Trump Says Leaving the Paris Agreement Serves America. So Why Is US Business Furious?

This willful decision won't hit every industry right away, but "renegotiating emissions targets is expensive, and it adds a great deal of uncertainty."

"I've decided to leave the President's advisory councils. Climate change is real. Withdrawing from the Paris Agreement is a loss for America and for the world."

After posting that tweet a little after 4 a.m. Eastern time on June 2, Tesla CEO Elon Musk put out three more posts tracking the fallout from "Trump announces US withdrawal from the Paris Agreement." Earlier, Disney's current CEO, Bob Iger, had also announced that he would quit his advisory post at the White House "as a matter of principle."

From manufacturing, cars and technology to finance, nearly every executive at a big American company spoke up this time to oppose Trump's decision in public, whether or not a change in emissions policy looked likely to touch their industry directly. The language was harsher than anything heard when earlier hardline policies — the "Muslim ban," the "border wall," "Buy American" — were announced.

Michael Bloomberg, the former New York mayor and founder of Bloomberg LP, who many believe will "one day run for president," went further: if the US withdrawal left a hole in the world's emissions-reduction funding, his charitable foundation would give $15 million directly to the relevant UN body to protect the work already done on climate change.

Honoring the Paris Agreement doesn't require Washington's approval.

Michael Bloomberg, former mayor of New York

Put simply, the Paris Agreement is a collective global decision to slow warming and cut greenhouse gas emissions: compared with levels before the Industrial Revolution, the rise in average global temperature must be held under 2°C by 2100, and ideally under 1.5°C; signatory countries may set comprehensive emissions policies to suit their own circumstances; and countries are to reach their targets by keeping each other in check, with the biggest emitters expected to carry more of the load.

Trump argues that when his predecessor, Barack Obama, signed the pact on America's behalf in 2015, he agreed to targets that were far too steep. By figures from the National Economic Research Associates, the Paris Agreement would cost the US 6.5 million jobs by 2040 and $7,000 in lost income for every American household. In GDP terms, that works out to $3 trillion.

What he found least acceptable was that the agreement binds no one, which let other big emitters set fairly loose targets. Americans were being taken for a ride — that, at least, is what Trump seemed to conclude after visiting the oil-rich countries of the Middle East.

"While we can't break ground, China can build hundreds of new coal mines. … India can double its coal output by 2020, and even Europe can build new coal mines! In short, this agreement isn't about controlling coal capacity. It just ships those jobs out of America to other countries. … In other words, it redistributes a huge amount of America's wealth among other countries."

Donald Trump, President of the United States

If this is fundamentally an economic question, why did Trump, a businessman himself, enrage American business over climate change? And how will the Paris Agreement, hard as it is to put into practice, shape the direction of the business world?

Why did so many bosses of Silicon Valley tech companies come out against it this time?

In May, The New York Times, The Wall Street Journal and the New York Post ran, more than once, a full-page ad signed jointly by 25 large companies — among them Apple, Google, HP, Intel, Microsoft and Tiffany & Co. — urging the Trump administration not to leave the Paris Agreement.

These companies work in technology, energy, retail, health, consumer goods, manufacturing and finance, and their combined market value tops $3.2 trillion. But the big tech companies led the way — which has everything to do with the tens of billions of dollars they have already spent buying clean energy.

Worldwide, information and communications technology burns about 8% of all electricity, and the share keeps growing. One large data center can swallow the entire output of a small or midsize power plant. Tech companies have had to find cheaper ways to get power, even to generate it themselves.

As the technology spread, the cost of wind and solar power fell by 60% and 80% respectively in recent years, which made both a priority for tech-company purchasing. According to earlier remarks by Google senior vice president Urs Hölzle, the wind and solar power the company buys in 2017 will be enough to cover the electricity used by its data centers and offices worldwide.

The company will keep working to create a cleaner, more prosperous future for the whole world.

Sundar Pichai, CEO of Google

Facebook CEO Mark Zuckerberg, while opposing Trump, also said the company is working to run all of its new data centers entirely on renewable energy.

To supply its own data centers and its suppliers with power, Apple has gone beyond buying clean energy and built power plants together with solar generators; surplus capacity can be sold to local utilities at market prices.

