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Annual Public Lectures Series > John Fialka

Scientists and Journalists:
Getting the Point Across
June 13-17, 2005

PS_Fialka.jpg - 19141 Bytes

The Market-Based Approach to Environment
John Fialka, Energy and Environment Reporter, Wall Street Journal Washington Bureau
Summary of comments from June 16

In his lecture, John Fialka, the energy and environment reporter for the Wall Street Journal, was engaging and informative, involving the audience in his explanation of complexities of environmental economics.

Standing before his audience, Fialka held two pieces of paper and asked if the paper had any value. Fialka scribbled on one piece of paper, handing it to an audience member, and asked again if the paper had value. This time the answer was yes -- now it was an IOU for $1.

Fialka scribbled on the second piece of paper, which read, "This allows you to emit one ton of pollution." As the audience laughed, Fialka explained the significance of what they had just witnessed -- he had just created something out of nothing, a negotiable instrument, he said.

The purpose of the second piece of paper was to demonstrate the way in which the environment is assigned a monetary value. This concept of "monetizing" the environment, Fialka said, began in the late 1980s under the Reagan Administration. Searching for a way to alleviate the U.S. problem of acid rain, President Reagan assigned George Bush, Sr., the task of finding a solution. The result was a conversation between Boyden Grey and Fred Krupp, head of the Environmental Defense Fund.

Environmental Defense had just completed a successful test run of what they called "cap and trade" in Poland. This concept assigned a monetary value to the emissions of power plants, by capping the emissions levels at the release rate of the previous year.

Power plants were subsequently handed certificates, not that unlike the slip of paper Fialka held up earlier, that entitled them to emit a certain number of units of pollution. Fewer certificates, he said, were handed out each of the following years. The plants were left with no choice but to install environmentally sound cleaners within their plants, or to buy certificates from those plants that emitted less than their certificates allowed. The one-time "pieces of paper" now had a monetary value, he explained.

The concept of "cap and trade" was applied within the U.S. to alleviate the acid rain problem. According to Fialka, within four years they had cut the emissions of SO2 by 30 percent, a rate that had never been accomplished before. George Bush Sr. would bring this same idea to the creation of the Kyoto Protocol. Although wary at first, the Kyoto nations soon adopted the idea of "cap and trade." According to Fialka, years later, after George W. Bush had rejected the Kyoto Protocol, the Europeans had adopted the idea enthusiastically as their own.

Japan, a forerunner in energy efficiency, has found the trading of certificates to be rewarding. According to Fialka, Japan has begun cleaning up power plants in developing countries in exchange of credits. Under the Kyoto Protocol, developing countries can become beneficiaries of cleaner sources of energy and utilities, while developed countries receive certificates for cleaning the air. Not only that, the World Bank has begun working with businesses to help identify sources of emissions and alleviate the problems. According to Fialka, the fee for this service is a requisite contribution to the World Bank fund.

Today, the ideas behind "cap and trade" are being applied to mercury in the U.S. Additionally, renewable energy credits (RECs) are being instituted, Fialka said. These certificates reward a business for each unit of renewable energy produced. Fialka referred to the proposed Nantucket Wind farm as one example of a business that would benefit from RECs. Closing his lecture with the same energy with which he began, Fialka proclaimed that the monetization of the environment "really revolutionized what we think of as environmental behavior in this country."

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