The Paris Climate Agreement Math, in Terms a NY Real Estate Developer can Understand

By Si Jun Lee

The $100 billion Green Climate Fund figure at the center of the Paris Agreement has been singled out for criticism by both supporters and critics alike.

On one hand, President Trump’s assertion that the Green Climate Fund will require the U.S. to pay “billions and billions and billions of dollars” while “many of the other countries haven’t spent anything, and . . . will never pay one dime” is inaccurate.

First, the Green Climate Fund is an outgrowth of the 2010 Copenhagen Climate Agreement.  It stipulated that 37 developed countries plus the European Union would “mobilize”—not “give”—a combined $100 billion in climate finance to developing countries by 2020.  That figure, however, includes only $10.3 in direct aid from developed countries, with the rest coming from private investments and voluntary contributions from other countries.   When the Paris Climate Agreement was signed in 2016, the total amount “mobilized” was already at $66.8 billion, with little coming from direct aid.  Second, other countries are paying as well.  The U.S. committed $3 billion of direct aid, but only paid $1 billion before President Trump reneged on the remaining $2 billion commitment.  According to the Green Climate fund’s Pledge Tracker, the majority of countries that pledged funds under the Agreement have already paid in full.  Others have paid significant sums as well: the UK $770 million, Japan $750 million, Germany $500 million, France $450 million, Canada $187 million, etc.

On the other hand, there is some truth in the sense that the financial burden has been uneven.  China and India have not committed any funds, and it is also no secret that the reason many developing countries joined for the Paris Agreement may well be to get a slice of the $100 billion pie, as evidenced by the Climate Action Plans submitted by developing countries uniformly requesting financing for action.  From a common sense perspective, a focus on climate change at the moment makes little sense for countries like Yemen, which is currently struggling with the aftermath of a long civil war and crippling hunger and disease epidemics.  Yet Yemen signed on to the Paris Climate Agreement and submitted a Climate Action Plan ahead of schedule, indicating it could institute programs to reduce its carbon emission by 1-14% conditional upon obtaining international financing for its climate program.  Despite the fact that the Green Climate Fund invests in specific projects and does not distribute money to countries for self-implementation, there is still some skepticism that—without strong oversight on a local level—there is a risk that funds intended for climate programs could dissipate through graft and corruption in some countries.

This does not mean, however, that the U.S. decision to walk away from the Agreement was financially wise.  The pre-Trump U.S. approach in supporting the Green Climate Fund is a strategy that President Trump should understand well from the real estate world.  It was designed to leverage a small direct investment to raise a substantially larger sum from other players for a global project that it could not—and should not have to—finance on its own.  The international goal of mobilizing $100 million by 2020 once seemed reachable, even with a relatively low commitment of direct aid from the U.S.  President Trump’s withdrawal now sends a strong signal akin to a lead investor pulling out of a real estate development deal at the last minute.  The U.S.’s departure won’t help convince China and India to do more (unless they see economic opportunities in the power vacuum).  Worse yet, it sounds the alarm for other private investors to pump the brakes on climate projects around the world.

While President Trump’s decision saved the U.S. $2 billion in short term cash, this pales in comparison to what the U.S. stands to lose from continued climate change.  According to a September 2017 study by the U.S. Government Accountability Office (GAO), U.S. agricultural, health, and labor sectors all suffer measurable economic impact from global emissions in other countries.  In addition, spending to respond to climate-change related natural disasters has cost the U.S. over $350 billion in the last decade.  And these costs are rising rapidly as climate change becomes more accelerated.  The GAO report, in fact, urged the Trump administration to take action to protect the environment before it starts costing the country more money in the long term.  Ironically, the Green Climate Fund was a way for the U.S. to accomplish exactly this goal… largely using other people’s money.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s