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air pollution

Do Markets Punish Pollution Control?

air pollutionBuying emissions-trading permits is more profitable for companies than reducing actual greenhouse gas emissions, the Network for Business Sustainability reports.

Researchers examined 36 publicly traded electric utilities that use coal as their primary energy source, reviewing three years of data from the US Acid Rain Program, which allocates emissions permits through grandfathering. The cap-and-trade program works like this: each company gets a set number of permits. It’s allowed to sell excess permits if its emissions are less than the allowable amount. If the company’s emissions exceed the allowable amounts, however, it must buy more permits.

The study found utility companies that reduced their sulfur dioxide emissions significantly had lower market valuations over the three-year period compared to companies that didn’t. Additionally, companies that bought more permits instead of reducing emissions performed better financially.

The study also found that the more permits companies received for free (through grandfathering), the worse their sulfur dioxide emissions.

While in the short-term the markets seem to punish pollution reduction, the researchers also found utility companies that invested in environmental technologies and state-of-the-art facilities  performed better both environmentally and economically over the three-year period. Capital expenses take a long time, so it’s smart to invest now in processes that will likely be required in the future, the study suggests.

The Network for Business Sustainability concludes that while markets may not reward environmental invests in the short-term, reducing actual emissions will produce financial benefits over the long-term.

President Barack Obama’s climate plan, announced earlier this week, will restrict carbon emissions from existing coal-fired power plants. The EPA will likely issue proposed regulations by June 2014 and finalize the emissions rules a year later.

While the US Acid Rain Program suggests markets punish pollution control, a survey published last month found corporate social responsibility is no longer an option, but a requirement, for business. Global consumers have clear and specific expectations for the role companies should play in addressing social and environmental issues with 93 percent wanting to see more of the products and services they use support CSR efforts, it found.

Companies that disregard these demands from consumers risk more than just their reputations. Nine in 10 consumers say they would boycott if they learned of irresponsible behavior, according to the 2013 Cone Communications/Eco Global CSR Study.

Photo Credit: Chang’r via Flickr

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