What's Next for Planet Earth?

Five faculty members from the HBS Business & Environment Initiative comment on President Trump's recent decision to remove the US from the Paris Accord.

07 Jun 2017

President Donald Trump’s decision last week to pull out of the Paris climate agreement created heated reactions both in this country and around the globe. We asked several Harvard Business School professors affiliated with the HBS Business & Environment Initiative, which serves as a hub for environmentally focused research, teaching, and discussion and aims to deepen the understanding of environmental challenges confronting business leaders, to offer their perspectives.

Rebecca HendersonJohn and Natty McArthur University Professor

President Trump’s decision to withdraw from the Paris agreement is disastrous, but it need not be catastrophic. Until now it has been easy to assume that “someone else” will take care of the problem of climate change. That illusion has now been thoroughly destroyed. It is now clearer than ever that each of us must do all that we can to solve a problem that threatens to drown our coastlines, destabilize agricultural production, and cause enormous human suffering for generations.

Fortunately there is lots that can be done. One important step is to take personal responsibility for the harm that we are causing every day by burning fossil fuels. Current estimates suggest, for example, that for every $100 we in spend on energy here in the Northeast, we cause at least $25 worth of harm, split about equally between current health costs and long term-climate effects. This is unacceptable.

Individuals can make a difference by curbing their energy consumption and buying high-quality offsets. Institutions can invest in renewables and energy conservation at scale. Together we can generate the demand that will drive the technical progress that will make a carbon-free energy system a reality. We must remember that fossil fuel emissions threaten the well-being of the people of Pittsburgh just as much as they do the people of Paris.

Herman "Dutch" LeonardGeorge F. Baker, Jr. Professor of Public Management and Eliot I. Snider and Family Professor of Business Administration

President Trump’s opponents want us to believe that the sky will now fall, literally. His supporters would have us believe he has saved “millions” of US jobs threatened by a global effort to slow the rate of growth of carbon emissions while preventing a vast drain (“billions”) from the US Treasury of funds destined for developing nations to help them meet their carbon emission reduction targets.

Both views are significant exaggerations. Whether the US stayed in the agreement or not, there was already virtually no prospect that this administration or Congress would have implemented rules, laws, or significant spending to push the economy toward a low-carbon future. Thus, the withdrawal represents little if any change in the substantive actions and policies that the US will follow, at least in the next two to four years.

Similarly, the withdrawal will not have a material effect on increasing the number of jobs in coal country, since the market demand for coal is falling. Cleaner technologies like natural gas and renewable energy sources are already cheaper or rapidly approaching parity. Even India and China, where people are choking on coal emissions, are moving toward other options on their own faster than anyone would have expected.

As for concerns about the loss of funds from the Treasury, even aggressive implementation of the agreement would have resulted in a negligible blip, even viewed against a single year of the government’s $4 trillion budget.

With many state and local governments continuing to move toward meeting the agreement’s goals and encouraging investments in new technologies, the real tragedy of this decision is not that it will make a huge difference, but that the difference it will make is in the wrong direction. Trump’s supporters in coal country and elsewhere would be better off in terms of both job prospects and general health and welfare if the United States were making modest positive efforts to advance the global compact, including significant investments in job training and other programs to help mitigate the effects of the economic and technological changes inevitably underway in this country and the world.

Forest ReinhardtJohn D. Black Professor of Business Administration

So far, we have mostly declined to include any of the cost of carbon dioxide emissions in the prices we pay for energy and other goods. This means that we subsidize anyone who uses fossil fuels to operate her car or run his computer. We may need some time to wean ourselves from these subsidies, but since they distort markets and reward inefficient behavior, we ought to be looking for ways to phase them out, using carbon taxes or systems of property rights. We always knew that creating institutions to manage climate externalities would take time. Thousands of diplomats have worked for decades on a sensible institutional framework for international trade, and that work remains incomplete; managing climate change will not be much easier. This is all the more reason to keep experimenting.

The Paris accord encourages nations to incorporate the cost of emissions in market prices with the understanding that other nations will behave similarly. The danger inherent in the American government’s withdrawal from the agreement is that it signals a continuation of the subsidy-as-usual policies that got us into trouble in the first place. One might have feared that this would make it easier for other countries to justify to themselves their own subsidies for fossil fuel consumption, but so far they have shown little interest in following the United States out of the accord.

Meanwhile, fortunately, states and other jurisdictions in this country will continue to experiment with sensible ways to equate the private and social costs of carbon dioxide. And the Federal government will be back at the table eventually as well, because in the long run, institutions that improve efficiency, align incentives, and create value outcompete those that don’t.

Richard VietorBaker Foundation Professor

Of all the decisions President Trump has made in the past five months, this is certainly the worst. His speech in the White House Rose Garden made use of incorrect information about likely warming, about America’s contributions to the global problem, and about the Paris agreement’s provisions and their likely effects on the US economy.

The agreement was a massive negotiation, taking several years to complete. Despite the fact that this country’s carbon emissions have been falling for a decade, during the past century we’ve contributed one-third of the accumulated carbon. Moreover, MIT researchers have noted that the president’s data on a likely rise in temperature is outdated. Even with the Paris agreement fully implemented, we’re looking at a not insignificant increase of one to two degrees Celsius going forward.

As for India and China, these and other poor developing nations need a slower adjustment path. But as they struggle with pollution and climate change, they know first-hand the importance of clean air and a reduced carbon footprint.

Unfortunately, Mr.Trump is acting on his own misconceived view of national self-interest. As a result, this decision marks a sad day for America’s historic spirit of generosity and its leadership role in the world.

Amy EdmondsonNovartis Professor of Leadership and Management

President Trump’s decision to pull the United States out of the Paris accord creates a leadership vacuum at the top. Leadership, the crucial force that drives positive societal transformation, is most needed in the face of so-called wicked problems – those plagued by incomplete or contradictory knowledge, diverging opinions, economic burdens, and multiple interconnections with other societal challenges. Climate change is a wicked problem, and leadership is sorely needed to address it.

That said, nature abhors a vacuum, and so, it appears, do our nation’s mayors. In a recent interview, James Brainard, the Republican mayor of Carmel, Indiana, explained how he and many of his fellow mayors reacted to the withdrawal by increasing their commitment to sustainability goals. Asked why, as the mayor an inland city not facing the threat of rising sea levels, he was concerned about climate change, he responded:

"We see ourselves as a part of the country and the world. And we realize if there's that sort of displacement, we're at risk for all sorts of bad things. There's the frequency and intensity of storms….There's the changing climate patterns that seem to lead to the evolution of new pests in the fields outside our metro areas."

Like Brainard, other mayors throughout this country are laying out plans to build green cities in spite of–perhaps even emboldened by–the president’s decision. Along with many governors and other officials, 125 mayors signed a public letter declaring their intention to support climate action. That is leadership. They understand that a commitment to green technology can transform cities.

Investments in smart infrastructure, bike sharing, mass transit and building efficiency helps cities reduce greenhouse gas emissions, and move inexorably toward reliance on renewable energy.

Although it’s hard to find a silver lining in what Mr. Trump has done, the efforts of city leaders around the world to double down on pragmatic, smart plans to build a better future offer a glimmer of hope.

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