Published by Global Banking and Finance Review
Posted on January 21, 2025
By Kate Abnett and Virginia Furness
BRUSSELS/LONDON (Reuters) - A second U.S. withdrawal from the world's primary climate pact will have a bigger impact - in the U.S. and globally - than the country's first retreat in 2017, analysts and diplomats told Reuters.
One of President Donald Trump's first acts on returning to office on Monday was to quit the Paris Agreement as part of his plans to halt U.S. climate action.
The impact will be to increase the chance of global warming escalating, to slow U.S. climate funding internationally, and leave investors struggling to navigate the divergence between European and U.S. green rules.
This U.S. withdrawal will take effect in one year, faster than the 3.5-year exit period when Trump first quit the Paris accord in 2017.
Since then, climate change has become more extreme.
Last year was the planet's hottest on record, and the first in which the average global temperature exceeded 1.5 degrees Celsius (2.7 degrees Fahrenheit) of warming - the limit the Paris Agreement commits countries to trying to stay below.
"We are looking at overshooting 1.5C degrees - that is becoming very, very likely," said law professor Christina Voigt at the University of Oslo.
"Which, of course, brings to the forefront that much more ambitious global action on climate change is needed," she said.
PARIS PACT PLANS
Today's climate, measured over decades, is 1.3C warmer than in pre-industrial times, and on track for at least 2.7C of warming this century. While perilous, that is less severe than the 4C projected before countries negotiated the 2015 Paris Agreement.
Each country's pledge toward the Paris goal is voluntary. Nevertheless, Trump is expected to scrap the U.S. national emissions-cutting plan and potentially also Biden-era tax credits for CO2-cutting projects.
All of this will "further jeopardise the achievement of the Paris Agreement's temperature goals," Michael Gerrard, a legal professor at Columbia Law School, said.
"That has obviously an impact on others. I mean, why should others continue to pick up the pieces if one of the key players once again leaves the room?" said Paul Watkinson, a former French climate negotiator who worked on the 2015 Paris Agreement.
Some U.S. states have said they will continue climate action.
Regardless of politics, favourable economics drove a clean energy boom during Trump's first term - with Republican stronghold Texas leading record-high U.S. solar and wind energy expansion in 2020, U.S. government data show.
But Trump has already taken steps to try to prevent a repeat of that, on Monday suspending offshore wind leases and revoking Biden's electric vehicle targets.
The U.S. produces around 13% of global CO2 emissions today but is responsible for most of the CO2 released into the atmosphere since the Industrial Revolution.
CLIMATE CASH HALT
As part of the Paris Agreement exit, Trump on Monday ordered an immediate cessation of all U.S. funding pledged under U.N. climate talks.
That will cost poorer nations at least $11 billion - the U.S. government's record-high financial contribution delivered in 2024 to help them cope with climate change.
Together, all rich countries' governments combined contributed $116 billion in climate funding for developing nations in 2022, the latest available OECD data show.
That does not include the huge climate-friendly government funding Biden rolled out domestically, whose future under Trump is uncertain.
Total U.S. climate spending - counting domestic and international, from private and public sources - jumped to $175 billion annually over 2021-2022, boosted massively by the 2022 Biden-era Inflation Reduction Act, according to non-profit research group the Climate Policy Initiative.
The U.S. is also responsible for funding around 21% of the core budget for the U.N. climate secretariat - the body that runs the world's climate change negotiations, which faces a funding shortfall.
MISSED OPPORTUNITIES
The We Mean Business Coalition, which is backed by Amazon and Meta, said Trump's disruption of the U.S. business environment could drive green investment elsewhere.
It could "open the door for other major economies to attract greater investment and talent," the non-profit group said.
Three investors told Reuters the transition to green energy, including in the U.S., will move forward regardless.
One impact of the Paris exit will be to prevent U.S. businesses from selling carbon credits into a U.N.-backed carbon market that could be valued at more than $10 billion by 2030, according to financial information provider MSCI.
While no longer able to make money from selling any surplus credits, U.S. companies would be able to buy them on a voluntary basis.
U.S. airlines, for instance, could still buy them to meet U.N. aviation climate targets, said Owen Hewlett, Chief Technical Officer at carbon market standard setter Gold Standard.
The Paris withdrawal is also an issue for banks and money managers caught between the U.S. climate retreat and pressure from Europe to deliver faster on climate goals there.
"U.S.-based asset managers with European clients will need to be like a two-headed Janus," Mark Campanale, founder of the non-profit Carbon Tracker Initiative, said. "Will they risk losing European clients to keep U.S. politicians happy? I doubt it."
Already, U.S. banks have left a banking sector climate coalition following Republican criticism.
That does not absolve them and other multinational companies from needing to comply with strict upcoming European rules for sustainability reporting.
Given the patchwork of global climate policies, companies are likely to keep up their climate efforts – but to adopt green hushing tactics, he said.
That means, Campanale said: "Do it, but don't publicise it."
(Reporting by Kate Abnett, Virginia Furness, Alison Withers, David Stanway; Editing by Katy Daigle and Barbara Lewis)
