The US administration’s decision last week to shocked the world. In a likely first, President Trump has managed to bring ExxonMobil, Greenpeace and North Korea together on the same side of an issue. The decision raises questions around the implications for investments in the clean energy sector. Does this spell the end of wind farms and a return to the smog-covered industrial landscapes of the 50s? And will investment flows into US renewables run dry?
The withdrawal of the world’s largest economy is undoubtedly a blow to global efforts to keep temperature rise well below 2°C. However, the momentum behind renewable energy investments is much too strong to be halted by one single administration. The world’s transition toward clean energy sources is inevitable, irreversible and already underway.
Far from bringing action to a halt, US withdrawal leaves room for other powers to take the lead, as exemplified by the recent by China and the EU to accelerate joint efforts to reduce global carbon emissions.
What’s more, governments do not operate in isolation; US businesses, investors, cities and states are awake to the fact that they cannot afford to delay, and are a major driving force behind the low-carbon transition. New York and California have plans to generate 50 percent of their energy from renewable sources by 2030, alongside other ambitious emission reduction targets. California’s $2.5trn economy would, on its own, be the sixth largest in the world, narrowly trailing the UK. Immediately following the US announcement, the Governor of California embarked on a to Beijing to explore how the state could continue to develop its green infrastructure in partnership with China. Furthermore, over 1,000 US governors, mayors, businesses, investors and universities have joined forces to declare that they are ‘‘ and will continue to pursue ambitious climate goals in support of the Paris Agreement.
In a likely first, President Trump has managed to bring ExxonMobil, Greenpeace and North Korea together on the same side of an issue
Investors have been stepping up as well. In May, two thirds of ExxonMobil shareholders, the world’s largest publicly listed oil and gas company, supported a proposal that the company should disclose the expected impact of climate change on its business. The New York State pension fund’s $2bn low-carbon index, which uses CDP data and was launched in 2015 (the year the Paris Agreement was signed) is set to double in size to $4bn.
The business case for climate action
But perhaps most encouragingly, American businesses are responding to the climate challenge, and for a simple reason: it cuts costs. revealed half have a goal in place to reduce their greenhouse gas emissions, while 190 companies reported savings of $3.7bn a year as a result of their climate action. The yearly emission reductions from these corporate efforts are equivalent to closing 45 coal-fired power plants.
American companies are also helping to drive the surge in demand for renewable energy. Google, Bloomberg and eBay are among the growing number of influential businesses committed to sourcing 100 percent of their energy from renewables through the RE100 initiative.
As the cost efficiency of solar and wind technology improves, renewable energy is rapidly becoming the largest source of new electricity generating in the US. It is renewables, not coal, creating American jobs. The solar and wind industries alone create jobs at 12 times the rate of the rest of the US economy, meaning investment in renewables is unlikely to slow.
Withdrawal leaves US administration out in the cold
The withdrawal from the Paris Agreement places the US in a small club of non-signatories, together with only Syria and Nicaragua. Reaction from the global business and investor community was instant and negative. The CEOs of Tesla and Disney resigned from Trump’s Business Advisory council, while business giants from Ford to Facebook condemned the move. They were joined by leading financial institutions like Goldman Sachs and JP Morgan Chase, with the CEO of Goldman Sachs the decision is a “setback for the US’ leadership position in the world”.
Any country that fails to implement the Paris Agreement increases risk for not only the planet, but for its businesses and investors. The US withdrawal is undeniably a bump in the road, but one that is likely to be offset by the incentive for investors to climate-proof their portfolios. The first step should be to encourage portfolio companies to adopt measures such as carbon footprinting and science-based targets, carbon reduction targets aligned with the pathway to keep global temperature rises below 2°C.
The Paris Agreement represents a managed transition towards a low-carbon economy, a transition which is long underway. Walking away might please a narrow group of the President’s voters, but ultimately only serves to place the US at a competitive disadvantage, as investors in clean energy and efficiency technologies may start to look elsewhere. States, businesses and investors must now work together to limit the damage.