Economic Incentives = Environmental Gains

Mobilizing the energy of entrepreneurs

A cap and trade system limits the amount of pollution and lets clean technology users sell credits to others who don't meet their targets. See larger graphic.

The greatest green success story of the past decade is probably America’s innovative scheme to cut emissions of sulfur dioxide.

— The Economist

 

Market competition has always been the driving force of American innovation. Environmental Defense Fund was the first nonprofit to harness the power of markets for environmental progress while reining in their potential to do harm.

Today, our design of a cap-and-trade mechanism, an innovative market tool, is the centerpiece of international plans to reduce global warming pollution. A carbon cap will likely underpin national climate legislation recommended by President Barack Obama. (See how a carbon cap works.)

A coalition of big companies embrace a carbon cap

Some of America’s largest corporations have joined EDF in calling for an aggressive, economy-wide cap-and-trade system. Such a program would kick-start the economy and, at the same time, achieve our goal of slashing present greenhouse gas levels by more than three-quarters by 2050.

Other markets we helped establish also yield substantial environmental improvements without harming the bottom line. They have aided endangered wildlife, given farmers an incentive to conserve water and rebuilt fisheries. Such markets could not exist without strict accountability. That’s why our staff works on both sides of the aisle in Congress to enact strong laws and polices that protect the environment.

More ways we’re putting market forces to work today

It’s all about designing the markets right. Today, we're harnessing markets in a variety of fields to value the environment properly and bring about lasting progress:

Helping China solve its environmental crisis. China is now the world’s largest emitter of greenhouse gases. Without its participation, the planet’s biggest environmental woes may be unsolvable. We’re helping China bring its pollution under control. In two decades of working in China, we helped Beijing establish a market-based system to cut sulfur dioxide pollution and helped design tough enforcement mechanisms. We're now developing a similar approach for global warming. To train business and government officials in market-based environmentalism, we established China’s first environmental markets institute with partner Tsinghua University.

 

Destruction of rainforests around the world causes 20% of global warming.

A financial incentive to save rainforests. EDF anthropologist Stephan Schwartzman — deeply involved with Brazil's Amazon for decades — correctly identified the root causes behind the indiscriminate clearing and burning of tropical forests. "As long as forest lands are worth more as cattle ranches or palm oil plantations, forests will disappear," explains Schwartzman. Deforestation now causes 20 percent of global warming on Earth.

To save the rainforests and avert catastrophic climate change, EDF championed the idea of compensating developing countries for not cutting trees. Our plan would award countries that reduce deforestation with credits to be sold on the international carbon market. This would make the forests worth more alive than dead and keep the 300 billion tons of carbon they store out of the atmosphere.

This led to a major breakthrough at international climate talks last year: Tropical and developed country ministers called for early action to stop rainforest clearing, and Brazil committed to reduce its deforestation 70 percent in ten years. (See 2008 news release.)

Threatened fisheries on the road to recovery. Off California, in the Gulf of Mexico and off Cape Cod, fishermen have embraced our market-based proposals to save fisheries in crisis. In the Gulf, we developed a catch share program that limits the red snapper catch and assigns each fisherman a secure, tradable share. Instead of racing to catch the last fish, fishermen now have a financial stake in conservation. As fish stocks have increased, so has the value of each fisherman’s share. The result? Healthier oceans and stronger coastal communities. (See 'Catch Shares Give Fisheries New Hope.)

Building healthier communities. With metropolitan areas across America suffering severe growing pains, we're spurring greener development and healthier communities by pioneering market-based tools:

• road pricing to cut congestion and air pollution
• build-green incentives for developers
• community benefits agreements

A long history of delivering results

Over the past four decades, we have deployed market solutions in a variety of ways:

Eight dirty coal plants scrapped, ushering in a new era of clean energy. In 2007, EDF hammered out a $45 billion buyout deal in Texas that canceled plans for eight dirty coal power plants and yielded other environmental benefits. After we had fought utility TXU's plans for 11 dirty coal plants in Texas, two top private equity firms enlisted our help in a bold bid, ultimately successful, to acquire the utility and green its portfolio. "Every college activist should study this story," wrote Tom Friedman in The New York Times. See the Yale School of Management case study of our role in the $45 billion TXU buyout. 

Crafting the nation's first statewide cap on global warming pollution. California took a monumental step in 2006 when it passed a historic bill to reduce heat-trapping gases. Environmental Defense Fund proposed the idea, then cosponsored and helped draft the measure. In the Northeast, we helped broker an agreement among ten states to cap greenhouse gas emissions from power plants and create the nation's first carbon market. The market, which opened for trading in 2009, is a $1.1 billion project whose success may serve as a nationwide model to stem global warming.

Four million acres managed for endangered species. With the passage of the Endangered Species Act, some private landowners began destroying habitat to avoid federal restrictions on their land. In 1995, we pioneered an approach to give landowners incentives to protect wildlife habitat. Our Safe Harbor Program gives farmers and ranchers a way to benefit ecosystems while still profiting from their land.

Acid rain pollution cut in half. When our scientific research showed that acid rain travels long distances, we persuaded the first President Bush to cap sulfur dioxide emissions in the 1990 Clean Air Act. Our market solution allowed power plants that went beyond their required reductions to bank or sell excess quota. As a result air pollution was dramatically reduced — more quickly and at lower cost than predicted.

Western water protected. In 1989, EDF tapped the power of the market to prevent damaging new dams and water diversions across the West. By allowing farmers who conserve water to sell the water they save, we created fresh supplies for growing cities and new profits for farmers, while protecting rivers and surrounding ecosystems throughout the region.

Posted: 08-Jul-2007; Updated: 06-Mar-2009