National Association of Conservation Districts

Market-Driven Approaches to Conservation

Our society is based on capitalism, an economic system in which the means for production and distribution of goods and services are privately owned. It is one keystone to the unprecedented success of our growth and strength as a nation. Yet, throughout most of our history, industry and business have made advances at the expense of the environment, squandering natural resources and polluting air and water.

The historic approaches to protecting natural resources have been either regulatory or voluntary through incentives. The modern era of environmental protection over the last 30 years established the Clean Water Act, the Clean Air Act and other major federal and state legislation. For the most part, advances in the protection of natural resources and reversing the trend towards increasing air and water pollution were achieved by legal mandates or voluntary compliance, much of which was accomplished with government incentive programs offering grants or cost sharing. The private sector didn’t have a way to market environmental improvements other than businesses that manufactured environmental products. Major industry considered environmental improvements to be a significant new cost of doing business that made it harder for them to compete, especially internationally with countries with no such restrictions.

An innovative approach to solving the serious problems created by excess sulphur dioxide emissions that caused acid rain provided a successful model to utilize the power of markets to improve the environment. The Clean Air Act Amendments of 1990 established a cap of sulphur dioxide emissions for "smokestack" industries. Realizing that retrofitting scrubbers and other processes necessary to reduce sulphur dioxide emissions would cost millions of dollars, the regulations allowed for a transition period. During the transition period, those industries whose emissions exceeded the cap could compensate for their excess by buying credits from those industries whose emissions were below the cap. The market for the new "commodity", sulphur dioxide, would determine by supply and demand, how much it cost to stay out of compliance; and conversely, how much reward would result from doing a better than minimum job of improving air quality. As a result, the market price of sulphur dioxide remained in a range far below the price per ton predicted by economists and the performance goals were achieved years ahead of schedule. Here was an opportunity for Business to react and succeed with the market force and skills that it employs every day by making environmental improvement a commodity.

Currently, there is growing concern about the advent of global climate change. One of the ways being considered to significantly reduce the emission of carbon dioxide, methane and nitrous oxide without devastating impact to national fiscal growth and employment suggests that a market-driven approach may ease the transition away from fossil fuel and toward a cleaner, renewable energy source. Utilizing the acid rain model, those industries that emit excess carbon dioxide could offset the excess amount by buying credits from those who would sequester or store an equivalent amount of carbon, thereby preventing it from transforming into carbon dioxide. American farmers could have credits to sell by employing conservation practices such as no-till planting, conservation buffers, entering land into the Conservation Reserve Program, capturing methane from manure and converting it to electricity and reducing the amount and the methods of applying nitrogen fertilizer.

A market-driven approach could also be applied to help solve water quality problems on a watershed basis or to help implement a total maximum daily load (TMDL) plan through nutrient trading. In some cases, point source polluters may meet legal mandates for a level of water quality by going into the watershed and financing a focused effort to increase practices to reduce non-point pollution. A drinking water, sewage treatment or major industrial plant might avoid an expensive upgrade in equipment to achieve a new plateau of water quality in its effluent by improving the quality of the water coming to the facility by reducing the non-point pollution levels throughout the watershed. Under approved conditions, buying credits from farmers to install conservation practices to cropland and livestock areas may achieve an equivalent or higher level of water quality than a plant upgrade and for significantly less funds.

The use of environmental markets could prove to be effective tools provided they are established with both environmental and financial integrity. Significant, measurable and verifiable improvements must be evident

To Learn More:

• Sulphur dioxide market: http://www.epa.gov/oar/oaqps/peg_caa/pegcaa05.html#topic5
• Carbon credit market: http://www.co2e.com/