest coal’s downward spiral, despite the symbolic importance of Trump’s policy: coal stocks slipped after the announcement, and overall the decision had little impact on energy markets, which were more responsive to news that US inventories are declining.

It will take years for the American withdrawal from the Paris agreement to be completely absorbed, and President Trump may ultimately change his mind, as members of his Administration argue for staying in the agreement. Major energy companies will continue to advocate for accepting climate change policies, however, in acknowledgement of the fact that international support for the Paris agreement remains strong outside the U.S.

By Gregory Brew for Oilprice.com

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Leave a comment
  • Josh Gregner on June 04 2017 said:
    Leaving the agreement will for sure satisfy the hunger for "red meat" of some of Trump's constituency. But will it help? I doubt it.

    We should always remember that key provisions which made the agreement weak and softer than other wished are there because of the US. And with both China & India backing away from fossil fuels quickly this will end in either two scenarios:

    a) an economically isolated US (where other states e.g. impose carbon tariffs on US exports - just like the US wants to do with Chinese solar panels - to compensate for the "environmental dumping and the unfair advantage gained by the US due to that.

    - or -

    b) a weakened US that won't be part of these kinds of international agreements but will need to abide by them in order to trade with the rest of the world.

    For US energy companies the world will be more complex and more difficult. The nasty characteristics about global trade and international corporations is, that nothing happens in isolation. Companies know this. US leadership seems to either not get it or doesn't care which will kill economic growth in the US.
  • M Shannon on June 04 2017 said:
    Congratulations to President Trump for withdrawing from that scam. Just because the other nations are a herd of sheep doesn't mean the US has to be a sheep as well.

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