Breath of Clarity

The Paris Agreement- Environmental Economics Final Essay


The Paris Agreement was formed by 188 countries, signed and enacted in December of

2015. The main goal of the agreement was to lower global temperatures by 2° C (Nieto 2018,

69). The accord will help in bringing together countries to participate in a global effort to reduce

the global temperature. The investment in combatting climate change mitigates climate-related

risks such as increased weather phenomena, increased air pollution, endangerment of

agricultural systems, and will stimulate major economic growth in the technology industry.

Climate change, an increase of global temperature, will disrupt various parts of the economy in

the United States such as regional economies that depend on the current state of natural

resources. The US’s participation in the Paris Agreement would lower health care costs and

economically benefit the United States through reduced environmental hazard costs. However,

there are potential negative impacts that could affect not only the participants, but any country

in relation with a participant on a global scale.

Scholars highlight a significant shortcoming of the Paris Agreement is the lack of explicit

regulations and any sort of sanctions for entities that promised to positively contribute to CO2

emissions reduction but did not fulfill promises (Campbell 2016). Certain governments and

corporations, both in developing countries and world powers, are corrupt and it would be

difficult to envision a global economy where they develop in good conscience. Competition in

the global playing field, particularly between the U.S. and China, impacts the former’s decision

to participate in the international climate collaboration. This creates a border between

countries that may want to participate but are not developed enough to participate in the

global economic playing field. The agreement also entails nations reporting reductions through

pollution trading schemes, which are defined as results-based payments, rather than obligating

actual reductions of pollution from its source. The Paris Agreement has many benefits to our

global environment, however the negative impacts it could have on the world present a serious

concern. The Paris Agreement could be argued that it should not be supported because of the

potential economic and social risk. This paper evaluates both sides of the argument to

determine a recommendation for moving forward.

Arguments For US Involvement in the Paris Climate Agreement

The 21 st Conference of Partners (COP21), formed by 188 countries, signed and enacted

the Paris Agreement in December 2015. The main priority of the Paris Agreement was to hold

the increase of global temperature to ‘well below’ 2° C above pre-industrial levels (Nieto 2018,

69). The importance of the Paris Agreement has been highly politicized and questioned, but I

seek to lay out an argument that is based purely in the economic benefits of U.S. involvement

in the Paris Agreement. The investment in combatting climate change mitigates climate-related

risks such as increased weather phenomena, increased air pollution, endangerment of

agricultural systems, and will stimulate major economic growth in the technology industry.

Climate change, an increase of global temperature will disrupt various parts of the

economy in the United States such as regional economies that depend on the current state of

natural resources. Regional economies such as the agricultural sector, fishing industry, and

tourism face great risks as the depletion of their resources is further drained by the

exacerbation of climate change. For example, water depletion is already becoming an issue of

large concern in rural communities where their mainstay economy is brought in by agriculture.

Agriculture as a whole will have to shift its current production and change to crops that suffer

from shortened growing seasons, extreme temperatures and water depletion (Karmalkar 2017).

The US will have to increase research and development spending in order to create seeds and

crops that can function in these new environments. Heirloom and typical crops will be

decimated and the emergence of super crops is more likely. This loss of crop biodiversity

sufficiently decreases the ability to adapt even further and also impacts global ecosystem

health (Field and Field 2017, 298). With all this information, how do we quantify the impact that

climate change will have on our agricultural economy.

As well, it is the rural and urban populations that will suffer the most in terms of human

health issues from increased temperature change. The US’s participation in the Paris

Agreement would also lower health care costs and economically benefit the United States. In a

recent damage assessment study on the 2012 economic implications of climate related weather

events, the US had an added $10 billion cost to health care costs from 10 weather events alone

in 2012 (Satter 2019). These ten events were wildfires in Colorado and Washington; ozone air

pollution in Nevada; extreme heat in Wisconsin; infectious disease outbreaks of tick-borne

Lyme disease in Michigan and mosquito-borne West Nile virus in Texas; extreme weather in

Ohio; Hurricane Sandy in New Jersey and New York; allergenic oak pollen in North Carolina; and

harmful algal blooms on the Florida coast. Medicare and Medicaid took care for two-thirds of

these weather-related costs. In many of these cases, the value of a statistical life is monetized,

in which there are a couple different values we can use. The increase in the frequency of these

weather events is related directly to an increased ambient global temperature.

