June 2, 2017

9 Things to Know About Trump's Paris Agreement Decision

California Law360, Corporate Law 360, Environmental Law360, Energy Law360, International Trade Law360, Project Finance Law360, Public Policy Law360

After declining to recommit to the Paris climate change agreement at last week's G-7 summit, it came as little surprise that President Donald Trump announced that the United States "will withdraw from the Paris climate accord." The December 2015 Paris agreement, now ratified by 147 countries including the United States, is designed to abate the risks and impacts of climate change by holding the increase in global average temperature to "well below" 2 degrees Celsius (3.6 degrees Fahrenheit) above preindustrial levels.

To achieve this goal, all parties to the agreement are required to prepare nationally determined contributions (NDCs). The United States' NDC proposes to reduce economy-wide greenhouse gas (GHG) emissions by 26-28 percent below 2005 levels. Trump stated Thursday, June 1, the U.S. would "cease all implementation of the nonbinding Paris accord," including "ending the implementation of the nationally determined contribution," and the United States' financial contributions to the Green Climate Fund.

Here are nine things you need to know about Trump's decision:

1. Withdrawal Won't Be Effective Until November 2020 At Earliest

Trump vowed to withdraw the U.S. from Paris, but the reality is that withdrawing from the agreement is not permitted under Article 28 until three years from the date the agreement entered into force for a party—which means the earliest the U.S. could invoke that clause is November 2019. At that point it may withdraw for any reason by providing written notification to the U.N. depositary. Even then, withdrawal does not "take effect" until one year later, in this case November 2020 at the earliest.

What are the implications? First, in theory, between now and November 2019 the Trump administration could change its mind about withdrawing from the agreement. Although it is unclear what this would mean, the president stated that he is "willing to immediately work with Democratic leaders to either negotiate our way back into Paris under the terms that are fair to the United States" or "negotiate a new deal."

Second, the president's decision is not irreversible. Even if the Trump administration were to provide notification in November 2019, a subsequent administration could most likely re-join the agreement under Article 20. The Paris agreement may therefore become an important issue in the next presidential campaign.

Finally, during the three-year interim period (and potentially until withdrawal is effective) the United States' obligations and privileges should remain in effect. Whether the U.S. abides by them is another matter.

2. U.S. Obligations Won't Be Enforceable in the Meantime

The core of the Paris agreement is a voluntary, unenforceable commitment of the parties to strive to achieve the goal of holding the increase in global average temperature to "well below" 2 degrees Celsius above preindustrial levels. Under Article 4 of the agreement, each party is required to prepare, communicate and maintain progressively ambitious nationally determined contributions at least every five years. Art. 4 ¶¶ 2, 3, 9. As stated yesterday, however, the president announced that his decision "includes ending the implementation of the nationally determined contribution." The president also stated that the U.S. will no longer contribute to the Green Climate Fund (GCF), which finances climate-related projects in the developing world.

It remains to be seen, however, whether "ceasing implementation" of the agreement extends to its less controversial accounting and reporting requirements. For example, the parties are obliged to provide an accounting "regularly" containing a "national inventory report of anthropogenic emissions by sources and removals by sinks of greenhouse gases," as well as "[i]nformation necessary to track progress" under the NDC. Art. 13 ¶ 7. The White House's proposed 2018 fiscal budget did continue to fund the U.S. Environmental Protection Agency's greenhouse gas reporting program, which the agency uses to develop its annual inventory of U.S. greenhouse gas emissions.

As highlighted by the president's announcement, even Paris' mandatory obligations lack teeth, however, because the agreement has no enforcement mechanism or punishment (e.g., no fines or sanctions) for a failure to comply with the reporting obligations, or to make "progress" towards the benchmarks in the NDC.

