We observe the irrationality of the doctrine of global warming, the naive belief that small variations of global temperature we experience have an anthropogenic origin! Trump has pulled the United States out of the Paris climate agreement and, interestingly not because he does not believe in man-made global warming, something we could have expected since he called global warming a hoax during his campaign. He could have used many different arguments to question the theory that climate change is mainly driven by human activity. Instead he used an economic argument.

Regulations run amok in the climate change agenda. The costs of successfully countering the buildup of greenhouse gases (GHG) in the atmosphere are huge—far larger than described in the media and by advocates. It requires the rapid, total phase out of fossil fuels (the leave them in the ground strategy), raising energy prices, and fundamentally changing production and consumption patterns, which would reduce living standards worldwide. The poor will be disproportionately harmed, both within the United States and everywhere.

Signing up to the Paris Agreement would impose large costs on the U.S. economy without any significant impact on global temperatures. In his speech, Trump cited a 149-page study by National Economic Research Associates that argues the Paris Agreement would cost 2.7 million jobs by 2025, totaling loss of US$3 trillion in lost GDP by 2040. He also cites the forecast of a study that predicts that the Paris Agreement would result in 0.2 degree Celsius less warming, a trivial impact. So, a project with significant costs and very little benefits should be rejected, as we teach in our investment courses.

The costs of reversing GHG emissions could be 1% of global GDP annually—or about $800 billion each year, which is approximately the size of the economy of Holland. Specific industries will be particularly affected—including manufacturing, energy production, mining, transportation, and some types of agriculture. Generally wealthy elites will not bear many of these costs; they will fall squarely on general middle-class citizens. A candid weighing of (very uncertain) benefits and costs and their distribution among populations for compensation is essential for any effective, durable action to address possible climate change.

Not surprisingly, the conclusions were immediately challenged by the Paris Agreement supporters.The first response, as usual, is to discredit the economic report by discrediting its authors: the report was produced for the American Council for Capital Formation that receives money from Exxon-Mobil and The Petroleum Institute. (Full disclosure: I am not subsidized by the oil and gas industry.) And, of course, unlike climate change forecasts, long-term macroeconomic forecasts are highly uncertain. Nevertheless, not even the strongest Paris Agreement defenders can deny some significant costs to developed countries, i.e. the US$100 billion per year (starting in 2020) of global climate finance to be raised by the Green Climate Fund (GCF).

Any reduction in global GHG emissions and a decline in the stock of GHG already in the atmosphere requires coordinated and major cutbacks in fossil fuels worldwide. Greenhouse gases circulate the globe, meaning that some countries will receive the benefits of costly mitigation taken on by others. Under these circumstances, the incentives to free ride are irresistible. Internal pressures to free ride will be particularly great in those countries that will incur the greatest mitigation costs, that have the weakest government institutions and limited rule of law, and that are big enough to chart their own course regardless of international shaming—Russia, China, India, Brazil, and even the United States. Successful international mitigation will require more than the small “feel good” adjustments currently portrayed by advocates, agency officials, and politicians. But high costs make durable international cooperation unlikely—at least until benefits are much clearer than they are now. Attention to the size of GHG mitigation costs and the corresponding global free-riding problem directs policy toward more fruitful aims.

Although the private sector is supposed to contribute, the fact is that that taxpayers of the developed countries are expected to subsidize the GCF. To wit, the GCF currently has received $10 billion, largely financed by American, European, Canadian, Japanese and Australian taxpayers, with US$3 billion contributed by the U.S. by the Obama administration. So far I have been unable to find any trace of contributions from the private sector, which is not surprising considering that the S&P Global Clean Energy Index has lost 15 percent per annum over the last 10 years. So Trump is right in that the agreement represents a massive wealth transfer of trillions of dollars from developed countries to developing countries.

United Nations officials in charge of environmental policy have admitted this; Ottmar Edenhofer, who co-chaired the UN Intergovernmental Panel on Climate Change working group from 2008 to 2015, said, “One has to free oneself from the illusion that international climate policy is environmental policy…We redistribute de facto the world’s wealth by climate policy.”