Not only does increased weather phenomena affect health care costs, but air pollution

is one of the largest economic drainers to the health care system as well. Air pollution is an

example of an external cost- costs that cost society but cannot be seen in a firm’s statements

(Field and Field 2017, 66). The environmental impacts of the overuse of oil and coal affects our

air quality in the United States. By monetizing the effects of the increased particulate matter

(PM), we can see “for each billion ethanol-equivalent gallons of fuel produced and combusted

in the US, the combined climate-change and health costs are $469 million for gasoline, $472-

952 million for corn ethanol depending on biorefinery heat source (natural gas, corn stover, or

coal) and technology” (Hill 2009, 2077). Therefore, the ideology of ‘cheap’ technology is a false

one. There are many more loaded costs to technologies such as gasoline and coal that often

times are looked past. The full picture of these cheap technologies shows us that there are

external costs that are often passed down by corporations onto Americans or the US

government through the health care systems. The true value of firms should be social costs, in

which their own private costs are added to external costs as well. Therefore, there should be

larger market adjustments due to the increased health care costs. If we increased our

regulations, or pivoted our energy systems, these external costs would be taken on by the

proper corporations.

Industries that will prosper from agreements made in the Paris Agreement include

automobile, construction, retail, software and technology (Pham 2019, 6071). These industries

showed abnormal returns (ARs) on the stock market with the announcement of the Paris

Agreement. It is to be expected that the software and technology industry have a positive

outlook, since they are largely eco-friendly industries. The positive AR in high polluting

industries like automobile and construction, however, show that industries are ready to pivot

into the next phase of their industries life-increased prevalence of electric vehicles and new

LEED buildings, respectively. These positive implications show that the economic value of the

Paris Agreement is more than meets the eye.

To add, we must look at optimally timed abatement costs versus abatement

investments. Abatement costs can be thought of as driving less, reducing air conditioning,

using coal power plants less per year, and abatement investments can be thought of as a

complete switch like retrofitting buildings, switching from gas powered cars to electric vehicles,

building renewable energies such as wind turbines (Vogt 2018, 221). Therefore, we cannot look

at a simple Marginal Abatement Curve (MAC) alone, but must model both abatement costs and

investments together to find out where we start benefitting from abatement. Therefore, in

accordance with the US’s participation in the Paris Agreement we must look to ‘a long-term

emission-reduction strategy with significant short-term abatement investment’ (Vogt 2018,


Further analysis shows the US participation in the Paris Agreement will not lead to a

large loss in GDP, yet instead will lead to potential economic growth and new jobs in emerging

industries such as green technology and energy (Vandyck 2016, 48). The figure below provided

from a 2016 study by Vandyck et al shows the relation of greenhouse gas (GHG) reduction and

GDP reduction.

The results of this figure go on to show that if each country in accordance with the Paris

Agreement fulfills their INDCs, the global aggregate GDP would decrease by only a slight value

of 0.42%. This slight reduction in GDP, will have extenuating global impacts such as decreased

human health risks, less vulnerable crop returns, and cleaner, newer technology. The total

aggregate value of these advancements results in a net positive Green GDP, leading to a

sustainable future for all.

Arguments Against US Involvement in the Paris Climate Agreement

Firstly, U.S. participation in the Paris Agreement involves massive risk in terms of

financing. Scholars highlight a significant shortcoming of the Paris Agreement is the lack of

explicit regulations and any sort of sanctions for entities that promised to positively contribute

to CO2 emissions reduction but do not fulfill promises (Campbell 2016). While it is possible to

inflict sanctions on countries that do not meet their emissions goals, it is difficult to sanction a

country for producing goods and services that the countries who enforce the sanction are

consuming. For example, in terms of farming cattle in Brazil, although other countries in the

Paris Agreement could sanction Brazil for not reducing its emissions, many of those countries

are still actively contributing to the beef demand. Further, there are no clear regulations

regarding how countries that have fallen short get back on track (Campbell 2016). Financing

remains debatably the most important issue influencing how quickly developing countries will

move on implementing their intended nationally determined contributions (Clémençon 2016).

The U.S. faces a potential burden due to the large-scale lack of organization in the financing

sector of the Paris Agreement. Insofar as disconnect exists, developed nations are under

pressure to take on the financial load which is exasperated by inaccurate reporting.

Although at the Copenhagen conference in 2009, developed countries committed to

provide $100 billion in financial support to developing countries for climate change mitigation

measures by 2020, the entities fell short in their collaboration (Clémençon 2016). A significantly

inaccurate report published in October 2015 by the Organisation for Economic Co-operation

and Development (OECD) found developed countries and multilateral banks committed to

contribute $62 billion in climate finance from private and public sources (Clémençon 2016).

