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Trump Pulling Out Of Paris Is The US Becoming Blockbuster And China Becoming Netflix

Attempting to avoid the disruption will end up harming innovation

6Jun

The past week has seen a huge number of conversations taking place around the merits of renewable energy, climate change, and the impact that both will have on job markets.

This has been due to Donald Trump pulling the US Federal Government out of the Paris Agreement, a voluntary agreement that allowed countries to set their own emissions targets to try and reduce the amount of greenhouse gases in the world. The actual impact of this action is questionable given that, at present, seven states plus over 1000 cities and companies based in the US have all pledged to stick with the agreement.

Donald Trump’s decision to step away from the agreement was met with bafflement by many, with few being able to explain the decision. Trump claimed that the US could see ‘2.7 million lost jobs by 2025’ thanks to the agreement, which is a figure taken from a largely debunked study from the American Council for Capital Formation and the US Chamber of Commerce, who have been described as ‘unabashed apologists for America’s biggest climate polluters.’ The reason that these numbers have been debunked is that they work within a model that assumes that no companies would innovate in the face of new regulations.

So with this decision, does it take the impetus away from the US as one of the leaders within green energy?

One thing that it will most certainly do is slow the pace of innovation within the industry in the US, as fewer companies will need to actually need to think of new approaches to meet targets, because quite simply there are none. It comes at a time when China in particular was criticized by Trump in his speech claiming ‘China will be allowed to build hundreds of additional coal plants.’ The facts of this have been widely disputed and many have questioned where in the agreement it says this.

One thing that is a solid fact is that according to the U.S. Department of Energy 43% of those employed in the US Electric Power Generation sector work in solar power alone, compared to 22% who work across every fossil fuel industry. These numbers alone debunk the idea that somehow the Paris agreement has stunted job growth in the US, but the move which is clearly an attempt to prevent disruption could be the US Blockbuster moment.

Through ignoring the trends in the global markets and sticking to what has previously worked, the US is in danger of significantly stunting its innovation efforts within sustainable energy. It is the same hole that Blockbuster fell down when they stubbornly stuck to their model in the face of rapid changes in the market, under the impression that current limitations from their competitors would continue. What actually happened was that internet speeds increased and suddenly companies like Netflix put them out of business. Much like the Paris Agreement, the US had the opportunity to get in on the ground floor in the same way that Blockbuster had the opportunity to buy Netflix for $50 million, if they had possessed the foresight to predict future trends, they would probably still exist today.

However, rather than simply being challenged by smaller incumbents with few resources, the global movement alongside the Paris Agreement has seen huge results. For instance, in only three months China managed to increase its solar output by 80%, with the country creating 21.4 billion kilowatt-hours in the three months up to March 31 2017. This number is likely to increase further with China launching several new initiatives to increase the use of sustainable energy including the world’s largest floating solar power plant, creating 40 megawatts of energy, over 600% larger than the previous largest in the UK. China is also investing more than any other in renewable energy, $1.9 billion compared to $1 billion in the US (this number may be even lower if the Trump administration’s budget that cuts 69% of the Clean Energy Office’s budget is passed).

Ultimately the move may well be purely political, but regardless of the reasoning, it is a story that anybody familiar with companies who failed to adapt will recognize. When a market largely accepts a new operating model, it is foolish to think that because your old model was a success, that you’ll also have success with the same model in the future. Renewable energy sources are superior to ‘dirty energy’ in almost every way, chief amongst them is cost.

If a country can provide energy for considerably cheaper, they can naturally manufacture goods for cheaper, run data centers for cheaper, and have a population with more disposable income. If there is also increased investment in sustainable energy in other countries then the top minds working within the industry in the US are likely to move to countries where there is larger investment. The pre-cursor to this has already begun, with France’s President Macron saying in a speech about Trump’s decision to leave the Paris Agreement:

‘To all scientists, engineers, entrepreneurs, responsible citizens who were disappointed by the decision of the United States, I want to say that they will find in France a second homeland. I call on them, come and work here with us. To work together on concrete solutions for our climate, our environment. I can assure you, France will not give up the fight.’

It is the same concept in a business that isn’t reacting to changing market conditions, where the brightest people they employ will naturally gravitate towards the more progressive companies. This brain drain then exacerbates the issue, with the company already behind the competition and not having its best minds to catch up, so falls further and further behind. If Trump’s move removes the disruption from traditional fossil fuels, this could well be the outcome, leaving other countries to rule the roost in terms of renewables. 

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