Hot Commodities

Hot Commodities: The Week After

By Ellen Scholl
Wednesday, November 16, 2016, 11:04 AM

Climate Legacy Coming Undone

In the wake of Donald Trump’s election to the U.S. presidency, there are more questions than answers on the future of U.S. global engagement—and energy is far from immune from this uncertainty. While just one year ago the U.S. was instrumental in galvanizing support for the Paris Agreement, the country now appears on the verge of withdrawing under the new President. The incoming administration’s ambition is to tear down what the U.S. and other members of the High Ambition Coalition helped build up. And as climate negotiators meet in Marrakesh for the COP 22 conference this week to translate the Agreement from aspiration into action, the specter of a Trump presidency casts a long shadow.

The president-elect and his new GOP allies in Congress have made haste in broadcasting their intentions to dismantle the Obama Administration's climate legacy, namely the EPA-issued Clean Power Plan, which serves as the basis for the United States’ intended nationally determined contribution (INDC) for emissions reductions under the Paris Agreement. The Agreement was reached in December in 2015, helped along in no small part by a historic announcement of climate cooperation between the U.S. and China earlier that year. However, just days after the agreement came into force on November 4, Trump’s election threatens to derail progress.

The Paris Agreement includes a stipulation preventing countries from withdrawing within the first three years of the agreement’s entering into force. But the time until withdrawal could be cut to one year if the U.S. withdraws from the Paris Agreement’s parent treaty, the United Nations Framework Convention on Climate Change (UNFCCC), signed by President George H.W. Bush and ratified by the United States in 1992. Whether Trump disregards the Paris Agreement, throws it out completely, or withdraws from the UNFCCC process, all outcomes place in jeopardy the the goal of restricting a global temperature increase to two degrees.

Sure, you might be thinking, this may be bad for the climate, but what does this have to do with security? An awful lot.

First of all, the credibility of U.S. commitments would be called into question. Loudly signaling that the U.S. does not actually mean what it says when it commits to international agreements, and providing high-profile proof that the U.S. cannot be counted on to live up to its promises, has a whole range of downstream implications for U.S. credibility and legitimacy. Will the U.S. keep commitments made in other multinational institutions and settings? Will the U.S. continue to honor NATO’s article 5? Will the U.S. Navy continue to provide safe passage on the open seas and ensure the free flow of oil? The answers to these questions are anyone’s guess, although the initial signs are not encouraging.

Second, the symbolic power of U.S. leadership would be tarnished, along with the idea that the United States is and is willing to be the “indispensable nation.” American participation in international climate mitigation is in fact indispensable: emissions reductions promised in the U.S. INDCs represents one-fifth of the global total, and the U.S. is the world’s second largest emitter. By demonstrating unwillingness to live up to its commitments, the U.S. portrays itself as unfit and unworthy of the responsibility that accompanies such a designation. Furthermore, a United States that declines to assume responsibility is a United States that will find it increasingly difficult to convince other countries to be responsible actors as well. Indeed, asking any country to undertake measures, reforms, or actions that are domestically controversial will become an increasingly tough sell.

Willingly abdicating from global leadership and participation in multinational institutions sets a dangerous precedent. This could send a signal that the U.S. is no longer willing to maintain the world order it helped create, while perversely encouraging other nations to buck the international system, withdraw from their commitments, and pursue their own interests. Pause for a moment to reflect on the types of nations that willingly flout global commitments and work against the goals of the international system, and you’ll have some idea of the company in which the United States might find itself.

Third, the relegation of climate change from national security threat to Chinese-driven hoax does not mean that the security implications of climate change will not come to pass—rather, they are almost guaranteed to occur absent U.S. mitigation efforts. And while the security threats posed by climate change are both nebulous and at this point theoretical and distant, they are certainly on the horizon. If the U.S. chooses to bury its head in the sand, it will find itself ill-prepared for these geopolitical consequences when they arrive.

