U.S. Withdrawal from Paris Climate Agreement: Implications for Energy & Utilities

In June 2017, President Trump announced his decision to withdraw the U.S. from the Paris Climate Agreement that commits to limit global warming to 1.5⁰ C above pre-industrial levels.  The decision has created both concern and uncertainty given that global emissions aren’t on track to keep warming below the 2⁰ C mark scientists say is necessary to avoid a catastrophic scenario.

For state, local governments, and energy and utility companies within the U.S., the decision has raised important questions about whether to stay the course on the low carbon investments they’ve been making for years. The response so far indicates a resounding commitment to continue decarbonizing regardless of the withdrawal. One example is the formation of a climate alliance made up of 12 states, over 200 cities and major businesses that has committed to meeting the targets established in the Paris Climate Agreement.

Early signs indicate utilities will continue their strategies to cut carbon, with some pledging to do even more.  Historically, they have played an important role in emission reductions.  According to the EIA, the 12% drop in energy related emissions between 2005 and 2015 was “mostly because of changes in the electric power sector.”

After the election, AEP's CEO Nick Akins remarked, “We’re moving to a cleaner-energy economy and we’re still getting pressure from investors to reduce carbon emissions. I don’t see that changing.” Leading up to the Paris decision, PG&E’s CEO Geisha Williams signed an open letter with 30 other companies urging the Trump Administration to remain committed to the Paris Agreement. The 2017 State of the Electric Utility Survey polled over 600 utility executives who affirmed they are moving toward a decarbonized and more distributed grid. Many respondents indicated they have been investing in a cleaner fuel mix and greater energy efficiency for years. Citing that they want to see the de-carbonization transition continue to happen rather than deal with the uncertainty of initiative repeals aimed at reducing emissions.

Although Congressional Republicans have traditionally been reticent to acknowledge climate change and the need for action, this appears to be changing. In February, the climate leadership council, including former Republican cabinet members George Shultz, James Baker and Henry Paulson, put forth their “Conservative Case for Carbon Dividends.”  Now, big players such as Shell, Exxon Mobil, GM, P&G and the Nature Conservancy have supported the same proposal.  At the same time, inside the beltway, Republican members of Bi-Partisan Climate Solution Caucus recently drafted a resolution calling for the House to act to address climate change. The resolution currently has 20 Republican sponsors.

It’s challenging to predict the impacts of a U.S. exit from Paris, but early signs indicate that energy and utilities companies, and local and state governments are staying the course on reducing carbon emissions and the push from voters, investors and ratepayers to cut carbon will only continue to grow. With a potential shift in momentum at the federal level, utilities have an opportunity to shape the conversation on what policy mechanism makes sense from an energy perspective. For those who aren’t yet engaged, this means getting a strong sponsor and the right mix of resources in place to develop and begin executing on a carbon pricing strategy. This strategy should include assessing carbon pricing mechanisms, determining how to partner with other utilities as well as how best to communicate their message. Given their long history implementing low carbon initiatives, utilities should be taking advantage of their unique position to both shape the national dialogue on choosing a mechanism to reduce emissions and play a major role in implementing the changes needed achieve the targeted reductions.