The Poison Pill in the Paris Agreement on Climate by David Montgomery

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The knee jerk combination of vitriol, psychoanalysis, and tears with which the media greeted President Trump’s decision to withdraw from the Paris Agreement on Climate Change has blinded reporters to the really interesting facts that just a little digging would have revealed. The Paris Agreement only allows parties to increase their promised emission reductions, so as it is now written and interpreted it provides no way for President Trump to correct unwise commitments made by his predecessor. This poison pill is what forces President Trump to withdraw from the Paris Agreement rather than unilaterally revise the US commitment.

In many ways, the Paris Agreement was a step forward in the negotiating process.  Unfortunately, the commitments made by President Obama were strategically unwise, probably unlawful, and excessively costly for what they would accomplish. Therefore, for a long time my favored option was to remain in the Paris Agreement while altering the severity and form of the U.S. commitment.

It was only late last week that reports on President Trump’s decision process revealed that my preferred solution, and probably President Trump’s, was impossible under the terms of the agreement. The wording of the Paris Agreement only allows national commitments to be made more ambitious, not less.

Thus the United States could have upped the ante, moving from a commitment to reduce emissions by 26-28% in 2025 to a commitment to reduce emissions by, say, 40%, but it could not change the number to anything less than 26%. Nor could the US replace its quantitative commitment with statement of intentions to adopt policies like carbon taxes that cannot guarantee a specific outcome.

As long as the Paris Agreement does not allow the President to modify the U.S. commitment up or down, my opinion tips toward favoring President Trump’s decision to take the only possible route to void the commitments made by his predecessor. I have several reasons for that conclusion.

First, by ratifying the Agreement without Senate approval, President Obama violated the separation of powers set up by the Constitution. He claimed that he could use his authority to enter into Executive Agreements to ratify the Paris Agreement. Until President Obama, Executive Agreements were only used to implement laws passed by the Congress or treaties approved by the Senate. According to a friend who negotiated some while in the State Department, Executive Agreements “deal with details so mind-numbingly boring that Congress would neither want nor be able to deal with them.”

For example, he negotiated an Executive Agreement that US forces could enter a particular Southeast Asian country using their military orders in lieu of passports, on both military and civilian flights. That is a far cry from making a commitment to take actions with major effects on the US economy that Congress had consistently voted against. The Paris Agreement is in substance a treaty and the President improperly violated his obligation to get the advice and consent of the Senate to treaties. That had to be fixed, and a dangerous precedent for unconstitutional exercise of Presidential authority removed.

The second major flaw in the design of the Paris Agreement is that it gives the countries most responsible for future climate change an opportunity and an incentive to back out when it is their turn to take on costly burdens. Suppose the US and Europe do meet their commitments through 2025, and those actions significantly reduce the chances that there will be catastrophic consequences of climate change. China, India and others made no commitments to start deviating from their currently planned emissions growth until 2030. If in 2030 they decide that the reduced likelihood of catastrophe is sufficient protection from climate change, and that meeting their commitments would have an unacceptable cost, they could simply withdraw from the agreement and enjoy the benefits gained by our costly efforts. There would be nothing we could do about it.

The third thing President Obama got wrong is making an absolute commitment to a specific numerical target for emission reductions. While the Paris Agreement made the important step forward of eliminating previous insistence by the international community on targets and timetables, Obama unilaterally brought them back in the US commitment. He should have stated his intentions in a way that recognized the Constitution and sovereignty of the United States. That is, a President can describe the policies he intends to propose and give an estimate of their effect on emissions, but he must do so in a way that recognizes the unavoidable truth that future Congresses and Presidents might adopt different policies. That is the only honest thing for a President to do and it is the only one that does not involve an unacceptable sacrifice of US sovereignty.

Finally, the cost of sticking with Obama’s commitments would have been too high. On this I agree fully with the Administration’s reasons, and had reached the same conclusion myself while working on the NERA study cited by the President. Being mentioned by the President has put my colleagues in the crosshairs of the anti-Trump know-nothings and their worshipers in the media. My NERA colleagues have been demonized for being cited by President. (Me, too, but I don’t give a damn because I’m retired and the Trump-haters can no longer hurt my career or livelihood). In any other era, being singled out for citation by the President from a host of studies with similar conclusions would be the highest honor an analyst could get. Better than an Academy Award. But hate for Trump is so deep that it blinds reporters to obvious facts and prevents them from even reading what they vilify. I call them know-nothings because those who demonize NERA have not even bothered to read the report. All a Trump-hater needs to know is that Trump found NERA’s work helpful. Therefore, even if the study is dead right, its authors must be destroyed.

The press has also uncritically repeated false allegations by politically motivated opponents of the President’s decision. Let’s look at them.

Claim: NERA looked only at a worst case. Fact: the study contains 5 cases and shows how inferior Obamas choice of overbearing regulations is to a carbon tax. Claim: NERA failed to include jobs generated by renewable energy. Fact: the methodology guarantees they are all in there. The problem is that they are not enough to make up for all the jobs lost due to higher costs and slower growth. Claim: NERA ignores how renewables make electricity cheaper. Fact: NERA got it right by using the same official government estimates of technology costs that were used in studies made in the Obama Administration that reached the same conclusions. Claim: NERA assumes industry wont change to lower costs. Fact: NERA assumes industry chooses the absolutely lowest cost ways to comply, even though no real business would have the required perfect information and foresight to achieve. The list of patently false misrepresentations of the study Trump cited could go on and on.

It is particularly ironic that NERA is accused of choosing a worst case for analyzing the Paris Agreements, when all it did was assume that the regulatory policies instituted and explicitly planned by the Obama Administration were put in place. Just because policies are dumb doesn’t mean analysts should assume something else to make them look better.

There are ways to reduce greenhouse gas emissions that are much cheaper than the regulations Obama planned and issued. But none of them can be done on the sole authority of the President, or meet the hard and fast commitment Obama made on emission reductions. The choices Obama did make, to go around Congress with Executive agreements and broad interpretations of authority to regulate, would have led to the regulatory morass and immutable targets that most economists agree constitute the worst possible way to attack climate change.

For example the carbon tax, which I support, would not guarantee 26-28% emission reductions and requires Congressional approval, but it lowers cost tremendously. Even better, it provides a safety valve if it turns out more costly to meet the targets than we now guess and automatically gets larger reductions if it turns out cheaper. What is there not to like about that? The pessimists on technology get assurance about costs and the optimists can count on even faster progress than under regulations. But to choose such an approach, the existing US commitment to a hard and fast target has to be torn up. If changing our commitment to a more rational and less costly policy like a carbon tax is not allowed under the Paris Agreement, then President Trump’s decision to exit is the only responsible one.

This is a real shame, Some good could be done through the Paris Agreement, but it is not likely without the sensible intervention of US negotiators to veto the self-serving statements and policies that will be advanced by countries (and staff of international organizations) with less interest in climate than in enriching their bureaucrats and elites. Surprisingly, even in the Obama Administration US negotiators were pretty good at this task. It was in the big head-of-state meetings that things went awry.

Participation in meetings under the Paris Agreement is also important for coordinated action that is consistent with national interests and effective in dealing with the consequences of climate change. Even if national interests do not lead to keeping temperature increases below levels that some self-appointed moralists believe constitute “dangerous human interference,” more limited emission reductions can reduce even further the already low probability that climate change will cause very bad things to happen. And coordinated international action is absolutely necessary to make the poorest and most vulnerable populations more resilient and able to adapt to change that will be likely to occur.

But the fault is in President Obama’s poison pill, not President Trump’s decision to exit the Agreement. These good consequences of continued engagement in the Paris Agreement must be weighed against the cost to the US of adhering to badly chosen commitments that violate Constitutional principles. That is the kind of prudential judgment that we elect Presidents and members of Congress to make.

Since exit is itself a lengthy process, perhaps the Paris Agreement can still be revised to remove the foolish provision that commitments may only be increased. That would allow the President to correct his predecessor’s errors while continuing to be part of a potentially useful process. This is exactly what the President stated his intention to be: “I’m willing to immediately work with Democratic leaders to either negotiate our way back into Paris, under the terms that are fair to the United States and its workers, or to negotiate a new deal that protects our country and its taxpayers.”

David Montgomery was formerly Senior Vice President of NERA Economic Consulting. He also served as assistant director of the US Congressional Budget Office and deputy assistant secretary for policy in the US Department of Energy. He taught economics at the California Institute of Technology and Stanford University and was a senior fellow at Resources for the Future.

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Letters to Editor

  1. Steve Payne says:

    I don’t know about the legal part but the reports economic estimates were in fact way off.

    https://www.eenews.net/assets/2017/03/16/document_gw_02.pdf

    • david montgomery says:

      That whole citation is a fabrication. The NERA results are well within the range of estimates by other competent and unbiased studies, including the Energy Information Administration. The following comes from: http://www.energyxxi.org/setting-record-straight-nera-report

      While we’re on the subject of assumptions, critics have also asserted that the NERA results are out of line with result from other analysts. That’s not the case. During the election, it turns out that the Clinton campaign undertook modeling to estimate the costs of closing the Paris gap. It set a greenhouse gas fee at $42 (2012$) per ton of carbon dioxide from energy use in 2017 and increased it by roughly 2% a year thereafter. This study found significant economic impacts: “In our analysis, for example, a $42/ton GHG fee increases gasoline prices by roughly 40 cents per gallon on average between 2020 and 2030 and residential electricity prices by 2.6 cents per kWh, 12% and 21% above levels projected in the EIA’s 2014 Annual Energy Outlook (AEO) respectively. Average household energy costs would increase by roughly $480 per year, or 10% relative to the levels projected in EIA’s 2014 Outlook.” The NERA results also are consistent with those from modelling runs performed by EIA under President Obama. Among the many side case modelling runs in the AEO 2016 was the “Industrial Efficiency High Incentives” side case, which EIA describes this way: “Uses a price on carbon dioxide emissions as a proxy for higher energy costs as a way to increase energy efficiency in all industries except refining. The carbon dioxide price is phased in gradually, starting in 2018, reaching $35.00 in 2023 (2015 dollars per metric ton), and increasing by 5% per year thereafter.”
      Why is this model run interesting? Because it produces cuts in economy-wide energy-related carbon dioxide emissions in 2025 of about 30% below the 2005 level, entirely consistent with President Obama’s Paris economy-wide greenhouse gas pledge. When compared to EIA reference case model run (without the Clean Power Plan), this scenario produces the following results (all dollar figures in 2015$): Change in GDP in 2025: -$269 billion Cumulative Change in GDP from 2018-2025: -$1.92 trillion Change in Employment: Trough of -1.4 million in 2023 and -955,000 in 2025 Change in Average Electricity Price in 2025: +19% Change in Cumulative Electricity Expenditures from 2018-2025: +$350 billion Change in Average Gasoline Price in 2025: +11%
      As these other studies make plain, the NERA study we co-sponsored is not an outlier by any extent of the imagination.

      • Steve Payne says:

        I didn’t say there weren’t other similar studies that made similar projections. I’m simply saying many of the major projections proved wrong.

  2. James Reeves says:

    The prior president was too clever by half; he strove to make it a Paris “Agrrment” rather than “Treaty” in order to avoid the legislative debate and choice that was necessary for the commitment of a company. Instead, he chose the EU model of letting the elites figure it out but didn’t think about up a subsequent president backing out. Or perhaps he belived a Democrat would be in office behind him or that the Sierra Club would stop any chance of backing out.

    And just because we backed out doesn’t mean the country will stop all efforts of reducing pollution.

    This was a great article to start discussion.

  3. Clark Bjorke says:

    Since the reductions in emissions agreed upon in the Paris Accord were not sufficient to meet the intended goal of limiting climate change to 1.5 degrees of warming, a provision that would allow the USA to reduce our commitment would not be a good idea. We, and the rest of the world as well, need to exceed the reduction in greenhouse gas emissions that were committed to. The idea is the new technologies will be created that will allow this to happen. Now that we have pulled out, and with Trumps emphasis on coal production instead of developing new technologies, it will be harder for us to meet this, or any other goal.

    I predict that these new technologies will be developed elsewhere and we will be left in the dust. Pulling out of the Paris Climaet Accord was a very poor idea which we will be paying for for generations to come. America should be leading, instead we are dropping out.

    • david montgomery says:

      You raise interesting and debatable points. As to the need to be able to reduce commitments, that is a necessary means of enforcement. There have been many game-theoretical analyses of the difficulties of achieving a self-enforcing climate agreement, and they all agree that the only way that a party can be adequately disciplined for failing to meet commitments is tit for tat. That is, if one party withdraws or fails to fulfill its commitment, all other parties do the same. That alone creates a stable incentive to remain in an agreement that gives a better outcome for each and every party from remaining in than from having no agreement at all. Otherwise the free rider motivation trumps everything. Free-riding on prior US action is exactly what I fear about China, as I discussed in the article.

      As to new technology, I agree that R&D and technology development are the critical needs for addressing global warming. However, I do not see any evidence that there is any correlation between the level of clean energy innovation in a country and its own clean energy innovations. It is a global market for energy technology. As I discussed in my column on tax reform, our current tax system encourages US companies to put their patents and manufacturing facilities overseas to avoid US taxes. The tax reforms proposed by the House leadership would eliminate both these disincentives, enabling US companies to innovate and produce here to meet global market demand.

  4. Patrick Byrne says:

    Well done! Thank you for taking the time to prepare your article. It is probably the clearest, most well written article I have ever read on the Chestertown Spy.
    I was sorry that you did not mention the $3 Billion cost of the Agreement, given that Congress is about to enter into debt ceiling and budget discussions. However, your article covered all of the key managerial aspects.
    Thank you.

  5. Maria Wood says:

    Dear Mr. Montgomery,

    In this context, “self-appointed moralists” is possibly the most ironic phrase I’ve read in the last year.