3. Trump Did Not Withdraw the U.S. from the Underlying UN Framework Convention

Even following the United States' formal withdrawal from the Paris agreement, the U.S.—barring further action from Trump—will remain a party to the 1992 United Nations Framework Convention on Climate Change (UNFCCC) (Paris' parent treaty), signed by then-President George H.W. Bush and overwhelmingly ratified by the Senate in 1992. It is unclear whether Trump could have legally withdrawn from the UNFCCC without the advice and consent of the Senate.1 In any event, at this time the U.S. will remain a party to the UNFCCC for the foreseeable future.

Like Paris, the UNFCCC has no meaningful enforcement mechanisms. Nonetheless, exiting Paris will not relieve the United States of the UNFCCC's reporting requirements—which at least with respect to the national inventory of greenhouse gas sources and sinks—are the same as those in the Paris agreement. This reporting program was specifically authorized by Congress shortly after it ratified the UNFCCC. Given that the White House's proposed budget did not eliminate funding for the EPA's GHG reporting program it is likely that the U.S. will continue to meet its UNFCCC reporting obligations.

From the president's statement it is clear that he would not support meeting the UNFCCC's financial obligations to assist developing nations with climate change.

4. Withdrawing from Paris is Unlikely to Stop the Transition to Renewable Energy

Concerns about climate change and the environment may have played a role in the transition to cleaner sources of energy, but declining prices in solar, wind and other clean energy technologies are arguably making at least a partial transition inevitable. Renewable sources of energy are becoming increasingly competitive in the marketplace: Power Purchase Agreements—which set the price at which utilities buy power in bilateral contracts—for wind and solar energy start at 3 to 4 cents per kilowatt hour in some locations. By comparison, in recent years, natural gas prices started at 5.2 cents per kilowatt hour and coal prices started at 6.5 cents.2 In 2015 and 2016, the majority of new U.S. generating capacity came from renewable energy sources.3

These numbers reflect an accelerating trend: In 2014, almost half of new energy capacity came from renewables. Five years ago, renewable sources accounted for only about 14 percent of total generating capacity. Today, they represent over 19 percent of installed generating capacity. The U.S. Energy Information Administration reported in January that U.S. coal production is expected to fall to its lowest level in nearly 40 years and is down 17 percent in 2016 compared to 2015.4 This is largely due to the ascendancy of natural gas as an energy source: in 2015, the U.S. used 81 percent more natural gas than coal for electricity.5 Trump's actions may slow this shift toward cleaner energy sources (at least in the United States), but is unlikely to stop what some have called the renewable energy "revolution."

5. Other Countries May Seek to Replace U.S. Leadership

With the other members of the G7 (Canada, France, Germany, Italy, Japan and the U.K.) affirming their commitment to the Paris accord last week, and Italy, France and Germany doing so again Thursday in a joint statement, it is extremely unlikely that the United States' withdrawal from the agreement will inspire other nations—at least developed European nations—to withdraw. Although it is possible the U.S. exiting the agreement will cause significant emitters outside of the West—such as China or India—to weaken the actions they are taking to fight climate change, some observers predict this is also unlikely.

Both nations likely foresee a large economic benefit to stoking the renewables market both domestically and abroad, and may view the United States' retreat from the agreement as an opportunity to further advance their interests and policies. India, for example, has announced plans to triple its renewable energy capacity by 2022. Both China and India also face severe air pollution problems that can be abated by more use of clean energy. Only time will reveal whether the United States' actions inspire greater commitment to Paris' principles or weaken the agreement.

6. Access to Global Markets Could Be Affected

The Paris agreement offered significant advantages to many American companies. Since November 2016, one thousand companies have signed the "Business Backs Low-Carbon USA" statement, which expresses support for the Paris agreement.6 The Paris agreement has and will continue to expand the global market for a wide variety of technologies that reduce emissions and improve energy efficiency. The International Energy Agency projects that the global clean energy market will total over $60 trillion in the next 2.5 decades.7 China is expected to spend upwards of $360 billion on renewable energy by 2020.8

All of the United States' top trading partners—China, Canada, Mexico and Japan—have expressed strong support for the Paris agreement. Some companies and commentators have expressed concern that withdrawing from the Paris agreement could dampen demand for American "green" technologies, or even result in more dire trade implications, such as foreign "carbon tariffs" on U.S. products. Canada, Japan, Mexico and China are among the top projected markets for renewable energy exports (including from the U.S.) in 2016 to 2017.9 Were access to these markets to be negatively affected, U.S. companies could experience a competitive disadvantage.

