×

The US advantage at Paris climate talks

For the first time since climate change became a top priority for world leaders, the United States confronts the current round of global climate negotiations in Paris from a position of relative strength.

In the past, many in the U.S. have opposed such agreements because curbs on greenhouse gases would put U.S. businesses, especially manufacturers, at a disadvantage. That's no longer the case. Recent advances in technology that have made the United States a global leader in low-cost, low-pollution energy stand this argument on its head. We can gain a relative competitive advantage if world leaders are able to negotiate a new global climate agreement.

Secretary of State John Kerry waves as he walks off stage after speaking at the Mashable/UN Foundation "Earth to Paris" Summit during the COP 21 United Nations conference on climate change in Paris, December 7, 2015.
Mendel Ngan | Pool | Reuters
Secretary of State John Kerry waves as he walks off stage after speaking at the Mashable/UN Foundation "Earth to Paris" Summit during the COP 21 United Nations conference on climate change in Paris, December 7, 2015.

The main reason for this is that it is no longer prohibitively expensive for the U.S. to significantly reduce greenhouse gas emissions. Research we conducted with Michael E. Porter of Harvard Business School found that reductions already are happening in a big way with the explosive growth of low cost unconventional natural gas and the scale-up of ever-more-competitive wind and solar power.

The cost of natural gas, which is 50 percent cleaner than coal, has declined by 60 percent since 2009 and is now competitive with coal. Solar and wind are still generally more expensive than their fossil-fuel alternatives when subsidies are removed, but costs have declined by some 75 percent for solar and 50 percent for wind since 2009. Further reductions are likely. As a result, the use of natural gas and renewables has boomed in the U.S. driven by market forces, pushing carbon emissions down by 10 percent over the last decade.

In the power sector, for example, the U.S. could replace much of its coal use with natural gas and renewables and reduce emissions by 30 percent by 2030 without materially impacting electricity prices or total energy bills. Natural gas can be used to make these reductions without locking the United States out of even further carbon reductions after 2030. Over the longer term, our research shows renewables are on pace to be lower cost than fossil fuels, creating an opportunity to replace current fossil fuel power-generation assets as they reach retirement over the next 20-30 years.

America's unique competitive advantage in combating climate change comes primarily from the abundant reserves of low-cost natural gas we possess. While all countries are benefitting from the decline in the cost of renewables, the U.S. is way ahead of the rest of the world in developing new sources of low-cost clean-burning natural gas. This is a consequence of the unconventional, or "fracking," revolution. Even with the global decline in oil and gas prices, domestic industrial natural gas prices are 50 percent to 70 percent lower than in Western Europe, Japan and other countries with which we compete; industrial electricity prices are 25 percent to 50 percent lower here.

These advantages will persist over the next 10 to 20 years and they mean that no other country can make meaningful carbon reductions as cheaply as the U.S. Germany, for example, lacks low-cost gas and has spent over $400 billion in direct government subsidies to reduce carbon emissions since 2000. Yet residential electricity prices during this same period have nearly doubled.

The United States, therefore, has a relative competitive advantage in achieving near- to mid-term carbon reductions.

Unlike prior rounds of climate negotiations, these negotiations are different in another respect as well: All of America's largest global competitors – China, India, Japan, and the European Union – are now committed to significant reductions in carbon emissions. While the plans they submitted prior to the opening of the talks may not be as aggressive as climate advocates would like, there appears to be less risk this time around that these countries will walk away from their carbon-reduction commitments. China and India, in particular, face massive air pollution and health issues caused by their dependence on coal.

While many will debate the absolute costs and benefits of carbon reductions, it is clear is that the U.S. has a relative advantage in making these reductions. Thanks largely to the unconventional gas boom, the U.S. can reduce its carbon emissions in the near to mid-term far more economically than virtually any of our major trading partners. As a result, the U.S. participates in the Paris climate negotiations from a position of relative strength. That makes these talks very different – and creates an opportunity for a breakthrough agreement.

Commentary by Gregory J. Pope and David S. Gee. Pope is a principal in the energy, strategy and sustainability practices at The Boston Consulting Group. Gee is a BCG partner who leads the firm's energy practice in North America. Both are co-authors of the report "America's Unconventional Energy Opportunity."