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oekom research - The US’s Intention To Withdraw From The Paris Climate Agreement: Country Rating Implications

Date 07/06/2017

Situation:

On 1 June 2017, US President Donald Trump announced the country’s intention to withdraw from the Paris Climate Agreement at the earliest possible moment. With this decision, the dismantling of the country’s climate-protection endeavours, which had already started when his term began, has received new impetus.

The US is regarded as the second-largest emitter of greenhouse gases (GHG) worldwide. Pulling out of the Paris Agreement will decelerate the reduction in global emissions and development of renewable energies, and could also jeopardise the achievement of the 1.5°C target agreed upon in Paris.

For contractual reasons, the US will formally remain a member of the Paris Agreement until November 2020. Trump has nevertheless declared that the country will cease to fulfil all the non-binding obligations of the Agreement with immediate effect.

This includes, among other aspects, payments into the United Nations Green Climate Fund, which helps developing countries to establish renewable energy infrastructure and aims to mitigate the impact of climate change on these countries.

Another consequence of the termination is that the US will no longer pursue its stated goal to cut its GHG emissions to 72-74% of their 2005 levels by 2025. An earlier presidential decision to renew support for the mining of fossil fuels had already signalled a de facto renunciation of this goal.

The US's withdrawal from the Agreement is further expected to impact on the development of new technologies for boosting energy efficiency and generating clean energy. This has the potential to impair the US’s long-term economic development. We expect a decline in investment in the renewable energies sector, as well as job losses. Additionally,  other nations could impose carbon taxes on imports from the US in response to Trump’s decision.

Whether the US’s withdrawal from the Paris Agreement will decisively weaken international cooperation in the area of climate protection is unclear. To date, no other signatory state has announced its intention to follow the US’s example. Notably, European states and China – the world’s number one emitter of GHGs – have reaffirmed their unwavering commitment to the Paris Agreement. Furthermore, many US states, cities and businesses intend to continue pursuing the Paris goals to cut GHG emissions, regardless of the nation’s withdrawal.

Country Rating implications:

As indicated in one of our earlier assessments, the US’s new climate policies will affect its oekom Country Rating. The decision to withdraw from the Paris Agreement manifests most significantly in the ‘climate change’ section of the environmental rating.

We expect a mid-term deterioration in the US’s performance with respect to greenhouse gas emissions and the implementation of, and participation in, climate-protection policies.

In the ‘energy’ section of the rating, we expect long-term negative consequences for the energy mix rating, compared to other countries in the oekom universe. The US’s primary energy consumption could also rise further due to reduced support for energy efficiency.

Over the long term, the US’s withdrawal from the Paris Agreement will activate the exclusion criterion ‘non-ratification’ of the Paris Climate Agreement. It is also likely that the criterion ‘Climate Protection Index’ will change, dropping to below 50. The US’s current index value is 51.04.

Any material impact on the Country Rating can only be determined once more information is available, for example on the concrete measures the US intends to take following  its decision, after which we will be able to make a comprehensive evaluation. In the meantime, we will continue to monitor developments within the US closely and take into account any relevant changes when forming our next rating assessment.