7. State and Local Jurisdictions Will Step Into the Breach

A growing number of state and local governments have been active in addressing climate change, and these jurisdictions are likely to step up even further both nationally and internationally in the absence of U.S. leadership at the federal level, as evidenced by California Gov. Jerry Brown's statement Thursday afternoon: "California will resist this misguided and insane course of action.Trump is AWOL but California is on the field, ready for battle."10 Brown, New York Gov. Andrew Cuomo and Washington Gov. Jay Inslee announced Thursday afternoon the formation of the United States Climate Alliance, a coalition that will convene U.S. states committed to upholding the Paris agreement and taking action on climate change.11

California, as the sixth largest economy in the world, has already been acting on the forefront of climate policy. Expanding upon previous legislation requiring California to cut GHG emissions to 1990 levels by 2020, last year, California statutorily pledged to cut GHG emissions to 40 percent below 1990 levels by 2030.12 California has an existing cap and trade system that is statutorily authorized through 2020.13 The California Legislature is also considering several proposals to establish a post-2020 program, including (SB 775), that would replace the current program with a "cap and tax" program, establish a price collar that would set a floor and a ceiling for the price of carbon dioxide, and eliminate the ability of covered entities to use carbon offsets. California has also adopted new rules that go into effect next year to curb methane emissions that contribute to global warming to 40 to 50 percent below 2013 levels by 2030.

California is not alone in taking matters into states' hands to reduce emissions.14 Half a dozen states as well as eight cities across the United States have joined the "Under2 Memorandum of Understanding," a climate agreement signed by governments in 170 jurisdictions in 33 countries worldwide (including Canada and Mexico) that sets targets to reduce GHG emissions 80 to 95 percent below 1990 levels, or limit to 2 annual metric tons of carbon dioxide-equivalent per capita, by 2050.15 Many states are also entering into various other cooperative agreements to advance action on climate change in the absence of federal action.16

8. Businesses Will Continue to Assert Leadership

Energy costs, consumer preferences and corporate priorities will continue to drive American businesses towards more renewable energy independent of the Paris agreement. Just this month, for example, Michigan's two largest utilities announced separate plans to increase their commitments to renewable energy, one by closing coal-fired plants (replacing some with natural gas-fired plants)17 and the other by allowing large commercial customers to purchase generation specifically from new renewable energy projects through a tariff program.18

Trump's decision to withdraw from Paris is unlikely to significantly curb companies' efforts to reduce emissions for business and environmental reasons. GE CEO Jeffrey Immelt, a strong advocate of the Paris agreement, has declared "Business must now lead and not depend on government to be a beacon for sustainability. We must move on our own."19

9. Nonetheless, it's Increasingly Unlikely that the U.S. Will Meet Its 2025 Climate Goal, with Consequences for the Agreement as a Whole

Even with the United States and other countries doing their best, scientists and climate experts agreed that the Paris pledges were not enough, without increasing their ambition, to keep the world from warming above the danger threshold of 2 degrees Celsius; the "ratchet mechanism" of the Paris agreement was needed to secure future, stronger pledges. Moreover, according to one source, the U.S. pledge makes up 21 percent of emissions cuts that the Paris agreement sought to obtain. Whether or not the U.S. stayed in the Paris agreement, domestic policy changes announced by the Trump administration are projected by some experts to flatten U.S. carbon emissions rather than continuing a downward trend.