Analysis of the OECD report by the Indian Ministry of Finance (IMF) points to inconsistent

procedures used to evaluate financial payments (Clémençon 2016). According to the IMF, there

was a lack of uniformity in reporting standards for additional climate financing from private

sources. A substantial amount of the claimed climate financing was relabeled or redirected

existent official development flows (Clémençon 2016). Moreover, the analysis revealed a lack of

independent verification, as only aggregate numbers were reported (Clémençon 2016). An IMF

official suggested the true amount mobilized by rich countries may only be $2.2 billion of the

perceived $62 billion (Clémençon 2016). Therefore, engaging in the agreement puts the U.S. in

a vulnerable position as the nation would need to compensate for transparency problems and

perhaps pay more than expected in the long-run.

Certain governments and corporations, both in developing countries and rich nations,

are corrupt to the point where it is difficult to envision them acting aligned with good

conscience. Particularly, agreements with few binding elements and enforcement protocols will

not succeed. It is evident the countries involved in North Atlantic Treaty Organization, an

intergovernmental alliance built on mutual defense interests, cannot be relied upon to pay

their declared contribution towards defense for the commons. Even two world wars and many

other conflicts over the past century does not motivate a commitment to ethical collaboration.

Given the history of behavior, it is difficult to expect nations worldwide to pitch in and invest in

a distant future benefit from fighting climate change. Removing itself from the Paris Agreement

is a U.S. declaration of unwillingness to pay for insufficient reporting and uncertain interaction.

Secondly, competition in the global playing field, particularly between the U.S. and

China, impacts the former’s decision to participate in the international climate collaboration.

The Paris Agreement is dependent on strong leadership shown by example to achieve

compliance instead of all nations involved facing stringent constraints (Science Direct 2017).

Originally, China was exempted from the Kyoto Protocol because developing nations were

merely asked to voluntarily comply. In contrast, nowadays with the Paris Agreement, “China

faces mounting pressure from the international community to assume global climate

leadership,” particularly in the context of a lacking participation from the U.S. (Science Direct

2017). In the case of U.S. lack of participation, China would be left with no choice aside from

suffering astoundingly high costs of leading reduction of global emissions without U.S.

assistance in fulfilling the duty (Science Direct 2017). The given condition is a stellar opportunity

for the U.S. to increase its internal GDP as it will be able to participate in the energy transition

in an unrestricted manner. That said, U.S. exit from the agreement brings opportunity to gain a

competitive edge. Removing itself from the Paris Agreement is a sign of the U.S. exemplifying

leadership for its own people. Future international negotiations will be supported by a

presumption the U.S. is capable and comfortable with pushing back against political pressure in

favor of behaving in a way to protect its own interests. The U.S. energy producers need to focus

on innovation and competitiveness in their practices, whether that means using fossil fuels or

renewable resources, rather than being forced to put their efforts fully into renewable energy

technologies and infrastructure. Therefore, joining the agreement delegitimizes the uncertainty

surrounding power sources and restricts the U.S. from having multiple adaptation options. As

the price to implement sustainable technology drops, the U.S. can conduct a cost-benefit

analysis with its own interests directing the conclusion from the equation. Removing itself from

the agreement guarantees the U.S. is not limited in making the decision which brings selfish

economic advantage to any given moment. The U.S. logic for leaving the Paris Agreement was

officially “because of the unfair economic burden imposed on American workers, businesses,

and taxpayers by U.S. pledges made under the Agreement” (United States Department of State

2019). Tenants of the Paris Agreement bring challenges to blue collar Americans in multiple


Thirdly, the agreement entails nations reporting reductions through pollution trading

schemes, which are defined as results-based payments, rather than obligating actual reductions

of pollution from its source. One example of these trading schemes is a mechanism called

Reducing Emissions from Deforestation and Forest Degradation (REDD+). The Paris Agreement

approved REDD+ implementation even though it is a hasty solution to incorporate forests into a

financial carbon market regime because there is no actual guarantee it would prohibit forest

loss (Browne and Goldtooth 2016). Furthermore, trading provides businesses in the

industrialized countries of the North cover so they can continue to poison the air and water in

the communities alongside refineries, coal mines and fracking wells (Browne and Goldtooth

2016). Rather, REDD+ enables the privatization of the carbon in the forests as wetlands, tree

plantations, and soil are used for soaking stations to mitigate greenhouse gases (Browne and

Goldtooth 2016). Tradable REDD+ credits are acceptable to represent property title. Even

though it is not necessary for exchangers of the credit to own the land, they possess the ability

to determine how to handle the land. Moreover, they usually have the contractual right to

monitor what is happening on the land as long as they own the carbon credit (Browne and

Goldtooth 2016). Insofar as the issue persists, projects can fail to protect local people who

depend on the forest to sustain their communities which is home to peasants and Indigenous

Peoples in the global South. Even in the case land titles might be formally established,

implementation of REDD+ projects lead to inhabitant evictions and restrictions on entering

forest areas (Browne and Goldtooth 2016). Therefore, the credit-based system does not only

hurt the U.S. in macroeconomic terms of reporting and increased burden in financing projects,

it also negatively changes lives of individuals residing in forest areas. In turn, the local economy

deeply suffers for the sake of environmentally unhealthy corporation’s problem solving by

bending the rules to carry on.

