Effects on the U.S. economy of its proposed withdrawal from the Paris Agreement: A quantitative assessment

Abstract

This paper assesses the potential effects on the U.S. economy if the U.S. retreats from its pledge to reduce greenhouse gas emissions agreed under the Paris Agreement. We assume prior to withdrawal that the U.S. and other nations or regions would introduce climate change policies, such as emissions trading schemes, to meet their emission targets which were agreed in Paris. When the U.S. withdraws from the Paris Agreement, it will not adopt such a policy. We use a modified version of the GTAP-E model to examine the effects on the U.S. economy of its anti-mitigation action in a counterfactual framework. The findings suggest that a retreat from the Paris Agreement would increase the real GDP and real private consumption by 1.13% and 0.78%, respectively, in the U.S. Given such improvements at the macro level, the effects on the U.S. energy sectors from the withdrawal are substantial. Prices of energy would reduce considerably, particularly for coal, natural gas, and consequently the price of electricity (-17.8%). These three energy sectors would also experience considerable expansions when the U.S. withdraws from the Paris Agreement compared to its position if it honored its previously pledged committed targets.