The president is expected to formally announce this week that the U.S. will exit the Paris climate agreement, a move that will have negligible impact on the environment but will have major benefits for the U.S. economy.

The Paris climate agreement was deeply flawed from its start. It was legally and constitutionally suspect, based on politics rather than science, and contained unrealistic goals. It promised not only a dramatic expansion of the administrative state and a huge increase in the regulatory burden on American businesses, it threatened to put the brakes on U.S. economic output at a time when most economists think the U.S. will struggle to achieve even a meager two percent growth.

It’s likely that it was already acting as a drag on the U.S. economy. After President Barack Obama unofficially committed the U.S. to the Paris agreement, businesses began preparing for its impact. Knowing that it would diminish U.S. economic output, businesses invested less and directed more investment toward less-productive technology to meet the climate deal’s mandates. Banks and financiers withdrew capital from sectors expected to suffer under the climate deal and pushed it toward those expected to benefit. A classic example of regulation-driven malinvestment.

The Paris climate agreement was adopted on December 12, 2015 at the conclusion of the United Nation’s Climate Change Conference. Parties to the agreement are expected to begin taking measures to reduce emissions in 2020, mainly by enacting rules that sharply reduce carbon emissions. Countries are supposed to publicly announce “Intended Nationally Determined Contributions” to combat climate change and periodically report on their progress.  The Obama administration announced the U.S. would commit to reduce emissions by 26 to 28 percent below 2005 levels by 2025, a quarter of which was supposedly achievable by the implementation of the previous administration’s legally-questionable Clean Power Plan.

To get the rest of the way, the U.S. would have to make major investments in renewable energy, energy efficiency, and cleaner motor vehicles. This likely explains why the Paris climate deal was so popular with many in Silicon Valley and many on Wall Street. It promised a bonanza of spending and investment, most likely subsidized by taxpayers, in technologies that wouldn’t otherwise be attractive. It was practically calling out for making self-driving, solar powered cars mandatory.

Dropping out of the agreement will let the U.S. avoid several deleterious effects of the agreement.

  1. Goodbye to ‘American Last.’ The Paris agreement was basically an attempt to halt climate change on the honor system. Its only legal requirements were for signatories to announce goals and report progress, with no international enforcement mechanism. As a result, it was likely that the United States and wealthy European nations would have adopted and implemented severe climate change rules while many of the world’s governments would avoid doing anything that would slow their own economies. The agreement basically made the U.S. economy and Europe’s strongest economies sacrificial lambs to the cause of climate change.
  2. Industrial Carnage. The regulations necessary to implement the Paris agreement would have cost the U.S. industrial sector 1.1 million jobs, according to a study commissioned by the U.S. Chamber of Commerce. These job losses would center in cement, iron and steel, and petroleum refining. Industrial output would decline sharply.
  3. Hollowing Out Michigan, Missouri, Pennsylvania, and Ohio. The industrial carnage would have been concentrated on four states, according to the Chamber of Commerce study. Michigan’s GDP would shrink by 0.8 percent and employment would contract by 74,000 jobs. Missouri’s GDP would shrink by 1 percent. Ohio’s GDP would contract 1.2 percent. Pennsylvania’s GDP would decline by 1.8 percent and the state would lose 140,000 jobs.
  4. Smashing Small Businesses, Helping Big Business. Big businesses in America strongly backed the Paris climate deal. In fact, the backers of the climate deal reads like a “who’s who” of big American businesses: Apple, General Electric, Intel, Facebook, Google, Microsoft, Morgan Stanley, General Mills, Walmart, DuPont, Unilever, and Johnson & Johnson. These business giants can more easily cope with costly regulations than their smaller competitors and many would, in fact, find business opportunities from the changes required. But smaller businesses and traditional start-ups would likely be hurt by the increased costs of compliance and rising energy costs.
  5. Making America Poorer Again.  A Heritage Foundation study found that the Paris agreement would have increased the electricity costs of an American family of four by between 13 percent and 20 percent annually. It forecast a loss of income of $20,000 by 2035. In other words, American families would be paying more while making less. 
  6. Much Poorer. The overall effect of the agreement would have been to reduce U.S. GDP by over $2.5 trillion and eliminate 400,000 jobs by 2035, according to Heritage’s study. This would exacerbate problems with government funding and deficits, make Social Security solvency more challenging, and increase reliance on government’s spending to support households.

The Paris deal was, in short, a disaster for America and a nothing-burger for climate.