Trump leaves the climate agreement again: The impacts on European industry will be fundamental

The once-again President of the USA Donald Trump signed, on the first day of his new mandate, withdrawal from the Paris Agreement on climate. According to the Secretary General of the Association of Industrial Unions and Transport, Andrej Lasz, this step may have several impacts.

„It will probably also disrupt overall diplomacy in the area of climate. The climate agreement has worldwide acceptance. The USA is becoming just one of four countries in the world that have not signed and ratified the agreement,“ says Andrej Lasz in an interview for Forbes.

President Trump also signed, besides the withdrawal from the climate agreement, other domestic deregulatory decrees, which reduce the prescribed fuel efficiency of cars and the requirements on coal-fired power plants. For the population and industry these will, from a short-term point of view, make production and prices cheaper.

Donald Trump, who became President of the USA once again, signed the withdrawal from the climate agreement on the day of his inauguration. Did it surprise you?

It did not surprise me, since he spoke about it also in the pre-election campaign. Donald Trump has already withdrawn from the climate agreement once before, that was in 2017. At that time, from the election results until the inauguration of President Joe Biden, the USA was not a partner of the climate agreement for four months.

What will this withdrawal from the climate agreement mean for European industry?

In the first place one must speak about the climate problems that it may cause. There is worldwide agreement that the earth is warming and that this warming will be expensive. It is estimated that it will be more costly than any measures taken to protect the climate.

The USA will therefore now contribute to the worsening of the climate more than before.

Over the past fifty years, Americans are responsible for a fifth of CO2 emissions worldwide. Today we release into the air approximately 50 billion tonnes of greenhouse gases.

The largest share of this is held by the production of cement, steel and plastics. Together these account for about a third. They are followed by electricity production, agriculture and transport.

Over the past hundred thousand years, the concentration of CO2 molecules in the air has increased from 200 to 250 ppm of carbon dioxide molecules to 400 ppm and is rising further. This contributes to the warming of the air, which will affect the population and industry.

Will the Americans thereby improve the competitiveness of their industry vis-à-vis Europe?

Yes, but from a short-term point of view. Besides the withdrawal from the climate agreement, Trump signed other decrees too, which contain domestic deregulatory decrees. They reduce the fuel efficiency of cars, the requirements on coal-fired power plants, which will, from a short-term point of view, make production cheaper for the population and industry.

The emission measures that European industry and citizens have to take are large. We are transitioning to green energy, we are decarbonising, we pay emission allowances. The worldwide effort to reduce CO2 is great.

Can we already today quantify how these measures may help the American economy?

It is still too early. The withdrawal comes at the same time in the days when we saw devastating fires on the coast of the USA. Those are the impacts of climate change.

In addition, we can expect periods of drought, temperatures around 50 degrees during heatwaves, torrential rains. The weather will be ever more extreme. The impacts of climate change will cost much more worldwide than any measures we need to take today.

How will it harm European industry?

Donald Trump's decision will harm European industry. I consider that, however, to be a populist decision of the American president. It comes two weeks after the extensive fires in Los Angeles. I would be interested in what the quantified damages of these fires are.

Climate changes cause such devastating consequences. If we ignore the situation, something similar may happen here too. How will we view it when, in twenty years, for example half of Petržalka burns down?

Can we be more specific?

European industry operates on international markets. Approximately a third of car production from Slovakia goes to the American market. It is made up mainly of vehicles from the Bratislava plant of Volkswagen. These cars are made more expensive by the regulations related to climate change.

We pay emission allowances, we have to comply with ESG, decarbonise production, in order to obtain cheaper loans from banks. That is reflected in the production price of the car model.

Within the horizon of several years, the consumer will move away from the „more expensive European“ cars and will switch to „cheaper models“ made in the USA. We will probably feel the impact in reduced production.

By how much is European industry today more expensive than American?

It cannot be answered like that. What we do know, however, is that in the USA energy prices are at a third of European ones. The price of energy, which is in the USA, is reflected in production. The specific amount, however, depends on the product.

The price of energy in the production of a car constitutes three percent of the production cost; for aluminium the price is as much as 70 percent of all production costs. Energy-intensive industry has no chance of producing at all without support from the European Union and Slovakia. This is also evidenced by the aluminium plant in Žiar nad Hronom, closed for two years.

The withdrawal of the USA from the climate agreement will rather worsen the situation than improve it.

Of course. It will probably also disrupt overall diplomacy in the area of climate. The climate agreement has worldwide acceptance. The USA is becoming just one of four countries in the world that have not signed and ratified the agreement.

How will European and Slovak industry cope with it?

It will probably lead to even greater deglobalisation. European industry will produce only for the European consumer, which is why it will be many times more expensive for the American one.

Some purely export companies will have a problem maintaining production, and those that are able to sell products in Europe will be able to limit production and produce for our purposes. The withdrawal from the agreement may provide the USA with a competitive advantage, but even so we do not consider it correct. In the long-term context it is harmful for the whole of humanity and society.

What would we need so that the impacts are mitigated?

That the state begin to fulfil its commitments from the climate agreements – move away from the support of fossil fuels, the production of heat from gas and coal, so that it gradually transitions to green energy. We should also do everything to be able to introduce green sources. That is not happening in Slovakia.

Why?

For now it is the political buying of voters. We pointed this out also at the tripartite. In 2022, public resources in the amount of 1.6 billion euros were spent on support schemes in the area of the production of heat on the basis of gas and coal, which is too much.

The state should reduce these subsidised prices of heat and gas and rather open schemes in various areas – the transition to renewable energy sources, heat exchangers, the replacement of old boilers with new ones.

Is it even sustainable to support industry with subsidies?

If in 2022 we are able to spend 1.6 billion euros from the public budget on various support schemes and fuels, artificially maintaining the price of gas and heat for households, and we do not support green energy, there is room for support. It would be enough to swap the ratio.

It is also necessary to give a tax advantage to the investment into green energy that companies make. If you take all the connection charges, the so-called G-component (a charge for the reserved capacity of the network, which you have to pay for every MWh from renewable sources, ed. note), which is determined by the Office for the Regulation of Network Industries, it does not add up financially for you. Companies are not motivated to make such investments.

Today there is approximately one billion euros collected in the Environmental Fund. We use it to bail out other chapters of the state budget that have nothing to do with industry.

Should the European Union not make such investments too?

Yes, but to a certain extent these measures are decentralised. A good example of this is emission allowances. The European Union already years ago decided, to contribute to decarbonisation, that for every megawatt-hour of produced electricity, for every tonne of CO 2 , we will pay an emission allowance.

At the same time it stated that this money is to go into a special fund, and from this fund projects for the decarbonisation of production are to be financed. The method it left to the individual member states, but in Slovakia only a few percent are drawn from the Environmental Fund.

This money, which industry collects itself, is used as a kind of balancing fund of the state budget. Today there is approximately one billion euros collected in the Environmental Fund. We use it to bail out other chapters of the state budget that have nothing to do with industry.

Can European industry today be cheaper than the American or Chinese one?

It cannot be cheaper given the regulations in the European Union. It has long been losing competitiveness.

What would have to happen for it to become more competitive?

That commitments be observed on the part of public administration. If, for example, we agree that after 2035 cars are to be only electric, for which carmakers are preparing, simultaneously with that we need the member states to build a network of charging stations, issue calls for the purchase of electric cars and other support schemes to fulfil these commitments.

It is precisely these public commitments that are limping, which disrupts the ability of European industry to act.

Article taken from Forbes.sk.