Priorities for the Japanese Economy in 2017 (January 2017)

Future Course of the Trump Administration and U.S. Policy on Global Warming

Consulting Fellow, RIETI

Trump administration's energy and climate change measures

Donald Trump's victory in the U.S. presidential election stunned the world. The magnitude of its impact has far outstripped that of Brexit. It is unknown to what extent Trump will honor the provocative remarks and promises he made during the election campaign. What is certain is that his ascension to power will completely transform the United States' policy on energy and climate change.

In the past, Trump publicly said, "The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive" and called climate change a "hoax." Trump's America First Energy Plan and 100-day Action Plan to Make America Great Again set out his policy of making the United States become energy independent, developing domestic oil/coal/natural gas resources, releasing federal lands for developing energy resources, reducing energy cost, and relaxing/reversing energy-related regulations introduced under the Barack Obama administration. It was because of these policies that Trump's election victory led to a surge in the share prices of fossil energy corporations.

At the same time, his victory signifies a major setback in terms of global warming measures. Trump is expected to abolish the Clean Power Plan, which was the Obama administration's key climate change action, and substantially scale back the authority of the U.S. Environmental Protection Agency (EPA). Scott Pruitt, the attorney general of Oklahoma and Trump's choice to head the EPA, has been leading the lawsuit against the Clean Power Plan and his policy direction is easily projected. Rick Perry, the former Texas governor who has been tapped as the secretary of the Department of Energy, once said, "I am not afraid to say I am a skeptic about that (climate change)." Naturally, there is absolutely no chance that Trump would adopt carbon pricing, e.g., carbon tax and emission trading. The current vacancy for a Supreme Court justice is certain to be filled by a conservative. That means a conservative majority at the Supreme Court is set to continue even after the Trump administration ends. Even if the Democratic Party regains power in the future, the conservative-dominated Supreme Court could prove to be a constraint in the party's efforts to introduce legislations concerning global warming.

With regard to UN-related matters, it appears that Trump might actually pull the United States out of the Paris Agreement, and cancel billions of dollars in payment to the United Nations' climate-related fund. The Paris Agreement stipulates that signatories cannot withdraw for at least four years. The United States can leave its parent agreement—the United Nations Framework Convention on Climate Change—in one year. It remains to be seen whether Trump will take such a drastic option. In any event, the Trump administration is certain to abandon the current government's targets (26%-28% reduction from the 2005 level by 2025, and 80% reduction by 2050), and, even if it chooses to stay with the Paris Agreement, it could do no more than be a passive observer in the forthcoming negotiation of the "rule books" of the Paris Agreement.

With so many uncertain factors about the future course of the Trump administration, some expect that Trump would mend his strained relationship with the GOP mainstream during his transition into power, and moderate his typically-Trump radical election pledges to more realistic ones. Note, however, that the Republican Party's policy platform for the 2016 election is generally consistent with Trump's stance when it comes to the field of energy and climate change, be it the abolition of the Clean Power Plan or withdrawal from the Paris Agreement. It is safe to assume that there is a high likelihood of his policies in this field being implemented.

Impact on international initiatives on climate change

The result of the U.S. presidential election will no doubt make a huge impact on international initiatives for mitigating greenhouse gas emissions, based on the Paris Agreement. The start of the Trump administration would not destroy the Paris Agreement framework itself. The framework of determining detailed rules, setting targets, submitting figures, reporting/reviewing the progress, and revising the targets will start rolling in due course.

All signatories will maintain the stance of continuing to tackle climate change. However, having the United States, the country with the world's second largest emissions, turn its back against climate initiatives, represents a major change of circumstances for various countries, which are in trade competition with the United States. The European Union (EU) has long suffered from a lack of international competitiveness compared to the United States. With the United States seeking to reduce the cost of energy even further, it would not be easy for the EU to reach a consensus to further raise target levels and accept even higher burden of costs. Trump's victory has given a growing momentum to anti-immigration and anti-EU political parties in Europe, where Germany and France are heading into general elections in 2017. These parties are following the Trump line of general skepticism about climate change. China, which has more easily achievable targets, might act like a "responsible superpower," declaring to make continued efforts under the Paris Agreement. Yet, it would be cautiously observing developments in the United States when it comes to the question of whether to raise its current targets. India and other developing economies might cite the U.S. decision to cancel its contribution to a climate change fund, as their reason for failing to meet their climate targets.

Environment campaigners may even suggest that countries with ambitious climate targets form an alliance and impose a carbon tariff and border adjustment on imports from the United States, if it rejects bearing the cost of climate change mitigation. However, that is unlikely as it could lead to a full-scale trade war with the United States. Climate is not the only defining factor for international relations with the United States. Many countries are forced to seriously examine how to build a relationship with the completely-unknown Trump administration and deal with political, economic, and security changes in the world arising from the establishment of Trump's leadership. They would be cautious about confronting the United States solely based on the climate agenda.

How should Japan respond?

Given the situation, how should Japan respond? Regardless of the position of the incoming U.S. government, in the international front, Japan should contribute to defining rules for the Paris Agreement, and, within Japan, make maximum effort toward achieving the energy mix that provided the basis for the nation's 26% target. We must also remember that the United States is our largest trade partner. With the United States lowering its energy cost to prioritize its national interest, rising energy cost in Japan could trigger carbon leakage to the former. When exploring response to delay in the operation resumption of nuclear plants, or considering revision of climate targets in the future, it becomes more necessary than ever before to fully examine their impact on the Japanese economy and industrial competitiveness.

The government's Plan for Global Warming Countermeasures, adopted in May 2016, aims at 80% reduction by 2050 on the premise of "having a fair and effective international framework applicable to all major emitters," "initiating actions in accordance with their capacities," and "pursuing global warming countermeasures and economic growth at the same time." It should be taken into account that the premise has now significantly changed.

It is also important to explore areas of possible collaboration with the United States. The Trump administration's stance on the development of clean energy technology is unknown, but it has been the traditional position of the Republican Party to emphasize the significance of developing innovative technology. It is also important to consider possible partnerships with European countries on technological development at the same time.

December 28, 2016

December 28, 2016

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