How to Incentivize Sustainability

The first President Bush had promised the American people in his campaign to be elected that he would solve the acid rain problem.  And so when he got in to office I was invited to the White House by his counsel C. Boyden Gray and we talked about many subjects. But one thing that the Environmental Defense Fund was encouraged to work on was be a market-based proposal to reduce the omissions of sulfur dioxide, the cause of acid rain.  Here’s how it worked.

Companies were given mandatory targets to reduce their omissions by half, but they could do so any way they wanted — through energy efficiency, low sulfur fuels, or scrubbers on the smoke stack.  And the kicker was if they managed to get even more than half of that production pollution reduced they could sell that extra increment to somebody else.  So for the first time there was a profit motive to do more than the law required.

The beauty of that was it brought down the cost of reducing sulfur so much that in subsequent years we achieved the 50 percent reduction at a small fraction of the cost that was predicted.  We had entrepreneurs inventing new ways to take sulfur out of the smoke stack at very low cost because there was profit in those new ways, but that also emboldened the government to set new goals for sulfur reduction in addition to that first increment of a 50 percent reduction. Then there was a second increment of another 70 percent reduction that has now been implemented.

In Their Own Words is recorded in Big Think’s studio.

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