Update on the Paris Climate Accord decision and hydropower

Most of our readers are probably already aware that President Donald J. Trump announced June 1 that the U.S. will withdraw from the Paris Climate Accord. There is no shortage of opinions regarding this decision, but we want to bring you some facts as to how this may affect renewables, including hydropower.

On June 5, S&P Global Ratings announced it had published a report, “Withdrawal Symptoms: What Trump’s Paris Agreement Decision Could Mean for American Generators.” S&P appears to consider hydropower a renewable asset. Previously, S&P has said, with regard to hydro, “While large hydro assets (over 50 megawatts [MW]) often do not contribute to meeting renewable portfolio standards, which are generally focused on incentivizing new generation (though this varies by state), they remain critical to the overall carbon reduction strategy–replacing large, high capacity factor hydro units would inevitably mean building new, fossil fuel generation.”

S&P says there are five key takeaways from the report:

  • While withdrawing from Paris cannot take effect until 2020, it could pose significant consequences for the power industry over time;
  • The motivation behind the Paris withdrawal likely coincides with plans to revive the U.S. coal industry. S&P does not believe coal generators’ performances will improve sharply (at least on the unregulated side), however, given that gas prices remain anchored;
  • The impacts on both the U.S. nuclear and natural gas industries are ambiguous. While Paris represented a boon for nuclear, withdrawal may have jeopardized assets. But nuclear’s advantages — namely fuel security and grid stability — means support may continue for nuclear irrespective of the decision to withdraw from Paris;
  • Meanwhile, natural gas’ surge of recent years has been hobbled by weakening demand growth and oversupply. Withdrawing from Paris will likely be ineffectual — and the natural gas renaissance many expect may not materialize regardless;
  • Despite local efforts to develop renewables (such as in New York and California), the energy source’s outlook has become less clear. Given the substantial capital costs involved in their development, in the absence of regulatory support, the rationale for renewables has been weakened. S&P Global Ratings, however, expects state-level policies to continue the drive towards cleaner energy.

In fact, some states are moving in exactly that direction. In response to Trump’s announcement, New York Governor Andrew M. Cuomo, California Governor Edmund G. Brown Jr. and Washington State Governor Jay R. Inslee announced the formation of the United States Climate Alliance, “a coalition that will convene U.S. states committed to upholding the Paris Climate Agreement and taking aggressive action on climate change.”

“The White House’s reckless decision to withdraw from the Paris Climate Agreement has devastating repercussions not only for the United States, but for our planet,” said Governor Cuomo. “This administration is abdicating its leadership and taking a backseat to other countries in the global fight against climate change.”

New York, California and Washington represent more than one-fifth of U.S. Gross Domestic Product and are committed to achieving the U.S. goal of reducing emissions 26% to 28% from 2005 levels and meeting or exceeding the targets of the federal Clean Power Plan, according to a press release from New York State. These three states account for at least 10% of greenhouse gas emissions in the U.S. and have considerable hydroelectric assets.

Background

At that time of his announcement, Trump said the U.S. will “begin negotiations to either re-enter or negotiate an entirely new agreement with more favorable terms for the United States.” According to a press release from the White House, “The Paris Climate Accord cost the U.S. economy nearly $3 trillion in reduced output, over 6 million industrial jobs, and over 3 million manufacturing jobs.”

The press release said the decision fulfills a campaign promise that “the U.S. would maintain its position as a world leader in clean energy, while protecting the economy and strengthening the work force.” The White House also cited a study by NERA Consulting that said “meeting the Obama Administration’s requirements in the Paris Accord would cost the U.S. economy nearly $3 trillion over the next several decades.”

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