US decision on Paris accord: worst of both worlds
Our analysis shows that if the rest of the world presses on with implementing the agreement, the US’s decision to try to put a brake on the transition leaves it no less vulnerable to the economic costs and less likely to reap the benefits.
Trump argues that the agreement has been detrimental to the US economy and that his policy to protect the American fossil fuel industry has been hugely successful economically.
However, in the last couple of years, since we first looked into the impact of a possible US withdrawal, the cost of renewables has continued to fall.
The cost of gas in the US has also fallen, meaning that coal has been unable to compete in energy markets.
In 2019, it seems unlikely that the cost of extracting gas will fall much further but the downward trend in the costs of wind and solar capacity continues. Electric vehicles may soon start to take a bite out of global oil demand.
All of this will happen regardless of US policy, as noted in the 2017 analysis. By promoting the fossil fuels sector, in ten years’ time the US could be left producing high-cost energy that is not required either domestically or in export markets.
In economic terms the US could end up with the worst of both worlds by leaving the Paris agreement.
With the rest of the world committed to moving towards a 2°C target, including more efficient and electric vehicles, the relatively high-cost oil sector in the US could face substantial decline.
At the same time, by trying to delay the transition, the US will miss out on a potential stimulus from large investments in renewables, energy efficient buildings and equipment as well as accelerated innovation in new technologies.
To find out more about our work on the decarbonisation transition, please contact Hector Pollitt.
Story first published in 2017, updated October 2019.