ENVIRONMENT: Nature’s Economy

Could the trees in your backyard earn you a buck or two instead of just standing there looking pretty? Could their daily transpiration, carbon-fixing, shading and wind-breaking services be of real financial value? Can conservation be profitable? These are the kinds of questions ecologist Gretchen C. Daily and journalist Katherine Ellison set out to answer in their book The New Economy of Nature (Island Press, 2002).

The authors spent a year researching ways in which conservation is not only good, but also good business thinking. They describe cases, ideas, stories gathered from a variety of sources, from the rivers of Australia to the ranchlands of Costa Rica; stories that demonstrate that Nature’s water and air purification, flood control, waste treatment and other services can save or earn money. Engineers, sit up and take notice.

Two of the projects Daily and Ellison describe challenged the conventional engineering approach. Even the U.S. Army Corps of Engineers was persuaded to rethink its plans. In the first case, New York’s response to water quality concerns, money was saved. In the other, Napa, California’s response to flooding, the community willingly spent more money on river restoration instead of the less costly engineered solution in expectation of future economic and social benefits.

In a city the size of New York, a water pollution problem of the kind that killed and sickened so many people in Walkerton, Ontario in 2000, would be a disaster. Yet the 9.5 million citizens of New York get their water via a remarkably low-tech system. Some 90% of the city draws its water from the Catskill/Delaware Watershed where the water is stored in reservoirs and lakes. A network of pipes transports billions of gallons of water to the city, mostly by gravity. The only treatment consists of the addition of chlorine and fluoride. The rest of the water treatment comes courtesy of the densely forested slopes of the Catskill mountains and other ecosystems.

In 1989, growing concerns about water quality led the U.S. Environmental Protection Agency to decree that systems using surface water must build a filtration plant unless they could show that activities in their watershed did not adversely affect their water quality. For New York the estimate for such a plant was $6-$8 billion.

The alternative to building a water treatment plant was to protect the watershed, a difficult and politically fraught option, but one estimated to cost far less. Development — ski-resorts, homes, farming — had grown over time and the Catskills were no longer the thinly populated wilderness of a century ago. Protecting the watershed meant undertaking a number of unpopular activities such as buying up property for conservation, limiting development and persuading farmers to employ more environmentally sound practices. The conservation option would require political courage, to put it mildly.

Despite controversy, lawsuits and protests, New York’s water managers pursued the conservation option, their political resolve stiffened with a little help from Riverkeeper, Robert Kennedy’s environmental group, and the expectation of savings. To date the estimated savings exceed $2 billion.

Napa, California had a very different problem. Its river had been “pinched and squeezed by earthen levies and low concrete bridges that blocked its flow when the river ran high.” The river ran high often enough to burst its banks, costing “increasing fortunes in property damage and disaster aid.” The U.S. Army Corps of Engineers, in charge of flood control, proposed to build a deep concrete channel with high walls running straight through the town.

This plan did not please the community who preferred a “living river” approach, a river with a flood plain and marshes to control flooding, river vistas and walks, and economic benefits from a thriving waterfront.

It took many years, much lobbying, a good deal of money and an enormous amount of community energy to persuade the Corps to do it the community’s way. It also took a great deal of work and some pain for the residents who had to move off the flood plain. The town is, however, enjoying the financial fruits of its effort and the project has gained international acclaim.

The financial benefits from some of the other proposals in this book are not nearly as clear. A number of them emerged from the Katoomba Group, named for the resort town in Australia where an eclectic collection of people first met.

The organizers wanted to bring together “(scientific) experts of diverse talents with potential financiers to work on crafting actual deals.” The subject of the deals would be “green” financial products. The key players in these meetings were people with access to money (sometimes large amounts of money: governments, bankers and energy companies), people with ideas (from various backgrounds), and people from environmental groups or interests, all initially aglow with enthusiasm, energy and a great deal of faith in the market.

The green products they proposed included ideas for a “Conservation Exchange” operating much like a stock exchange, “green” mutual funds, a board game that could be used to test conservation options, and biodiversity “banks” and carbon trading permits. Of these, the question of carbon (permits, sinks, credits) commanded a good deal of attention.

The success of the carbon-related proposals seems to depend heavily on the ratification of the Kyoto Protocol. Instruments such as carbon trading permits that allow older industries to buy credits instead of doing expensive equipment upgrades to reduce their carbon emissions are only viable if companies are pressured by their governments. Cleaner air depends on ratification.

Despite Canada’s decision to ratify the Protocol, the U.S. has unhitched its wagon altogether. Trading instruments designed to reduce greenhouse gases are therefore unlikely to have the desired effect while there is no “market” for them.

In The New Economy of Nature Daily and Ellison argue that the traditional legislative and moral approaches have had limited success, that we need new ideas. They say, for example, that if the services of trees were worth more than their timber value, we’d protect the trees instead of cutting them down. These arguments may be right.

Rosalind Cairncross, P.Eng. is based in Toronto and is contributing editor of Canadian Consulting Engineer.

KYOTO PROTOCOL & BRITISH PETROLEUM

While the big oil interests that dominate much of Alberta’s economy predicted dire consequences if Canada were to ratify the Kyoto Protocol, one of the world’s largest oil companies has gone ahead and embraced the international aggreement.

In a recent interview a spokesperson for British Petroleum (BP) reported that the company had reduced its greenhouse gas emissions by 10% from 1990 levels, a figure verified by external audit. The company set a target of 10% reduction within four years. It reached this target within two years and saved money in the process.

How did BP do this without causing their bottom line to go up in smoke? The first step was persuading the staff to accept the idea that global warming was real and likely caused by human activity. Having accepted the idea that the reduction of emissions was necessary, the staff concentrated on how this could be achieved rather than whether it should be done.

BP employed a number of strategies to achieve their goal. One is an internal emissions trading system launched in 2000. The company uses a cap and trade system. It sets an annual cap on carbon emissions and issues permits that can be traded between business units. The cap is set to reflect the goal of a 10% reduction in emissions. Permits are allocated based on 1998 levels, to be remitted at the rate of one permit per tonne of CO2 equivalent. Excess permits may be banked, but only up to 5% of each business unit’s allocation to encourage trading. Trades are conducted and recorded by Oil Trading International, the oil trading branch of the company. Since BP is a global company, so is its trading system.

Emissions trading i
s not, however, the only strategy employed by the company to achieve its goal. Asked to give examples of the kinds of activities that produced the result, a spokesperson pointed not to expensive new equipment and processes but to some of the most basic activities: maintenance and reducing wasteful practices. So, for example, instead of simply flaring off spills when they occurred, the process was stopped and the equipment repaired.

A combination of innovative thinking and running a tight ship — good housekeeping and waste reduction — has paid dividends for BP. Their spokesperson noted that their focus on reducing emissions has earned the company significant profits — estimated between $450 to $600 million — and the expectation of future profits.

The Pembina Institute for Appropriate Development based in Alberta is keenly interested in sustainable energy. The organization is encouraged by the leadership of a company with the kind of global reach that BP has. ‘The company should be congratulated on taking climate change seriously instead of sticking its head in the sand,” says Robert Hornung, policy director of the Institute. ‘”They have demonstrated that they can make greenhouse gas emission reduction profitable.” This is not the only activity that encourages Hornung. BP has diversified into other energy sources and is a world leader in solar energy production.- RC