The Paris Agreement is intended to bring nations together to address and combat climate change with a goal of keeping global temperature rise this century to well below 2 °C (3.6 °F above pre-industrial levels). In this blog, we discuss what the Administration’s decision to exit from the Paris Agreement means for the energy and utility industries in the United States.
The progress towards diversified energy sources
Over the past decade, there has been significant momentum towards diversifying the sources of U.S. electricity. The surplus of natural gas, provided by the Marcellus and Utica Shale in the Northeast and Barnett Shale in Texas, resulted in the construction of more gas-fired power plants. With low natural gas prices, gas-fired power plants became the largest source of electricity generation in the United States in 2016. At the same time, the U.S. witnessed a 250% increase in renewable energy generation. In both 2015 and 2016, wind and solar capacity additions exceeded new natural gas capacity. Thus, even before the United States entered into the Paris Agreement in 2016, the transformation to a low-carbon future was already on its way.
The shift toward greater use of natural gas and renewable energy has been driven primarily by economics and state regulatory policies that favor cleaner forms of energy. Independent of the federal government, 29 states currently have renewable energy portfolio standards. Typically, these states set individual goals to generate a certain amount of electricity generated from renewable energy sources by a target year. Withdrawing from the Paris Agreement does not affect these standards. Not only are these goals established and funded at the state level, in many cases they also mandate electric utility compliance. Several states, including New York and California, have already indicated they will provide additional funding for renewable energy programs, and several electric utilities have expressed their commitment to fighting climate change regardless of the Paris Agreement.
Despite the commitments from states and utilities, there is a concern regarding the continued development of renewable energy technologies. The decision to exit the Paris Agreement, however, plays a relatively small role in this outlook. Instead, it is the collective impact of proposed federal budget cuts and the decision to rescind the Environmental Protection Agency’s (EPA) Clean Power Plan regulations that will reduce or eliminate expected research and development (R&D) programs that support the continued growth of renewable energy technologies. While short-term investments in renewable energy may continue thanks to state programs and federal tax subsidies, long-term investments in renewable energy could be curtailed. Budget and policy uncertainty and insufficient R&D funding could be an insurmountable barrier to continued cost reductions and technology innovations required to achieve a clean, robust power system.
The Administration’s impact on transportation and coal industries
Second to the electric industry (contributing 29% of greenhouse gases in the U.S. in 2015), the transportation sector (contributing 27% of greenhouse gases in the U.S. in 2015) is incredibly important and much more vulnerable to the Trump Administration’s decisions (United States Environmental Protection Agency, 2017). Improvements to fuel economy are not necessarily derailed by exiting the Paris Agreement; however, the movement to roll back the fuel efficiency standards set by the Obama Administration is cause for concern. Less stringent fuel efficiency requirements paired with low gasoline prices would lend itself to growing carbon emissions. Without commitments from states (such as those made by California) or auto manufacturers, the transportation sector could become the largest contributor to greenhouse gases in the U.S. within the next decade.
It has been suggested that the decision to leave the Paris Agreement and reduce support and funding for clean energy development would support the coal industry. Regardless and independent of these actions, the market over the last decade has shown that coal is becoming increasingly less competitive in electricity generation and much of the coal infrastructure, including mining and rail transport, continue to decline.
The collective impact of changing dynamics on climate change
Overall, exiting the Paris Agreement does not single-handedly dismantle efforts in the U.S. to mitigate climate change. Instead, it is the aggregation of the federal environmental policies targeted by the Administration. Rescinding these commitments along with the proposed significant reductions in R&D through budget cuts, the U.S. is stepping down as a leader in clean energy and clean technology, and is preparing to take the back seat around sustainable energy solutions.
A concern among many in the energy and environmental technologies industry is that retreat from the Paris Agreement will stifle investment by U.S. companies in new clean energy technology, thereby slowing or contributing to decreasing job growth in this sector. This could further erode U.S. leadership in clean energy and environmental control technologies, providing a global advantage to other countries and industries outside of the U.S. The longer-term consequence of this retreat, if it materializes, could be more devastating than the immediate impact of withdrawing from the Paris Agreement.
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NPR. (2017, June 4). CEO Of Electric Power Giant Criticizes Trump Decision To Withdraw From Paris Climate Agreement. Retrieved from NPR: http://www.npr.org/2017/06/04/531444376/ceo-of-electric-power-giant-criticizes-trump-decision-to-withdraw-from-paris-cli
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