How to Incentivize Sustainability
The Environmental Defense Fund developed a market-based proposal to reduce the omissions of sulfur dioxide, the cause of acid rain.
In his 26 years as head of Environmental Defense Fund, Fred Krupp has overseen the growth of EDF from a small nonprofit with budget of $3 million into a recognized worldwide leader in the environmental movement. Under his direction, EDF’s full-time staff has increased from 50 to 350, membership has expanded from 40,000 to more than 500,000 and new offices have opened in Raleigh, Austin, Boston, Sacramento and Beijing, China.
Fred is widely recognized as the foremost champion of harnessing market forces for environmental ends, such as the market-based acid rain reduction plan in the 1990 Clean Air Act that The Economist hailed as “the greatest green success story of the past decade.” Today, this approach has become the leading model for solving the problem of global warming.
Fred broke new ground by engaging American companies to lessen their impact on the environment. Strategic partnerships with McDonald’s, FedEx, and DuPont, among others, have resulted in the elimination of millions of pounds of waste, the adoption of hybrid delivery vehicles, and an accord to reduce the environmental risks of nanotechnology.
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.
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