Why GE Will Not Be Impacted By U.S. Withdrawal From Paris Climate Agreement

General Electric (NYSE: GE) is one of the major wind turbine producers across the globe, and its renewable energy products sell in more than 20 countries. Renewable energy is among the fastest growing segments for GE, and its renewable energy revenues increased nearly 34% in 2016 due to the acquisition of Alstom, also aided by renewable energy growth in advanced economies. President Trump announced recently that he had decided to pull the United States out of the Paris Climate Accord. Although this may sound like an immediate threat to multinationals operating in the renewable energy segment, we expect very little or no impact on General Electric in the short term. Here’s why:

• Renewable energy contributes just 7% to GE’s overall revenues, and about 3% to its overall profits. Government support for renewable products may weaken in the near term, but this is unlikely to make much of a difference for a company as big as GE.
• Most of GE’s growth in renewable energy is likely to come from Europe due to the acquisition of Alstom, which has a very high backlog. U.S. withdrawal from the climate agreement should have no impact on that.
• GE can no longer rely on the U.S. government to drive adoption of renewable energy. However, this should not matter much for GE, as many states have already announced their continued commitment to the Paris accord targets. Additionally, GE has operations in more than 20 countries outside of the U.S., which are unaffected by the U.S. decision to back out from the agreement.
• President Trump has said that he will renegotiate the terms of Paris climate agreement. Even if the negotiations fail and U.S. fully pulls out of the Paris accord, it may still take several years. Thus, it shouldn’t have any short-term implication on sales of GE renewables.
• One possible threat to GE could be that developing economies such as India and China also back out of the accord and move towards traditional energy sources. This could hamper GE’s renewable sales, but that again would be very insignificant as Asia contributes just 9% to GE’s renewable sales.
• Lastly, GE has a significant presence in the traditional energy market as well, which should mitigate any downside to its renewable business.

Currently, there are a lot of unknowns on the Paris agreement, but the crux of the matter is that most of GE’s value comes from other businesses right now, not renewables. Also, GE CEO Jeff Immelt said recently that the industry must now lead and not depend on governments in renewable energy production. We don’t see any change in plans for GE in terms of its renewable energy strategy, and given the company’s size and diverse portfolio of businesses, we don’t foresee any notable impact of the U.S. withdrawal from the Paris Agreement for GE.

For our model and valuation, please refer to our complete analysis of General Electric

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