We want to assure you again that the president's action will not affect Apple's efforts to protect the environment. We will keep working with our suppliers to power the industry forward with clean energy.

Tim Cook, CEO of Apple

Musk and the carmakers oppose it for a different reason: the market for new-energy products

Something big happened on the US stock market not long ago: even though its annual sales and production capacity are less than 1% of General Motors', Tesla passed first Ford and then GM in market value, and at more than $51 billion became the world's most valuable carmaker.

Tesla did not arrive merely as a disruptor of the old car industry. Beyond the level of smart technology that gives it investment appeal much like a tech company's, plenty of people simply like its "environmentally friendly" label. To a degree, that label is an important part of how Tesla built its competitive position.

While traditional carmakers were only just waking up and speeding up their electric-vehicle plans, Tesla could already offer the market several reliable models at different prices. To cut costs, its Gigafactory makes its own vehicle batteries, turning out 100 megawatt-hours of product a year. At the 2017 TED conference, Musk said 100 such Gigafactories would meet the whole world's demand for clean-energy storage.

At Musk's urging, Tesla also bought SolarCity, another solar company he founded, in 2016. The deal drew heavy criticism from shareholders at the time, because selling solar roof panels directly is a hard business. But nearly three-quarters of US state governments hand out large subsidies for such projects, which is the only reason the company's debts have never become too severe.

For traditional carmakers like Ford and GM, Trump's steady emphasis on old-line manufacturing, plus the boost that leaving the Paris Agreement would give the oil industry upstream, ought to have been good news.

Seen from the global market, though, if fuel-consumption and tailpipe standards elsewhere keep tightening, pushing thirsty, dirty products in the US market alone isn't worth it either.

In Europe, where environmental standards are strict, executives at BMW and Volkswagen have complained that their companies have already spent tens of billions meeting EU requirements. Next to carmakers in the US and Japan, where emissions rules are looser, that leaves European manufacturers run ragged just hitting their emissions targets, and losing their technological edge.

After Volkswagen's diesel-emissions scandal broke, electric cars became an even more urgent lifeline for European carmakers. As in China, the carmakers have all announced several electric product lines and even optimistic mass-production forecasts, but for now most of their products look built to collect policy subsidies. Behind the boom in America's electric-car story, too, stand the subsidies offered by three-quarters of the states. Take Ford, which has performed poorly in recent years: after changing CEOs, it plans to put seven electric models into global markets over the next five years, all at once, and has slashed prices on existing products by about half to spur demand.

No carmaker today would argue with the line that new-energy vehicles are the industry's future. Volkswagen, BMW, GM, Ford and many others have all joined the race.

Traditional energy companies often resist emissions cuts, but they haven't left much room for Trump's American workers either

This time even oil companies like Mobil, ConocoPhillips and BP had reservations about Trump's plan. Their logic is simple: their profits come from traditional energy, and once the US is no longer at the negotiating table, it has even less say over how the world controls carbon.

On emissions, these traditional energy companies have outwardly dropped open resistance, working instead through lobbying groups to keep the damage to themselves as small as possible at every round of international talks and domestic policymaking.

Before the Paris Agreement was signed in 2015, Christiana Figueres, then head of the UN's climate change program, published an open letter to the CEOs of six oil companies, asking them to stop lobbying the UN and national governments at this critical moment.

Data from the disclosure site Open Secrets shows that Shell, BP, Statoil and BG Group (British Gas) together spent $3.72 million lobbying the US government in 2015 alone. These companies had earlier been blamed for nearly derailing the signing of the Kyoto Protocol, which, until the Paris Agreement came along, was the only global emissions pact ever to set explicit targets.

The global push to cut emissions has not changed their corporate strategy — however world energy demand grows, what should rise, in their view, is still the supply of traditional fuel. But their operating costs must not rise much in the process, which means automated, mechanized extraction will replace human labor and become the overwhelming norm. So even with Trump out of the Paris Agreement, his idea of "putting coal miners back to work" will very likely come to nothing.

By earlier counts from the US Department of Energy, the number of American coal miners has indeed been falling, but there were never many to begin with: from 87,700 in 2008 to 66,000 in 2015. And the US already mines coal more efficiently than anyone else. Bloomberg's analysis shows that at large American coal companies, automated equipment lifts annual output per worker to 30,746 tons — 17.8 times the figure at China's large coal companies today.