    And with regard to “the already low probability that climate change will cause very bad things to happen,” if you are living on the Eastern Shore and if you can read, see, hear, and smell, this is probably the most willfully blind thing I’ve read in a decade. Human-caused climate change is a fact, and rising sea levels as a result is already displacing an average of 21.5 people annually, according to the UNHCR, and the Solomon Islands and the Marshall Islands are already disappearing along with other tiny island nations. A resident of a low lying tidal plain like the Eastern Shore of Maryland should be very concerned indeed, even if his concern is limited to his own neck and does not extend to folks of other nationalities.

    A climate agreement that did not require reductions in emissions, and that did allow increases in them would be… an agreement not to attempt to halt climate change. Eating your broccoli is not a “poison pill.” It’s just one of the things you have to do to keep yourself healthy.

    • david montgomery says:

      I am afraid that your knowledge of the statements of the IPCC on attribution of climate change to human activity is woefully inadequate. Although the IPCC states that some sea level rise is due to temperature increase, it puts low confidence in any attribution of sea level rise to the amount of current climate change attributable to human action. Indeed, it nowhere says how much of the estimated temperature increase is due to human activity, only that it thinks there is some effect.

      As far as the Eastern Shore goes, there are many reasons for apparent sea level rise, and the most important is probably subsidence of the land rather than climate induced seal level rise.

      I will also leave aside the question of how much the world respected a President who only criticized his own country, drew red lines that he ignored, gave away all our leverage over Iran for a meaningless agreement, abandoned allies like Poland and potential friends like the Ukraine and was suckered into an agreement by countries that made only unenforceable promises to do something in the future.

      • Pete Buxtun says:

        Your argument would be stronger if you didn’t lie outright. The widespread change detected in temperature observations of the surface, free atmosphere and ocean, together with consistent evidence of change in other parts of the climate system, strengthens the conclusion that greenhouse gas forcing is the dominant cause of warming during the past several decades. This combined evidence is substantially stronger than the evidence that is available from observed changes in global surface temperature alone.

  6. Beryl Smith says:

    It seems to me that the NERA study that is cited failed to take into account the plus side of the Paris Agreement. It did not look at the development of alternative sources of energy that could have an effect on the economy, nor did it look at the downside with increased medical and environmental costs associated with a continued dumping of pollutants into our air. It seems more inspired by the bottom line of industrial financial statements rather than the benefit to our country. And I won’t even get into our reputation in the world with this unthinking administration.

    • david montgomery says:

      That is false. The NERA fully accounted for the increases in industrial output and employment from renewables, they are simply outweighed by the negative effects elsewhere. As to air pollution, they are regulated separately under the Clean Air Act requires EPA to set standards for them with an adequate margin of safety to protect human health. CO2 and the other greenhouse gases have no direct effect on health, nor would the reduction in global concentrations of CO2 be enough to have any discernible effects.

  7. James Nick says:

    Here’s Mr Montgomery’s fake spin on the Paris Accord: “The Paris Agreement only allows parties to increase their promised emission reductions, so as it is now written and interpreted it provides no way for President Trump to correct unwise commitments made by his predecessor. This poison pill is what forces President Trump to withdraw from the Paris Agreement rather than unilaterally revise the US commitment.” And later… “The wording of the Paris Agreement only allows national commitments to be made more ambitious, not less.”

    Here’s the actual Paris Climate Change Accord (1) reality: “Article 4, Part 11 – A Party may at any time adjust its existing nationally determined contribution with a view to enhancing its level of ambition, in accordance with guidance adopted by the Conference of the Parties serving as the meeting of the Parties to this Agreement.”

    That’s it! That’s all there is to it! Wait. Let’s read that again. “A Party MAY (not shall or will or must) adjust its existing NATIONALLY DETERMINED (not externally imposed) contribution with a VIEW (not a binding demand nor an irrevocable treaty obligation) to enhancing its level of ambition…”

    Reality sounds a lot more benign than the alternative facts Mr Montgomery is pedaling with his alarmist telling of the Paris Accord language. This language is not some random word salad. The language was painstakingly negotiated in advance of the Paris agreement precisely to allow countries to modify their commitments in either direction. The Agreement was set up to encourage each Party’s reach to exceed its grasp, with the expectation that many or most may fail to deliver on all components of their pledges. Fundamentally, the Paris Climate Accord was framed to be a stretch or aspirational goal by all countries that recognize that human-caused climate change is a long-term existential threat to the planet and its inhabitants. The only two entities now left on the planet that do not recognize global warming as a threat is the government of Syria and the US Republican Party.

    In this era of discord sowed by international terrorism, mass migrations, extreme nationalism, and unyielding partisanship, the Paris Climate Accord represented a rare alignment of the stars when diverse, and even adversarial, countries came together to forge an international agreement with the laudable goal of arresting the degradation of the environment that we all share. And all people like Mr Montgomery and Stephen Bannon (the person really behind trump’s action) can think about is to amp up the chaos and discord even further by picking nits.

    Way to go there, Mr Montgomery. Give yourself a cookie.

    (1) https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_english_.pdf

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