3 Reasons Why Undermining the Paris Climate Agreement Would Be Bad for Business

A worker cleans solar collectors on the roof of a farm on May 15, 2014.

Thousands of business executives and thought leaders are due to gather in Davos, Switzerland, from January 17 to January 20 for the annual World Economic Forum, where they will discuss this year’s top business risks and opportunities. At last year’s summit, business experts flagged climate change as the top global economic risk because, if left unchecked, it will worsen water shortages and food insecurity; escalate conflict in already unstable regions of the world; and force people to migrate. With so much at stake for the global economy, the business case for the United States and other nations to meet their climate change mitigation commitments under the Paris Agreement is clear.

In 2009, Donald Trump and his children—Ivanka, Donald Jr., and Eric—joined dozens of other business leaders on an open letter urging President Barack Obama and other world leaders headed to the U.N. climate talks in Copenhagen, Denmark, to secure an ambitious global agreement to curb climate change. In the letter, the signees said, “If we fail to act now, it is scientifically irrefutable that there will be catastrophic and irreversible consequences for humanity and our planet.” In December 2016, 365 business leaders and investors urged world leaders, including President-elect Trump and the U.S. Congress, to maintain their commitment to the Paris Agreement. They argued, “Failure to build a low-carbon economy puts American prosperity at risk. But the right action now will create jobs and boost U.S. competitiveness.” Yet, there are significant doubts about whether President-elect Trump—who has taken a skeptical view of climate change and pledged to undermine the Paris Agreement during his campaign—will continue U.S. efforts to fight climate change.

This column presents three reasons why the Trump administration must support rapid implementation of the Paris Agreement, as well as progressive domestic policies such as the Clean Power Plan to continue to curb U.S. carbon pollution.

1. Climate change threatens U.S. businesses—and their bottom lines

According to an analysis by the Risky Business Project, the increasing frequency and severity of extreme weather events as global temperatures rise put the U.S. economy at risk, including its infrastructure, coastal communities, agricultural output, labor productivity, and public health. As Risky Business Project co-chair and former Treasury Secretary Henry Paulson put it when interviewed for the project, “I spent nearly my whole career managing risks and dealing with financial crisis. Today I see another type of crisis looming: A climate crisis.”

In 2016, the United States experienced 15 extreme weather events, each with losses exceeding $1 billion. Total damages reached $46 billion. Recognizing these impacts, major companies such as Coca-Cola, Nike, and Johnson & Johnson have already reported the risks and costs of climate change in their official Securities and Exchange Commission filings. These effects will worsen if climate change continues unabated, making already-underway commitments in the Paris Agreement to curb carbon pollution and build resilience to climate change critical for the health of the U.S. and global economies.

2. The shift to a low-carbon economy is already happening

The prospect of a U.S. withdrawal from the Paris Agreement has not discouraged world leaders and business executives from continuing to combat climate change. During the climate talks in Marrakech, Morocco, immediately following the U.S. presidential election, representatives from 196 countries reaffirmed their commitment to fully implement the pact.

Moreover, investors’ growing shift to a low-carbon economy—accelerated by growing business opportunities and policy incentives at all levels of government—means that progress will likely endure. As President Obama wrote in his January 2017 Science article, “the mounting economic and scientific evidence leave me confident that trends toward a clean-energy economy that have emerged during my presidency will continue and that the economic opportunity for our country to harness that trend will only grow.” This transition to a low-carbon economy is consistent with broader economic growth. For example, between 2005 and 2014, the U.S. economy grew 13 percent, while energy-related CO2 emissions fell 8 percent.

And regardless of policy shifts, U.S. businesses and investors looking to participate in the global economy must prepare for carbon constraints in areas where high carbon investments may lose value or even become stranded assets. Many companies are already planning for this reality. Increasingly, companies are adopting and promoting a price on carbon, with more than 400 firms from a variety of sectors adopting an internal carbon price to ensure that their business decisions are aligned with the realities of a carbon-constrained world.

Investors are also taking seriously the risk that carbon pollution-heavy assets will lose market value. In 2016, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures released new guidance for businesses to disclose climate-related financial risks caused by a decline in fossil fuel asset values as the world transitions to a low-carbon economy. Moody’s Investors Services has also committed to analyzing carbon transition risk based on scenarios consistent with the Paris Agreement. Along with a continued commitment to the Paris Agreement, leading these efforts can prevent the United States from falling out of step with the rest of the global economy.

3. The United States can be a clean energy leader while creating jobs and business opportunities

The flipside of the risk that climate change presents for businesses and investors is the opportunity for U.S. businesses to lead the transition to a low-carbon, clean energy economy. In 2015, global investment in renewable energy reached a record $286 billion. Much of this growth has been driven by continuous cost declines, a trend that is making renewable energy a smart investment. By 2030, energy experts expect that wind and solar will become the cheapest way to produce electricity in most of the world. In addition, global employment in the renewable energy sector reached just more than 8 million jobs in 2015. This has translated into employment in the U.S. solar sector growing 20 percent annually between 2013 and 2015, with a total of approximately 300,000 people employed. In addition, energy efficiency jobs employ nearly 1.9 million people nationwide. A continued commitment to climate action will strengthen these sectors, while policy uncertainty will discourage the innovation that makes the United States a leader in this burgeoning industry.

Recognizing this growing market, the business community has taken the lead in committing to clean energy. Across the globe, 83 companies—including well-known U.S. companies such as Coca-Cola, General Motors Co., and Starbucks—have committed to sourcing 100 percent of their electricity from renewables. This shift is good not only for the environment but also for businesses’ bottom lines. As just one example, the director of sustainability at General Motors—a company not necessarily known as a leader on climate change—stated, “[GM’s] 100 percent renewable goal … is part of the company’s approach to strengthening our business, improving communities and addressing climate change.” This mirrors the benefits for the total U.S. economy: Investments needed to transition to a clean energy economy are far less costly than investments to respond to the effects of unchecked climate change. Clean energy investments also produce significant long-term savings compared with a continuing reliance on fossil fuels.

Investments in other countries to mitigate and adapt to climate change can also create opportunities for U.S. businesses. Through the Green Climate Fund’s Private Sector Facility, for example, investments in developing regions that have so far lacked significant private-sector investment could open new markets for U.S. investment and exports.

As the world’s top entrepreneurs and politicians prepare to convene in Davos, the incoming administration must make a critical decision: whether it will continue U.S. leadership to combat climate change and implement the Paris Agreement, positioning the country as a clean energy superpower—or whether it will weaken the U.S.-Paris pact commitment and let the United States fall behind on clean energy innovation and market share while fixating on burning fossil fuels that increase climate change threats to businesses and people around the globe. If the incoming Trump administration is committed to supporting economic growth and job creation while protecting public health and the prosperity of future generations, the choice is clear.

Howard Marano is a Research Assistant for the Energy Policy team at the Center for American Progress. Cathleen Kelly is a Senior Fellow with the Energy and Environment team at the Center.

The authors would like to thank Meghan Miller, Meredith Lukow, and Lauren Kokum for their contributions to this column.