Trump has little to gain and much to lose by backing out of Paris Agreement, analysts say

Key Points
  • President Donald Trump is leaning toward pulling out of the Paris climate agreement.
  • The move will please his political base, but threatens to upset allies and provoke trade disputes, analysts say.
  • Backing out of the accord will do little to advance Trump's pro-fossil fuel agenda, analysts told CNBC.
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President Donald Trump stands to score political points with his base if he pulls out of the Paris climate agreement, but the move would do little to advance his pro-fossil fuel agenda and could strain relations with trading partners, analysts say.

The president is leaning toward leaving the international accord aimed at mitigating the impacts of climate change, according to White House sources. The move is no surprise, said analysts, given Trump campaigned on boosting fossil fuel output and reviving the coal industry.

"Domestically Trump does probably have quite a lot to gain from his core base by pulling out of something that is seen to negatively affect the prospects of coal," said Paul McConnell, research director of global trends at energy research firm Wood Mackenzie.

The notion of a trade battle over climate change is something everyone's tried to avoid for two or three decades. That's why we have an international agreement to put everyone in the same frame
Dirk Forrister
International Emissions Trading Organization president and CEO

But backing out of the deal will do little to increase demand for fossil fuels, he said. In the United States, higher energy efficiency, falling renewable energy prices, abundant natural gas, and the rise of electric vehicles and smart grids will continue to displace coal and oil, McConnell and other analysts told CNBC.

Trump considering exit from Paris climate change deal

"Will pulling out of the Paris Agreement save coal? I suspect that renewables and gas will have more to say about that than anything else," he said.

Trump could actually cut off a path to making coal more viable, said Jonathan Elkind, former assistant secretary for the U.S. Energy Department's Office of International Affairs under President Barack Obama. Without the United States at the table, necessary investments in clean coal technology and next-generation nuclear plants could take a backseat to wind and solar energy.

A "risk that arises from the U.S. leaving is that people take what I think would be an inefficient and unwise but kind of bumper sticker-friendly approach to the climate issue," said Elkind, who is now a fellow at Columbia University's Center on Global Energy Policy.

Indeed, coal companies like Cloud Peak Energy and Peabody Energy argued for staying in the Paris Agreement to influence coal's role in the global energy mix.

A U.S. exit from the Paris Agreement also raises the risk of trade disputes.

Trump leans toward pulling out of Paris climate deal

The United States is the world's second-largest emitter of carbon dioxide. Its trade partners could argue they are at a disadvantage if the United States frees its companies from the burden of climate regulations, analysts said.

Many of the biggest U.S. trade partners, including the European Union, Canada, Mexico and China already have or will soon implement carbon trading systems to cap the amount of CO2 companies are allowed to emit.

Dirk Forrister, president and CEO of the nonprofit International Emissions Trading Organization, noted that some foreign officials have raised the prospect of imposing a "carbon tariff" on U.S. products, but said that is uncharted territory and would have serious consequences.

"The notion of a trade battle over climate change is something everyone's tried to avoid for two or three decades. That's why we have an international agreement to put everyone in the same frame," he said.

Rebecca Keller, senior science and technology analyst at risk consultancy Stratfor, said it would be difficult for a big bloc like the EU to reach consensus on such a drastic measure. Instead, she thinks more targeted tariffs on parts of the U.S. economy could gain momentum.

But Elkind, the former Obama official, suggested some nations may have little patience for the United States, given that the Paris Agreement gives signatories significant flexibility to set climate policies based on their individual circumstances.

"If one of the biggest emitters doesn't wish to take advantage of that flexibility and stay part of the solution, I bet it will only embolden those who want to reach for more punitive approaches," he said.

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