Morningstar Magazine - June/July 2017 - 78

Strategies

the outcome, we think the United States can
achieve its targets by the time the litigation ends.
The Paris Agreement, an add-on to the previous
climate change treaties of the United
Nations Framework Convention on Climate Change
(1992) and the Kyoto Protocol (1997), aims
to accelerate previous climate goals by keeping
global temperatures from rising more than
2 degrees Celsius from preindustrial levels.
The agreement also has longer-term plans to target
a global temperature increase of less than 1.5
degrees Celsius.
The U.S. has pledged to reduce greenhouse gas
emissions by 26% - 28% from 2005 levels by
2025, but we think it will surpass this target. Trump
has toned down his opposition to the Paris
Agreement. Additionally, responsibility for the Paris
Agreement falls under the State Department's
jurisdiction, and Rex Tillerson, the secretary
of state, supported the agreement as CEO of
ExxonMobil XOM.

Unwinding the agreement would be difficult, but
it's not likely to have much impact because of
ongoing economic decarbonization. A signatory
cannot withdraw for three years from the effective
date (December 2016 for the United States), and
then it must wait an additional year for it to take
effect. Thus, this process wouldn't invalidate the
agreement until the end of Trump's first term. If
the United States unexpectedly falls behind target,
we think a second-term Trump administration
would simply ignore the agreement. This would be
unprecedented but probably would not lead to
severe consequences. If a signatory does not meet
the agreed emissions reductions, it only must
explain why it did not cooperate.

renewable energy, transmission, and distribution
investment. At the federal level, we expect the
Federal Energy Regulatory Commission, Tillerson,
Mnuchin, and Perry will influence utilities
policy more than Trump. This is where investors'
focus should be, not on anti-green bluster coming
from other parts of the government. K
Andrew Bischof, CFA, is a senior equity analyst with
Morningstar Research Services.
Travis Miller is an equity strategist with Morningstar
Research Services.

Ignore the Noise
Utilities will be sad to see Trump go if our forecasts
transpire. Utilities' pent-up infrastructure investments could usher in a golden age of growth. We
forecast annual earnings and dividend growth
hitting 8% for some utilities with constructive state
regulatory relationships supporting new

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78

Morningstar June/July 2017


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