Creating Cultural, Legal, and Economic Incentives

Clockwise from left: Richard Brownlee, Jonathan Cannon, Mark White, and Fred Damon
Photo by Tom Cogill

When it comes to mitigating the effects of climate change, science can only take us so far. Scientists can enumerate the steps we must take if we are to stabilize the climate, but it will depend on people with very different kinds of skills to translate their guidance into the financial and regulatory incentives needed to curb our appetite for hydrocarbons and to create a sustainable future.

The University of Virginia is distinctive in having a large number of faculty members from a variety of disciplines who are committed to combining their knowledge to provide policy and planning solutions to environmental challenges. Their ability to focus on these issues from diverse perspectives is critical in devising workable solutions. Together they form the Markets and Policy Group. 

One area in which the University has particular strength is the valuation and reporting of ecosystem services. Richard Brownlee, a professor of business administration in the Darden School, comes to the field from accounting, where, as he observes, “What gets measured and reported gets counted, and what gets counted influences behavior.” Sooner or later, he notes, the important discrepancies between the reported and actual state of affairs become too large to ignore. 

Accounting standards for corporate pensions illustrate his point. The prevalent financial reporting model allowed U.S. corporations to grant substantial pension benefits to employees while reporting minimal pension-related expenses and liabilities. In other words, corporations could benefit from enhanced employee productivity, retention, and lower personnel costs without having to report all of the accompanying expenses. Now that unfunded pension liabilities have reached hundreds of billions of dollars, there is a crisis.

Brownlee believes that the financial and human consequences of the pension crisis may pale in comparison with those of unsustainable environmental business practices. “Omitting product-related costs associated with pollution, employee health and safety, hazardous waste remediation, and product disposal has substantially undercosted environmentally and socially undesirable products,” he says. 

In order to report ecosystem services realistically, corporate accountants must be able to put a dollar figure on them. Mark White, an associate professor in the McIntire School of Commerce, is an expert in developing and testing new analytical tools and frameworks to evaluate ecosystem services so that they may be incorporated into accounting standards. These valuations also provide a starting point for government officials and policy makers who wish to create incentives that promote sustainable choices, both for individuals, who collectively account for a large share of greenhouse gas production, and for corporations.

To be effective, these incentives must be culturally appropriate as well as financially compelling. The efficacy of such market-based incentives as taxes, subsidies, and cap and trade systems are likely to vary widely, depending on the level of economic development of a particular country and other social features. U.Va. researchers like Fred Damon, an anthropologist who investigates the intersection of social and economic issues, can help raise awareness of the importance of culture and offer insights that could be used to shape more effective social and economic policy.  

The University has the ability to disseminate these insights widely, both on Grounds and beyond. Our Environmental and Land Use Law program, under the direction of former Environmental Protection Agency general counsel Jonathan Cannon, is one of the foremost programs of its kind in the country. It has built strong relationships with regional environmental groups in the Southeast and around the Chesapeake Bay, and its graduates have assumed leadership positions in government and in nonprofit environmental groups. 

At the same time, the University has extensive relationships with the business community, fostered over the years by many of its schools including the McIntire School of Commerce and the Darden School. In particular, the Batten Institute at the Darden School has a Sustainable Business Initiative dedicated to highlighting the competitive advantages that can be gained through sustainable business practices. The University has also been a leader in highlighting sustainability through its academic and executive education programs.

The members of the Markets and Policy Group are convinced that new methods and approaches are necessary to halt climate change. “It is absolutely essential that we facilitate interdisciplinary work in an area that is inherently interdisciplinary—and reach out to all possible partners,” says Cannon. “Traditional end-of-pipe approaches are not going to work for problems of this magnitude and complexity.”