Trump and Paris - An Unexpected Outcome

Trump's decision to pull out of the Paris agreement was a good thing, for the Paris process.

To be sure, Donald Trump's decision on June 1, 2017 to pull the United States out of the Paris Climate Accords was absurd. The reasoning he presented during his speech in the Rose Garden was logically inconsistent, referring to the agreement as both "draconian" and "non-binding" at the same time. About his motivations one can only speculate. Perhaps they are rooted in a combination of desires: trying to score a cheap win for his base on the one hand and wanting to snub progressives at home and abroad on the other. Aside from the illogical and self-harming nature of the decision, which has arguably already hurt U.S. relations with important European allies, created a diplomatic power vacuum China is eager to fill, and will most likely hurt American businesses in the long-run, it is good news for the Paris process.

Two concepts from economics and econometrics can help us understand this counterintuitive impact.

The first is called the sunk cost fallacy. It refers to the erroneous focus on past expenses when making decisions about the future. A gambler who has already lost hundreds of dollars should not keep playing the same bad odds just because she hopes to eventually recover her losses. An economist would advise her to treat those past losses as a sunk cost and to only focus on the actual current odds of winning when deciding whether to keep playing.

The second concept is known as the counterfactual. In econometrics, evaluating the impact of any outcome requires the application of a proper benchmark for comparison. If we want to know what the impact of a certain outcome really is (like the impact of Trump's decision to pull out of Paris), we must first know what would have happened, had this outcome not materialized.

Taken together, these two concepts can explain why Trump's decision to pull the plug on U.S. involvement in the Paris process will be good for the process itself.

For the global climate change agenda, Donald Trump's election is a sunk cost. It has indeed been costly, as his history of climate change denying rhetoric was swiftly reaffirmed by painful anti-climate actions, once he took office. Trump not only ordered the dismantling of Barack Obama's Clean Power Plan, but also appointed a climate change denier as EPA chief within his first three months in office. His election was surely a devastating blow to any hopes that after the last years of Obama's second term, the United States would finally assume a meaningful leadership role in the global battle against climate change. Yet, when evaluating the isolated impact of Trump's decision to pull the U.S. out of the Paris agreement, these costs, however painful, must be considered as sunk. The sad truth is that they will not be recovered until he leaves office, no matter what his decision on Paris would have been.

Although we cannot establish the counterfactual empirically in this case, it seems safe to assume that a Trump White House was never going to be a champion of climate change. Had it remained in the Paris agreement, it is therefore likely that the U.S. under Trump's leadership would have been an idle bystander at best. More likely, his signature brand of policy uncertainty and confusion, together with his hostility towards the climate change agenda, would actually have obstructed the continuous diplomatic advancements the Paris process needs, in order to ratchet up the nationally determined contributions.

Now compare this counterfactual to what has actually transpired in the wake of Trump's decision to leave the Paris Accords. Other countries around the globe, China most prominently among them, have answered with a resounding reaffirmation of the Paris process. Moreover, not only national governments have pledged to fill the leadership vacuum left by the United States. Civil society organizations around the globe too have been galvanized, voicing their disapproval with Trump's withdrawal.  Last but not least, domestic state legislatures, municipal governments, and several of the largest American corporations have committed to step in where the federal government has withdrawn.

When comparing the outcome with the appropriate counterfactual, which acknowledges that the election of a climate change denier to the most powerful political office in the world is a sunk cost, it is hard to see how the U.S. leaving the Paris process is not a good thing for the process. Instead of quietly obstructing progress from within, Trump decided to leave and has thereby given the champions of Paris a visible symbol to rally around. It should be viewed as a small beacon of hope in the world's uphill battle against climate change.