This is as good a time as any to review what happened on the climate change front this year: The planet was raging from wildfires in California and hurricanes in the Caribbean to floods on the Indian subcontinent and droughts in Africa. Quite apart from the human and environmental costs, markets will notice what happened, particularly when they are faced with the shrinking profitability of insurers and reinsurers. These companies have to face ever-increasing payouts due to environmental catastrophes.
Trump is the odd man out, because all of the world’s other countries have now signed up. Trump also asked Scott Pruitt, a climate change skeptic, to head the Environmental Protection Agency, and he swiftly proceeded to cancel many useful Bush and Obama era measures and guidelines. Trump’s budget furthermore favors carbon-based fuel sources and nuclear energy and penalizes renewables. The withdrawal of “tax equity” in the form of the obscure Base Erosion Anti-Abuse Tax will take as much as $50 billion out of financing wind turbines. It may cost the industry up to 60,000 jobs in the US. Worse, it brings uncertainty to foreign banks. The likes of BNP Paribas, Deutsche Bank and Credit Suisse had availed of the tax breaks for renewable energy and invested generously. One stroke of a brush rendered that business model invalid. These institutions will be careful in trusting US policies going forward, which will have ramifications far beyond the energy sector. The policies are also bound to impact on research and development. Here the US should be careful: China has advanced rapidly and is now one of the key technology hubs for renewable energy. When it comes to the environment and renewable energy, the actions of Trump and Pruitt may well be counter-productive to the overall goal of “making America great again.”
What the US does matters on the international stage. In November, the UN Framework Convention on Climate Change held its annual conference (COP23) in Bonn. The hosts were Fiji but the island was too small to accommodate the thousands of participants and observers, which is why Germany provided the infrastructure. It was powerful and added a sense of urgency having one of the countries most affected by rising sea levels hosting the meeting. Unusually, a strong and vocal anti-US government delegation was in attendance (anti-government representation is generally a phenomenon of smaller war-torn countries, not of the leader of the free world). It was headed by former New York Mayor Michael Bloomberg and California Governor Jerry Brown.
The Paris Agreement is not dead — most countries and companies, even oil and mining giants, see the importance of accounting for greenhouse gas emissions.
The Paris accord was only agreed because it benefited from strong US leadership. Now that has dissipated, emerging economies worry about sufficient endowment of the $100 billion-a-year fund designed to compensate them for the costs of taking measures alleviating climate change. Turkey has already indicated it might leave the agreement if the promised funds were not available by 2020. Russia has also become more skeptical. The absence of the US also meant that COP23 and the One Planet summit featured far less prominently in the international news cycle than they should have. It is now up to the UN, the World Bank, and EU leaders, Canada, Mexico and China to keep the momentum going.
This brings us back to Paris. The World Bank has announced it would no longer finance oil and gas developments, save in the very poorest countries. Two hundred institutional investors with $26 trillion under management have so far signed up to the disclosure requirements of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD is a G-20 initiative headed by Bank of England Governor Mark Carney and Bloomberg that encourages disclosure of the greenhouse gas emissions of investments. Banks, insurers and pension funds all see the validity in the TCFC guidelines. The Paris Agreement is not dead and most countries and companies, even oil giants and miners like Shell, BHP Billiton, Glencore and BP, see the importance of accounting for greenhouse gas emissions. Many GCC governments have also made a big push toward renewable energy and carbon-neutral modes of transportation. The climate change debate will be with us for the foreseeable future. What happens to mother earth is important to all of mankind — it would be a shame if the US remained the odd country out.
• Cornelia Meyer is a business consultant, macro-economist and energy expert. Twitter: @MeyerResources