We’ll Never Have Paris…or Easily Budgeable Capex

Remember back in 2015? It was a simpler time. Obama was president — although a lame duck one — and the US committed to joining the Paris Climate Agreement. A heated battle was shaping up between Hillary Clinton and Donald Trump for the presidency. One of The Donald’s commitments was to remove the US from the Paris Agreement as soon as it could legally be done. It was, in the words of Candidate Trump, a ‘bad deal’ and put the US at an ‘economic disadvantage.’

Regardless, President Obama was insistent that this was a big step to protecting the world from the ravages of climate change. So, in April 2016, the US became a signatory.

Now, whenever any political candidate on either side of the aisle starts making bold claims, I usually roll my eyes and grab another cup of coffee. In this case, it was no different.

We all know how the story plays out, right? Clinton loses to Trump and (due to various legal technicalities) Donald Trump officially removes the US from the Paris Agreement on 4 November 2020. And no, you aren’t hallucinating. We left the Paris Agreement one day after the 2020 presidential election that Trump lost. Weird play — but within his power to do it, so he did.

Now, is this a bad thing? The Republicans tout it as a victory on the same scale as storming Normandy, and Democrats are rending their garments prophesying the Impending Doom™. The truth is probably, like most things, somewhere between those two extremes.  

Was the Paris Agreement a ‘bad deal?’ Well, in some significant ways, yes. First off, its provisions, targets, and penalties for not hitting those targets are soft. Like, really soft. Softer than your grandmother’s knitted holiday sweater. Softer than your uncle who moved to Canada to dodge the draft. You basically choose your own targets, and when you don’t hit them, you get the international law equivalent of getting bopped on the nose with a rolled-up newspaper. (The UN figures the noise will startle you more than anything).

There is more wrong with the Paris Agreement. The agreement — which, love him or hate him, Trump did correctly call — gives China a lot more leeway on the grounds that (somehow) they got themselves classified as a ‘Development Nation’, and thus are subject to even softer targets and rules. If the US plays by the rules, then yeah, that puts us at a disadvantage to China. (My Marketing Director will claim I don’t have the word count to go into this, but I’m going to anyway.) Let’s talk about China for a split second…

China is the largest CO2 offender in the world, by a mile. The US, to be fair, is number two. But just to give you some perspective, China at number one does twice (!) as much damage. A ‘developing country?’ Really? The same folks who are building islands in the Pacific out of nothing, and have the largest navy in the world and multiple global infrastructure projects with the Belt and Road Initiative, is ‘developing?’ The second largest population and economy on the planet? Sorry, Paris, not sure that math is ‘math-ing’ for me. Developing into a global superpower maybe, but they aren’t developing in the same way as, say, Guyana.

Anyway, back to the point. So, we dipped out of the Paris Agreement in late 2020. Only, in a couple of months’ time, for President Biden to take office and sign an executive order to put us back in on day one of his term. Well, that was a tasty nothing burger.

This did several things of note for energy industry executives. First, they had to start planning ways of getting carbon neutral, or at least minimizing their carbon footprint (never mind the overall fuzziness in how that is defined at present — but that’s an issue for a different editorial). This involved a lot of capital expenditures which the Biden administration offered tax breaks for and rebates. Ok, fine.

In 2024, however, Biden dropped out of the race late in the game and Harris sallied forth to carry the torch — and proceeded to lose handedly. Say what you will of The Donald, the man is consistent. On day one in the Oval Office, he axed US involvement in the Paris Agreement — again.

Now, the Paris Agreement isn’t any better or worse than it was the first time around, so how much of a difference does it make? Well, I’ll leave that for you to debate. But now we have the United States Climate Alliance to deal with, which is arguably more problematic (for US companies, anyway). The Climate Alliance was formed when President Trump first announced his intentions to pull out of the Paris Agreement during his first term. It is a compact of states committed to passing laws, basically enacting the Paris Agreement provisions at the state level. I won’t bother rattling off all 22 states currently involved, but they are the usual suspects, and you all know how to use Google if you’re curious.

With the Biden era tax credits and whatnot cancelled now that we are out of the Paris Agreement (again), one might think, ‘that’s fine and it doesn’t matter’, right? Energy companies will be re-prioritizing their CapEx anyway, right? Doubtful. On one hand, if the Democrats win in 2028, the smart money says they are going to sign us right back up for the Paris Agreement (again) and give O&G executives more regulatory whiplash. They can’t afford to pretend like it won’t happen, because it might. And that will disadvantage US businesses if they do nothing in the meantime. On the other hand, even if we never rejoin the Paris Agreement, energy companies will still have to deal with the Climate Alliance making local operations in the US even more opaque and nonsensical. Except now, they won’t be getting any tax breaks for their efforts. Talk about the law of unintended consequences.

So, when you’re cheering (or jeering) for your political office holder of choice over the next term, spare a thought for the browbeaten CFOs and CAOs that must make sense of domestic and international climate regulations and the partisan seesaw that we all have to live on for the foreseeable future.

Now, if you’ll excuse me, I need to figure out how to get a relatively successful SVP of Sales & Marketing internationally listed as a ‘developing nation.’

As they say: don’t hate the player…

- Jordan Driskell - The Editorial ‘We’

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