Paris climate deal is not just about the environment

The climate was the highlight of two important global summits during this year — the G7 meeting held on May 26-27 in Taormina, Sicily, and the G20 heads of state event early this month in Hamburg. This was beside bilateral summits such as that held recently between US President Donald Trump and French President Emmanuel Macron.

The issue of climate change has gained more importance after the current US administration reneged on commitments to the Paris agreement, to which the former US president Barack Obama was a signatory. The agreement aims to take numerous measures, notably the reduction of carbon dioxide emissions, to reduce global warming.

Why is the issue given all this importance amid a tense global atmosphere?

The reason is that climate change is not purely an environmental issue, otherwise there would not have been disagreements over it. This is because it would have severe economic consequences for all countries, particularly oilproducing nations.

This is the reason why Trump said during the G7 Summit that the “climate issue is associated directly with America’s national interests”.

Clean energy

The Paris agreement stipulates a reduction in the dependence on fossil fuel and increasing reliance on renewable and clean energy.

This is a true approach, but requires vast investments that cannot be afforded by many countries. As for the US, it seeks to benefit from its oil resources, especially shale oil and gas after America turned into a major source of natural gas in the world.

If such an approach would leave a major impact on the US, the world’s largest economy, what would it be for developing economies that produce oil and gas? In both cases, there will be consequences and all countries should be prepared to deal with them, whether an agreement is reached between the European Union and the US or not.

If an agreement is reached, this will limit US oil production due to restrictions that would be imposed on the development and production processes. This will eventually reduce supply in oil markets and lead to stabilising of prices. The agreement will increase US efforts in collaboration with the EU to develop alternative energy sources, which would in turn reduce dependence on oil.

This will also lead to low demand, leading to possible price falls and thereby increasing financial pressure on producing countries.

In case of disagreement from the US, it may lead to a significant increase in oil and gas production, driven by its huge reserves in addition to the availability of investments needed for development thanks to the financial capacity of America’s public and private sectors.

This will also lead to a significant supply and demand imbalance in global oil markets, and affecting prices to new low levels. However, this will be an important support for the US economy, and this is why Trump said the climate issue is directly linked to America’s national interests.

Expected challenges

Dealing with these anticipated developments is no easy matter. All countries should be well prepared to deal with the expected challenges, and more so the countries in the region who have signed up for the Paris climate agreement. They many need to work on two parallel directions. First, reduce reliance on oil revenues as the main source of generating income and financing public budgets. This strategy is being applied but in a manner that varies from one oil producing country to another. Nevertheless, working in this direction is a pressing matter.

The other direction lies in speeding on the development of alternative energy sources. Many countries are indeed working on this but the required speed differs between countries. The development process looks faster in countries with large reserves compared to those with less production.

Therefore, the Paris climate agreement is increasingly gaining in importance for all countries. The EU states are striving for the implementation of the agreement because they will benefit most from its economic impact. It will give the EU greater autonomy in the field of energy, which will strengthen their global economic stature.