Potential effects of climate change include less water in areas where it is already scarce, more pressure on resources that are already a source of conflict, and the increasing inhabitability of areas that are already densely populated. As a result, we could see potential migration flows that would make the current migration crisis look positively manageable, along with painful transitions and potential instability in rentier states around the world that have to come to terms with a new oil future and potentially a re-negotiated social contract as the oil revenues upon which their social programs have been built may dwindle.

While it may be too early to pinpoint exactly when or where these scenarios could come to pass, we forget that “climate is the ultimate threat multiplier” at our own peril. As with many other issues, we must hope there will be some daylight between the Trump who campaigned and the one who must now govern.

 

Iran Trying to Make Other Deals

The Paris Agreement is not the only element of the Obama administration legacy in jeopardy. Based on Trump’s campaign rhetoric, it is safe to assume that a Trump White House will be much more suspicious of and even hostile to the Iran deal. The president-elect railed against the Iran deal on the campaign trail, while his potential picks for Secretary of State and Defense give little reason to assume the candidate will moderate once in office.

This new uncertainty surrounding the agreement comes as Iran is increasingly trying to attract investment and revive its domestic energy industry, where development has been slower than anticipated thanks in part to the lingering impact of U.S. sanctions. As Robbie Gramer writes in Foreign Policy, a Trump Presidency could put a damper on investment in Iran.

On the same day as the U.S. election, a preliminary deal was reached between the Iranian National Oil Company and French oil company Total to develop the South Pars natural gas field, along with state subsidiary Petropars and the Chinese National Petroleum Corp. The project, to be finalized next year, is the first post-sanctions Western energy deal in Iran, and the country is hoping to entice more European firms to invest. However, that task could become much more difficult under a Trump presidency if sanctions were to be reinstated; if the Treasury Department were to change investment restrictions and guidelines; or if the next administration is less willing to work with Iran on issues like exceeding the allowed heavy water stockpile. In the meantime, the House voted to extend the Iran Sanctions Act by 419 to 1 this week, which lawmakers argue enables a “snapback” of sanctions in the event Iran is noncompliant.

Much like the climate agreement, the dangers of withdrawing from an agreement negotiated with partners in a multilateral setting that relied on trust and commitment from all sides will not bode well for the credibility of U.S. commitments.

 

OPEC Agrees Only to Disagree

Trust is not going around these days. Despite OPEC’s agreeing in theory to reduce oil production, the possibility of this happening in practice is looking less and less likely, largely due to quarreling between regional rivals Iran and Saudi Arabia over output. The infighting played out at an OPEC meeting late last month intended to serve as a preliminary discussion to work out production cuts in advance of the planned OPEC Ministerial Conference on November 30.

Rather than ramping down output as promised, Reuters writes that Saudi Arabia threatened to increase supply if Iran does not limit its own production. However, the idea that either side would limit production appears increasingly unlikely. According to reports, Iranian production increased in October by the largest volume since the lifting of international sanctions in January, while OPEC production hit a record high last month for the fifth time in a row.

The debates roiling OPEC over the role of the organization, the future of production, and what the future might look like for rentier states are all occurring against the backdrop of a changing Saudi society grappling with the possibility of a future beyond oil. This includes reforms, both proposed and enacted, including cuts to the salaries of public sector employees and the restructuring of a currently oil-dominated economy. As the Wall Street Journal reports, “nothing seems sacrosanct in this new world of diminished oil revenue.”

 

What to Watch

Trump’s Cabinet and the First 100 Days

When it comes to energy, Trump’s picks for Secretary of State, Defense, Interior, and Energy all promise to usher in changes in the energy field. Whether it's the Paris Agreement or the Iran deal, Middle East policy or the Cyprus question, energy diplomacy or pipeline politics, U.S. policy domestically and engagement abroad will impact energy and geopolitical dynamics around the world.

So will the promises made in the President-elect’s plan for his first 100 days, which includes a cancellation of U.S. payments to U.N. climate change programs, likely targeted at the Green Climate Fund. The promise of assistance to developing nations was a key incentive to encourage their participation, and if Trump moves forward with withdrawing U.S. payments (and there is certainly no barrier to prevent this from happening), it could reduce momentum for many countries.