Environmental Engineering Reference
In-Depth Information
and environmental risk. Acid rain was an enormous
problem throughout the US but centred in the
Northeast and eastern Midwest, home to the largest
number of cities, densest population, and great-
est concentration of power and industrial plants.
Acid rain caused damage to property, but more
importantly to human health, through inhalation
and absorption of acidic particulates into people's
lungs and bloodstreams. Entrepreneurs supported
by the US government sought to address this with
a market solution. By providing a fixed cap on al-
lowed SOx and NOx emissions and the subsequent
establishment of an auction and exchange for SOx
and NOx emission permits, a financial incentive
for firms to find the most cost-effective solution
to reducing pollutants was created.
In the early years of the market—as is seen in
the early days of the emissions market of 2005—
the price for one ton of SO
2
fluctuated from lows
of $65 to highs of $1550. Fifteen years later, the
US SO
2
market is considered a huge success:
it demonstrated Coase's theorem that negative
externalities can be overcome by policy-initiated
but market-driven measures. Importantly, this suc-
cess became institutionalised. Institutionalisation
led to acceptance at a corporate and government
level, fuelling public support and encouraging
private sector innovation for financial products
and structures within the SOx and NOx markets.
In the two decades from the launch of the market,
the 18 million tonnes of SO
2
in the atmosphere
were reduced to 9 million tonnes, the cost of
compliance was less than a tenth of what was
expected, and the US achieved $100 billion of
annual reduced medical expenses associated with
lung disease. The success is evident today. Acid
rain is extremely limited. On the market, the cost
of eliminating SOx and NOx emissions averages
$150-200/ton, while the environmental damage
produced by one ton of these emissions assessed
by the EPA is nearly $4000.
It is upon this market that the carbon markets
have also been built. Capitalising on the experience
externality, meeting the risk demands of the gov-
ernment, corporates and concerned individuals,
one can recognise the importance of recognising
the pollutants as assets in their own right. Instru-
mentalising these assets into financial returns
drives innovation and investment, contributing
to innovative risk management structures.
Commerce-Led Conceptions
and Embedded Discourse
Commerce-led solutions to solving negative ex-
ternalities are reinforced in society by businesses
and financial institutions as the primary market
makers. Indeed, risk management has become a
substrategy of neoliberalism, a concept coined
in John Williamson's Washington Consensus of
1989 and today taken to understand the private
sector, often market driven, approach to command-
ing social and economic policy. Neoliberalism
maximises the role of business in determining
the political and economic priorities of the state.
Hence after the issue of CO
2
came to the fore at
the onset of the Kyoto Protocol in 1997, neoliberal
thought and the successes of the SOx and NOx
markets proffered solutions. Using the Smithean
efficiency of the free market, governments de-
creed business-friendly regulatory restrictions,
and provided the impetus for the conception of
the EU ETS. Encouraging competition among
firms, promising early leniency for companies
in the nascence of the market and placing the
risks of climate change squarely on the social
agenda hastened the green agenda. The impetus
for carbon offsetting began, again evidenced
several years later by the enormity of the green
fiscal stimulus packages after the financial crisis.
By summer 2009, governments around the world
committed over $512bn of the global economic
stimulus to green projects, with 22% to be spent
in 2009. Renewable energy and biofuels, emis-
sions reduction targets and market mechanisms
to achieve these goals are now part of nearly all
