Energy Market Impact: US to Exit Paris Climate Deal

June 2, 2017

Exiting the Paris Climate Deal: The Energy Market Impact?

On June 1, President Trump announced his intention to pull the United States out of the Paris climate agreement. Negotiated in 2015, the accord aims to address climate change through the reduction of carbon emissions and involves nearly 200 countries. U.S. participation was authorized through executive order by President Obama and was the subject of criticism by President Trump during his campaign.

Importantly, while the decision to withdraw may have significant impact as a symbolic move, it does little to change any fundamental energy market expectations.

That’s largely because the agreement is non-binding, and it was never expected to limit President Trump’s pursuit of energy policy that is more favorable towards domestic fossil fuel industries and less favorable to renewable energy relative to the previous administration.

The anticipated effect of those policies also remains unchanged. Renewable energy capacity is set for growth, while coal plants will continue to be retired without new capacity additions. The current administration’s policies may slow those trends, but will not reverse them.

Climate Deal Gen Chart

Electric Generation Capacity Additions and Retirements; 

Source: EIA, Schneider Electric Global Research & Analytics

The U.S. stepping away from the climate deal is unlikely to change commitments from other countries as well. Already, leaders from the European Union, China and India have stated a resolve to uphold their climate commitments. Those countries are also unlikely to be interested in any re-negotiation effort.

Additionally, the U.S. likely cannot withdraw immediately. The treaty requires a waiting period and formal removal process that can not be completed in full for 3.5 years, near the end of President Trump’s current term.

The move is not expected to have any direct impact on U.S. shale production either — for oil or gas. Both were already expected to trend higher over the latter half of the year before President Trump’s announcement.

In some cases, the move may actually accelerate efforts at the state and local level to promote renewable energy, though changes are likely to occur along somewhat partisan lines.

Read more about the business community’s reaction to the news. And check back for more detailed updates and analysis in the coming days.

 

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