The second response is to claim that Trump has cherry-picked a study that shows only a 0.2C degree decline in global warming because of the Paris accords. According to Climate Scoreboard, collaboration between MIT and Climate Interactive: “Full implementation of current Paris pledges plus all announced mid-century strategies would reduce expected warming by 2100 to 3.3 degrees Celsius, a reduction of 0.9 degree compared to the no change prediction of 4.2 degrees Celsius.”

This would mean we spent trillions of dollars to reduce global warming by only 21 percent. Considering the significant uncertainty of making predictions over an 80-year horizon, this reduction does not seem to be statistically significant, in contrast to the costs. Moreover 3.3 degrees Celsius is above the “tipping point” where global warming would be run out of control. Implementing the Paris Agreement is like wanting to build a bridge across a river, but only having enough resources to build 20 percent of the bridge. In this case, it is better not to build a bridge and think of alternatives to reach the other side.

A third and most peculiar critique on Trump’s decision is that the Paris treaty is not a binding commitment. In 2015, the European Union had wanted to make it a binding commitment, but the only way all countries would sign on was to make the treaty non-binding. Countries can set their own targets, and revise them at any time. If they fail to meet their targets, there is no penalty. So, the Trump critics want him to follow the hypocritical attitude of his fellow politicians: pretending that you make a commitment without any intention of keeping it. At a time when voters questions are becoming increasingly sceptical about mainstream politicians, this is a remarkable recommendation indeed.

The current state of debate about climate change is spitting science in the face and treating science like a piece of rubbish. Carbon dioxide is treated like a toxic gas by proponents of radical policies on climate change. Next it will be oxygen, it will be anything that you want on the chemical table. The Sun is a primary driver of climate change — and has a far greater impact than changes in CO2. Climate science is dangerously corrupted and co-opted by multiple anti-science forces and players.

Much of the reporting about climate change in the mainstream media is fake news. There are many fads and fashions that have sprung up around climate change. For example, the locavore movement, which stresses eating locally-produced food to save energy, actually increases greenhouse gases, because of the energy efficiencies achieved by larger and more established farms that benefit from economies of scale. Governor Jerry Brown had warned of a drought of immeasurable magnitude — a meaningless phrase, in scientific terms. The movement toward renewable energy sources, he said, was not a sign of progress, but regression toward the lower energy densities of the pre-industrial age. Belief in carbon pollution is like the superstitious beliefs of primitive civilizations, such as a 1933 newspaper article describing a drought in Syria that was blamed by locals on yo-yo toys!

For all the focus on carbon dioxide, the most important greenhouse gas in the climate system is water vapor. And carbon dioxide is not a pollutant, as the term is conventionally used. While it was true that the atmospheric concentration of carbon dioxide had been increasing and had passed 400 parts per million, the dominant effect of water vapor had helped flatten the greenhouse effect, such that the rise of global surface temperatures had slowed significantly.

Some climate scientists manipulated graphs to make climate change seem more severe than it was — for example, by representing temperature anomalies rather than absolute temperatures.

There is, in fact, some surface temperature warming, albeit less severe than conventional data sets showed. But the effect is more likely the result of fluctuations in energy output from the sun, which in turn affects water vapor. The major effect of cutting carbon dioxide emissions to zero would be to kill and hurt poor people and greatly harm animals and the environment.

Trump’s decision to withdraw from the Paris Agreement should not come as a surprise. Trump is not a traditional politician driven by ideology. He is a businessman trading off costs and benefits. Even the defenders of the treaty admit the impact of the Paris Agreement on the climate in 2100 will be trivial. At the same time, if the commitments are respected, the costs to taxpayers of developed countries will be substantial and honest European politicians should disclose this to their voters. If the commitments are not respected the whole Paris Agreement is an exercise in extreme hypocrisy. So, I believe Trump should be complimented, rather than scorned, for rejecting leadership in wealth destruction and/or hypocrisy.


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