The coal companies with relatively low technology are the ones most likely to buy a few more years of life from Trump's decision.

Murray Energy, America's largest private coal-mining company, went through mass layoffs and declared bankruptcy. But as soon as Trump took office, it began egging him on to pull the US out of the Paris Agreement quickly. After the announcement, another private coal company, Peabody Energy Corp., said the move should let the power industry lean less on "a variety of less stable energy sources."

During the global oil-price crash, the US oil industry also cut nearly 70% of its jobs, yet after switching to computer control, daily output from drilling rigs went up. Take the wells in the West Texas basin: three years ago it cost more than $60 a barrel to get oil out of the ground there; now it costs $35.

Among the workers who left the mines and the rigs, aside from those now jobless at home, many have already found work in the new-energy industry. In 2016, new energy delivered 14% of America's new jobs, and the industry's employment grew more than 12 times faster than employment nationwide.

Trump's plan to walk back down the old road could instead throw those workers out of a job all over again — an outcome set by an industrial structure that had already turned toward relatively cleaner energy, not by the Paris Agreement.

One last thing worth noting: the US, which once used the market to control acid rain, is backing away from a huge opportunity in carbon trading

Letting the market rather than the government drive emissions cuts was once the advanced part of America's approach to environmental problems. A classic case is the "sulfur dioxide emissions trading" system set up in the 1990s.

Early on, dealing with the sulfurous exhaust from coal-fired power plants and the acid rain it caused, the federal government also reached for compulsion, ordering power companies to install desulfurization equipment. The power companies fought back hard, arguing that the cost of this method was "enough to send them back to the Dark Ages."

That clash between regulation and economic efficiency played out again and again; by the end of Reagan's presidency, Congress had introduced and voted down 70 different acid-rain bills.

In the 1990s amendments to the Clean Air Act, the government set only a cap on total sulfur dioxide emissions and handed out a fixed number of "emissions permits." For anything above their allowance, companies could cut production or switch to cleaner energy on their own, or go to the market and buy quota from other companies. As the government tightened the cap year by year, the price of a permit would climb high enough to tempt companies into cheaper ways of cutting emissions.

"Cap the total, let the parties check each other" later became the guiding idea behind global emissions pacts such as the Kyoto Protocol and the Paris Agreement, and it pushed other countries to use similar market methods on environmental problems.

The financial-market opportunities that come with emissions trading are a big opportunity for banking, too.

Over the past decade Europe has built the world's largest carbon trading market, which now takes in more than 11,000 power plants and manufacturers, along with aircraft flying within Europe. In 2016 it helped bring Europe's overall carbon emissions down 2.6% year on year.

The recession, plus the mistaken decision to let companies report their own emissions quotas, did keep trading prices at a few euros a ton for several years running. But after the trading strategy was adjusted, Europe's carbon market settled down again.

The US, by contrast, has never managed to build a national carbon trading system; instead the states inclined to cut emissions have set up their own regional markets. Total US carbon trading is now less than 10% of the EU's, and prices have long run below the EU's as well.

For America's well-developed financial industry, the carbon market — an opportunity good for hundreds of billions of dollars of trading a year, with a derivatives market behind it that could reach trillions — has been chopped into small pieces by US government policy. Under Trump, it could get worse still. The "invisible hand" has been tied, never mind allowed to make money off the chance.

By the formal process, Trump's decision will not actually take effect until the US government files a formal application in 2020 and it is approved. Trump has also said he does not oppose cutting emissions outright; he wants to renegotiate a more reasonable emissions policy for the US.

But Goldman Sachs CEO Lloyd Blankfein believes that the moment Trump announced the withdrawal, he had already badly weakened America's "leadership position around the world."

The Wall Street Journal also quoted an analyst at World Steel Dynamics, a steel-industry consultancy, who noted that Trump's decision won't hit every industry right away, but "renegotiating emissions targets is expensive, and it adds a great deal of uncertainty."

That uncertainty is the thing businesspeople fear most.

Cover image from Wikimedia Commons and Wikipedia