US withdrawal from Paris Accord puts technology at the forefront of the climate challenge

As expected, and as promised during his campaign, US president Donald Trump yesterday announced that the US will withdraw from the Paris Climate Accord, the 2015 agreement setting greenhouse gas (GHG) emission reduction targets for individual countries. One of the major achievements of the agreement was the near universality of the commitment, given that it covered 195 of the world’s 197 countries, including all the major carbon emitters. The US will now join Syria and Nicaragua in the list of countries absent from this global consensus.

In diplomatic terms, this is clearly a setback. From a US policy perspective, it is likely to increase uncertainty and volatility, especially in the energy, utilities and auto industries. And in the short term, the withdrawal may limit positive momentum in emissions reduction in the US, the world’s largest GHG emitter.

But does this development represent a fatal blow to the hard-won global consensus around the importance of addressing climate change? We think not.

One concern has been that US withdrawal would have a domino effect on the positive momentum achieved to date. In fact, it is early days, but the opposite appears to be happening.  Key signatories (including China, the EU and India) have indicated that they remain committed to their climate targets. Germany, France and Italy have just issued a joint statement reaffirming their commitment to the Accord, rejecting Trump’s suggestion that he may renegotiate a ‘better deal’ for the US. And within the US, individual States from New York to California have restated pledges to shift towards low-carbon solutions.

The investment community is also making its position clear. More than 280 investors globally representing more than US$17 trillion in assets (including M&G Investments), are co-signing a letter to the governments of the G20 calling for a reaffirmation of these countries’ commitment to the Paris protocol.

Beyond this, and perhaps the most powerful catalyst, is that technological developments in renewable energy, electric vehicles and battery storage are shifting the transition to a lower carbon economy away from the policy arena… and into the realm of innovation and the market. The economics of renewables are developing at such a pace that that solar and wind power are increasingly the cheapest option for new power generation capacity (cheaper even than coal-fired power). The cost of solar, for example, has declined by 80% in the past decade and continues to fall.  China, meanwhile, faces enormous social pressure to reduce pollution and clean up its environment. Progress on carbon emissions will be a by-product of this national strategy, while many would argue that the country would love to solidify its position in climate leadership.

Challenging moments such as these can strengthen public opinion and harden political resolve. The end of US participation does not mean the end of the climate deal, and it may turn out to be an event that unifies international attitudes on this crucial issue. What is beyond doubt is the market’s pursuit for the solutions to climate change, which remains arguably the twenty first century’s greatest challenge.

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