Trump's executive order on Promoting Energy Independence and Economic Growth (March 28, 2017), for example, instructs the EPA to review and potentially rescind the Obama administration's Clean Power Plan, which established national standards limiting carbon emissions from existing coal and natural gas-fired power plants that (if they survived judicial review) would take effect in 2022 to 2030.20 The executive order has also triggered review of the EPA's "New Source Performance Standards" for carbon emissions from new and modified power plants and for methane emissions from new and modified oil and gas infrastructure. The order also creates a new regulatory review process to be coordinated by the Office of Management and Budget, to identify any regulations, policies and programs that "unnecessarily" burden the production or use of domestic energy sources, with an emphasis on production of fossil fuels.

These policy changes do not mean that the U.S. will not continue to reduce its emissions. By 2015, the U.S. has already lowered its emissions by 12 percent below 2005 levels, largely due to the economic trends mentioned above, the conversion of electricity generation from coal to natural gas, tighter automobile fuel economy standards, and more efficient lighting and appliances. But the unwinding of Obama-era environmental policies already made it increasingly unlikely that the U.S. would meet its 2025 target under the Paris agreement—a goal that was challenging enough even if the U.S. had remained in the accord.

Ethan G. Shenkman is a partner at Arnold & Porter Kaye Scholer LLP in Washington, D.C. He previously served as deputy general counsel at the EPA and as deputy assistant attorney general at the U.S. Department of Justice's Environment and Natural Resources Division.

Michael B. Gerrard is senior counsel at Arnold & Porter Kaye Scholer in New York, and Andrew Sabin professor of professional practice and director of the Sabin Center for Climate Change Law at Columbia Law School.

Erika Norman is an associate at Arnold & Porter Kaye Scholer in Los Angeles. She is admitted only in California; not licensed to practice law in the District of Columbia.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

  1. See Congressional Research Service, Withdrawal from International Agreements: Legal Framework, the Paris Agreement, and the Iran Nuclear Agreement.

  2. See Lazard's Levelized Cost of Energy Analysis Version 9.0.

  3. See Renewables Dominated New US Power Generation in 2016.

  4. See Wind and Solar Growth Outpace Gas

  5. See Energy-Related CO2 Emissions from Natural Gas Surpass Coal as Fuel Use Patterns Change.

  6. See Business Backs Low-Carbon USA. See also GE's Immelt Urges Trump to Remain in Paris Climate Accord (GE CEO urges President Trump to keep U.S. in Paris climate accord); Why Big Oil Wants Trump to Stay in Paris Climate Deal (large oil companies express support for Paris deal).

  7. See World Energy Outlook 2016.

  8. See China to Plow $361 Billion into Renewable Fuel by 2020.

  9. See 2016 Top Markets Report.

  10. Governor Brown Issues Statement on White House Paris Climate Agreement Announcement.

  11. See New York Governor Cuomo, California Governor Brown, and Washington Governor Inslee Announce Formation of United States Climate Alliance.

  12. See SB-32 California Global Warming Solutions Act of 2006: emissions limit.

  13. For more information, see Cap-and-Trade Program.

  14. For example, Virginia Gov. Terry McAuliffe signed an executive order directing regulators to formulate rules to limit electricity sector carbon emissions. Massachusetts Gov. Charlie Baker proposed new rules for power plants and vehicles to help ensure that the state meets its goals of a 25 percent reduction in emissions from 1990 levels by 2020. See Baker Administration Release Regulations Aimed at Emissions Reductions.

  15. See Background on the Under2.

  16. See A Checklist of Options for US Cities and States to Engage Internationally in Climate Action.

  17. See DTE Energy Announces Plan to Reduce Carbon Emissions by 80 Percent.

  18. See Michigan's Two Major Utilities Announce Increased Commitment to Renewables.

  19. See A Letter from the CEO.

  20. See Trump's Environmental Agenda: The 1st 100 Days; Trump Issues Sweeping Executive Order on Energy, Environment and Climate Change.

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