Some of the dust has settled after President Trump's recent decision to pull the United States out of the Paris climate accord, so it is an auspicious time to discuss how this decision could affect the plastics industry.
Before the decision to dump the deal was announced, many large corporations lobbied the president in an effort to get him to keep the U.S. in the Paris agreement. Among these companies were some large resins and feedstock suppliers.
Clearly these suppliers believe that the Paris agreement was in the best interests of their shareholders or employees or both. But an important question for me was, "What impact will this decision have on processors?"
In the spirit of full disclosure, I must state at the outset that I believe that climate change is real and that the activities of humans can and do have significant negative effects on the environment. I also believe that most of the effects of climate change are long-term in nature. This means that the real costs caused by climate change are difficult to measure at the present time and even harder to predict in the future. But if we only choose to deal with the easy problems, then why do we need economists?
A pressing problem for those of us fortunate enough to live and work in the developed world is how to generate enough energy to keep our economy growing without spoiling the environment we all need to live. The Paris climate accord was a political attempt to address this issue, but in my opinion, it was long on rhetoric and short on substance.
Thanks to my economics education, I am well-versed in the problem of externalized costs. Sending pollutants up a tall smokestack is the classic example of an externalized cost. The people responsible for producing the pollution, which should include the customers as well as the actual producers, pay only a fraction of the actual accrued cost to society of this pollution. The rest of the cost is passed on to somebody else at some other time and location. Left unabated, this practice will often result in a negative outcome that economists call a "tragedy of the commons."
If such a tragedy does come to pass, it will most certainly have a negative effect on processors. But I do not expect that to happen in the next year or two. In the meantime, there are a few economic effects that Trump's decision might have on processors in the near-term. I believe that for most processors, these impacts will be minor, but some of them could turn into more significant issues in the future.