The latest iteration of President Donald Trump's threats to start trade wars is his decision to quit the Paris climate agreement.
The White House confirmed on Thursday after days of speculation that the president has decided to withdraw from the nearly 200-country climate pact, negotiated in 2015. Quitting Paris could have major implications on U.S. trade relations and pose a significant risk for American companies, hundreds of which have pushed Trump to stay in. Energy firms could be especially affected.
U.S. withdrawal from the Paris agreement could trigger tariffs on American exports and even spark a climate change trade war. The fallout wouldn't be immediate -- tariffs take time and would need to comply with World Trade Organization standards -- but rumblings of such measures have already begun.
"The conclusion of Paris disagreement and a world of differential carbon pricing regimes is likely to be a trade war," said ClearView Energy Partners analyst Kevin Book. "Anything that gets us closer to trade reprisals surrounding energy of any kind is bad for energy writ large."
America's absence from the Paris agreement implies that that country will eventually fall behind the rest of the world on emissions efficiencies, and eventually, other nations could begin to accuse the United States of free riding. The fundamentals of green energy and conventional energy won't be affected in the near-term, but over about the next decade as investment trends change, the scenario will shift.
"Eventually, the world changes when a lot of investment in emissions reductions begins to bite," Book said.
Countries that tax carbon dioxide pollution emissions could be inclined to put a tariff on American-made products. The European Union already charges polluters fees for carbon emissions, the New York Times noted recently, and China, Mexico and Canada are on track to follow suit.
"There's no part of the Paris agreement that would automatically kick in tariffs for trade agreements or something like that if a party pulls out," said Andrew Light, a distinguished senior fellow at the World Resources Institute. "There's been talk of this, mostly among European leaders, that if the United States pulls out they might enact some kind of trade barriers or taxes, especially on fossil fuels, on countries that are not part of the Paris agreement, which would affect U.S. natural gas exports."
For example, companies such as Cheniere (LNG) , Energy Transfer Equity (ETE) , Oneok (OKE) and Williams Companies (WMB) , all large exporters of natural gas and liquefied natural gas, could be affected. Any trade-dependent energy subsectors could be impacted, including refiners, power generation technology firms and upstream oil and gas companies.
Mexican undersecretary for environmental policy and planning Rodolfo Lacy Tamayo told the Times last November that a carbon tariff against the United States would be an option for Mexico. "We will apply any kind of policy necessary to defend the quality of life for our people, to protect our environment and to protect our industries," he said.
Even without the threat of a trade war, quitting Paris would have more tangible and immediate damaging effects.
"In the last administration, we would use institutions like the Overseas Private Investment Corporation and our trade ambassadors to try to grease the tracks for American companies that want to get involved in the clean energy market around the world, and that's a booming market," Light said. "We would be pulling back from all of that."
Updated with White House decision.
Read More Trending Articles: