How The Solar Industry Could Be Impacted If U.S. Pulls Out Of The Paris Climate Accord

by Trefis Team
First Solar
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U.S. President Donald Trump is expected to announce soon whether the United States will remain in the landmark Paris Climate accord that over 195 countries entered into in 2015 to limit global warming. Per sources close to the matter, and going by the current administration’s stance on climate related issues, it appears likely that the U.S. is leaning towards an exit. Solar companies could see a significant impact over the long run, as the move may reduce the urgency to shift towards renewable energy sources in the U.S., while potentially having global repercussions, as the U.S. is seen as a standard bearer of sorts for climate legislation. Below we provide a brief overview of the agreement and the potential impact on solar firms if the U.S. decides to pull out.

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The Climate Deal In A Nutshell

The Paris Climate Agreement was the first legally binding deal to tackle climate change. The deal, which was in the making for close to 20 years, set a goal of keeping global warming to “well below” 2 degrees Celsius while “pursuing efforts” to keep it below 1.5 degrees Celsius above pre-industrial levels. The United States is expected to reduce its emissions by 26% to 28% below 2005 levels by the year 2025. Per the agreement, developed countries agreed to raise $100 billion per year in climate financing beginning from 2020 to help emerging countries transition their economies to meet the targets. While the agreement leaves many of the specifics to the respective countries, it broadly calls for transitioning away from fossil fuels and investing more into renewable sources of energy.

Why The U.S. Could Pull Out

Per Scientific American, if all current U.S. climate policies, including the Clean Power Plan (the centerpiece of the Obama Administration’s war on climate change), which President Trump opposes and its currently stayed by the Supreme Court, stayed in place, they would bring U.S. emissions 10% under 2005 levels by 2025. This implies that the U.S. still has a lot more work to do to meet its pledged 26% to 28% reduction. Sticking to the Paris agreement could call for additional regulation, investment and research in areas such as renewables and energy efficiency, marking a significant departure from the present Administration’s current stance.

Impact On The Solar Industry

If the U.S. pulls out of the agreement, it could potentially pave the way for further loosening of environmental regulations going forward, given the limited international commitments to cut global warming. This could reduce the urgency for a shift towards renewable energy sources. While the solar industry has seen costs decline significantly, reaching grid parity in many southern states, demand is still dependent on government incentives and favorable regulation, given the sizable upfront investments and the intermittent power supply that solar offers. There could be global ramifications as well. The U.S. has held the mantle of climate leadership, with emerging economies such as China and India following the country’s lead in renewable energy policy. A U.S. withdrawal could turn the clock back for climate regulation across the world, impacting longer-term growth prospects for renewables.

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