This evidence shows why the United States involvement in the Paris Agreement could

potentially have detrimental effects on the economy and future GDP growth, costing Americans



The U.S. involvement in the Paris Agreement is a decision that needs to account for

long-term investment opportunities. Although the upfront costs involve some level of risk, the

long-term benefits outweigh those costs. It is in our team’s opinion that the U.S. should move

forward with their involvement in the Paris Agreement and as a global leader in the fight

against climate change. This move would allow the opportunity to avoid future abatement

costs. Although the monetary value of a cleaner environment is difficult to quantify, the

argument for inclusion in the Paris Agreement above, attempts to put a value on the avoided

environmental and economic impacts.

To make this determination, we have to analyze the total benefits through a net present

value (NPV) analysis (Ross et al 2015, 446). This review needs to look at benefits on a global

scale and determine the value of environmental projects in the short and long term. This

calculation is complicated and has many variables. However, by reviewing this information

collaboratively with international partners, the variables can be more accurate and

expectations can be made. To achieve the socially equivalent level of emissions in developing

countries, developed world leaders, who have contributed to much of the global CO2

emissions, should contribute towards sustainable clean energy production in these developing

countries. This assistance will help to avoid resorting to cheap available energy such as coal.

As we note in the Against section, there are many programs and agreements that

remain voluntary and go unregulated, causing uncertainty in the return on investment in

financing projects in developing countries. Although this is true, mitigating this risk is a crucial

step towards a sustainable global future. There needs to be international accountability and

Green GDP reporting of the improvements made through financing agreements in the Paris

Agreement (Field and Field 2015, 124). If the U.S. maintains involvement in the Paris

Agreement, they will have the standing to propose accountability measures towards developing

nations’ use of international financing. Independent reviews and reporting are a major part of

this accountability. We recommend a branch of the United Nations Sustainable Development

Goals be focused on this regulation and reporting. Climate change is a global issue, if the U.S.

uses their withdrawal of the Paris Agreement as an opportunity to increase its short-term GDP,

there maintains a serious risk of financial setbacks in the long term due to climate impacts on

the resources required to maintain a prosperous economy.

The potential financial benefits of U.S. involvement would be reflected and felt at all

levels of the economy. With technology advancement in the forefront of climate change

mitigation, the upfront capital costs have the potential to be overshadowed by the opportunity

for future economic gains. Green technology development has the potential to create new job

markets and support the phase out of the fossil fuel work force. In a case study done on North

Carolina’s Green Business Fund, research and development projects are found to create more

jobs and, when there is university involvement, tempers job loss felt by the shifting markets

(Hall and Link 2015). This example provides evidence that by shifting towards a green economy,

domestically, unemployment rates are not at high risk, as previously argued. The biggest

challenge in adopting this approach is creating the funding needed for research and

development in these fields.

The involvement of the United States in the Paris Agreement has long been subject of

debate. There are advantages and disadvantages to both sides of the argument. However, if the

United States continues with their withdrawal from the Agreement, the future of the economic

markets could be at risk. According to research conducted by Nong and Siriwardana (2018, 261-

269), the U.S. economy will in fact benefit from the withdrawal, stating that GDP will rise by

approximately 1.13% and private consumption would increase by .78%. Although these

numbers are attractive, it is important to avoid falling in to a confirmation bias. This increase in

GDP does not reflect total benefits towards Green GDP. By accounting for the overall effects of

well-being and environmental impacts on human health, Green GDP has the potential to

increase greater than the noted 1.13% of the financial GDP. This review process also needs to

account for the time value of money (Ross et al 2015, 124). By accounting for future value of

investments made today, the U.S. government can plan for the potential economic growth

provided by new industries developed through technological advancements in green


With environmental impacts being felt globally, industries need to adjust to maintain

growth. This also includes government policy and budget allocation. With U.S. involvement in

the Paris Agreement, governmental budgeting can be appropriately reallocated to support

clean energy programs and sustainability initiatives, domestically and abroad, lead the nation

towards a more sustainable future.


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