strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Summer 2008 / Issue 51(originally published by Booz & Company)


The Making of a Market-Minded Environmentalist

Mobilizing the Entrepreneurs
In the end, our advocacy of markets lost the Environmental Defense Fund some supporters. It even cost us one of our biggest donors. But ultimately our nonpartisan, market-based approach has won us support. There’s been a great hunger for flexible, effective solutions among people who want a clean environment but who have been put off by some environmental strategies. And the fact that we’ve been able to get results, mining approaches that mobilize entrepreneurs — rather than being in denial about the world we live in — appeals to many people.

Over time, many of our early critics have come to appreciate the value of market-based regulations, largely because the results have been spectacular, right from the beginning. A few weeks after passage of the sulfur dioxide cap and trade law, I was invited to lunch in the White House mess with other members of the President’s Commission on Environmental Quality, including Mike Deland, the president’s environmental advisor, and PG&E CEO Dick Clark. Deland asked the White House chef for a plate of freshly baked chocolate chip cookies. When they arrived, Clark said the only way to eat cookies was with milk, so we all raised our hands and got a glass of milk. It was as if everyone in the room, like me, had been earnest kids themselves once, and suddenly that part of us had come to the surface. There over cookies and milk in the White House mess, Clark turned to me with a confession. When he’d heard me explaining to the president why we needed a market in pollution credits, he’d thought I had “lost it.” (In other words, he’d had the same reaction that I’d had during Dan Dudek’s interview five years earlier.) But now that the law was in place, he had a pile of new proposals, both from his own shop floor and from outside consultants, for how PG&E could profit by reducing sulfur more than the law required. Environmental protection was no longer just a money loser, he realized, but a po­tential profit center.

At that moment, my enthusiasm for market-based environmentalism grew 10-fold. Because here, in the real world, was empirical evidence that these ideas were as powerful as we’d dreamed. Under the old rules, every power plant had to have a scrubber, adding tens of millions of dollars to the cost of the facility, even if the engineers could cut emissions more efficiently a different way. Every company had to cut the same percentage, even if some plants could make reductions far more cheaply than others. And overall emissions continued to rise as new plants came on line. But once the cap and trade system was in place, we watched power plants cut sulfur far faster than the law required, and at a fraction of the cost that the industry’s leaders, constrained by old-system thinking, had predicted.

All kinds of innovations emerged during the next few years. A team led by chemical engineer Eli Gal at GE Environmental Services developed vastly improved smokestack scrubbers. In the East, where the local coal has lots of sulfur and the conventional wisdom had held that it wasn’t possible to blend in more than about 10 percent low-sulfur western coal, power companies tinkered with their boilers until they could mix in 50 percent of the cleaner stuff. Until the new law had shown a path to profits for those who cut extra emissions, they hadn’t bothered to try. The law also incorporated our proposal to allow the banking of credits, which added a further incentive to cut more emissions than required: Plant operators who reduced more than their legal obligation now held a valuable asset. And, as with carbon today, the en­vironment needed pollution reductions sooner, rather than later.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.