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 / Summer 2008 / Issue 51(originally published by Booz & Company)


The Making of a Market-Minded Environmentalist

When I arrived at EDF, how­ever, only a minority of the staff supported this approach. Most staffers still wanted us to evolve into an organization like NRDC, built around first-class litigators. But a few people, ultimately including me, saw setting tough performance standards while harnessing markets as a far more powerful way to inspire human ingenuity on behalf of the environment.

I thought about it like this: Government must set the boundaries of what’s allowed, including pollution levels. Regulators must crack down on those who violate the rules. But if you just prescribe limits and brandish sticks, with no incentives for companies to go beyond compliance, you squander the creativity of people ready to invent better ways to conserve natural resources and clean up the water and air. Instead, we had a chance to reach deep into the economy and enlist all kinds of entrepreneurs; we could give businesspeople a reason to want to be part of the solution, even if they didn’t like environmentalists. And if we could unleash all that imaginative energy, we would have a far more powerful force for change.

At first, I couldn’t do much to advance those ideas. At that time, EDF had no money in the bank, an ex­pense budget of US$3 million, and just $2.25 million in income. We struggled to meet payroll every two weeks, and I had to lay people off. But we worked hard on our finances, and after about six months, I was able to hire one new person: an economist and natural re­sources professor named Dan Dudek. I’ll never forget that interview. Dan painted an amazing, brilliant, comprehensive vision of a robust market in pollution reductions and the legal regime needed to make it work. Instead of having government trying to figure out the best technol­ogy, which either missed the best approach entirely or froze in place technologies that were becoming obsolete, this regime would get everybody across the economy working to in­vent new ways to reduce pollution.

During our meeting, I wasn’t sure if Dan was loony or the greatest visionary I had ever met. But I took a chance and hired him. Right away, he began working on a rudimentary trading mechanism for phasing out chlorofluorocarbons. The Montreal Protocol on Substances That Deplete the Ozone Layer, an international treaty incorporating that trading mechanism, was written and ratified during the next few years; it would ultimately take effect in 1989. Meanwhile, to further develop the intellectual foundations for market-based environmentalism, we organized a conference with Richard Stewart, an environmental law professor then at Harvard, who was an enthusiastic and profound thinker on using markets for environmental goals.

Flexibility and Its Discontents
In November 1986, with our bud­get at about $5 million and all the confidence of youth, I wrote an op-ed in the Wall Street Journal announcing the arrival of a “third wave” of environmentalism. The first wave, I explained, had begun in the era of Theodore Roosevelt, with the goals of conserving wild lands and wildlife; the second, born with the publication of Rachel Carson’s book Silent Spring in 1962, had focused on stopping pollution and the harm it was doing to human health and ecosystems. Both waves had accomplished enor­mously im­portant work, but they had also stirred a political backlash against environmentalists. As a group, we were viewed as reflexive opponents to industry and as hostile to growth, a privileged elite indifferent to job creation.

This third wave, I promised, would be constructive in the way Charlie Walker had imagined, with environmentalists shouldering the burden of helping to find flexible and effective solutions, rather than just blaming others for the problems. The op-ed ended with a brief reference to using “market-oriented incentives” to achieve “greater environmental and economic benefits at a lower social and economic cost.”

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