Chapter 4 Environmental Movement

Chapter 4 Environmental Movement ( The Ecological Environment ) 4.1 Introduction We are all aware of the range of environmental problems facing the planet. We will look at the most serious and ecological and ethical concerns and the extent of their impact, investigate the economic arguments which help us to analyze how organizations are able to pollute the environment and explore the range of actions which can be taken by governments to monitor and regulate the outputs from economic activities Examples : acid rain, loss of biodiversity, sea pollutions, depletion of the natural resources, destruction of the ozone layers, global warming. 4.2 The Impact of the Marketplace on the Ecological Environment: An Economic Perspective Within all Western-style market economy government influences the allocation of goods and services. It does this for a number of reasons: 1. To moderate the trade cycle by demand management and supply-side policies to promote such things as employment, investment and direct structural change. 2. To restrain unfair use of economic power by, for example, monopolies. 3. To correct inequalities through the redistribution of wealth via taxation or regional policy to support industry. 4. To manage price levels, employment, balance of payments and growth rate in accordance with social objectives. 5. To provide public goods , such as defense, law and order, roads and parks, such things are socially desirable, but 1

unprofitable, and it is generally not possible to directly charge for them. 6. To remove socially undesirable consequence of commercial activity. The private profit motive does no always ensure that public wealth will be maximized, it can create environmental problems, such as pollution and resource depletion. 4.2.1The Theory of Demand Demand is the quantity of a commodity which will be demanded at a given price over a certain period of time. By demand, we mean demand backed by money or effective demand. Common sense says for most goods ( normal goods ) a lower price will mean that more will be purchased ( even if this increase in consumption leads to an increase in pollution or environmental damage ). Price

Quantity However, it is not only price that determine or influence the demand for a product. Movement along the demand curve is caused by change in price. If the entire demand curve shift, it is caused by other factors except price. The other determinants or conditions of demand are : 1. Price of other related goods (P) 2

Change in the price of other goods will affect the demand for cinema tickets, whether the goods are substitute, such as rental or concerts or complement, such as a carton of popcorn. 2. Income (I) A rise in income will result in more goods demanded, whatever the price. 3. Taste ( Y) A change in taste or fashion ( perhaps influenced by advertising ) will alter the demand for that product. 4. Other factors ( Z) These include seasonal factors, government influences, such as a legislation limiting the sales of firearms, the availability of credit and changes in population size and structure. 4.2.2The Theory of Supply The market for goods and services is determined not only by demand. The demand which consumers express, through their willing to buy, needs to be met by the willingness of producers to supply goods. Supply is the propensity of production to sell the commodity at a given price over a certain period of time. More goods will be supplied at a higher price than at a lower price.

Price

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Quantity Movement along the supply curve is caused by the change in price. However, as with demand, it is not only price that determines or influences the supply of a product. The other determinants or conditions of supply are : 1. The objectives of the firm A firm aiming to achieve maximum profits will have a different level of output ( lower ) from one which is aiming to maximize sales. 2. The price of certain other goods Where goods are jointly supplied, they are said to be complement in production, like beef and leather, a decrease in the price of one good will lead to the decrease in the quantity of the other good which will be supplied. 3. Price of the factors of productions The cost of production will rise if the price of a factor of production increase. For example, if raw material were more expensive and the price of a good remain unchanged then its output become less profitable and less will be produced. 4. The state of technology Technology can be used to improve productivity and so increase supply. However, the widespread use of the Internet and downloading of music has created serious problem for the music industry worldwide. 5. Other factors 4

An organization can be influenced by its expectations of what is likely to happen in the future or the number of new companies entering the market. Changes in government practices with regard to taxation, subsidies or regional policies have a substantial impact. 4.2.3Price Determination Economists use the term ‘equilibrium’ to describe a state in which internal forces or variables are in balance and there is no tendency to change. Market price is determined by the price at which consumers are willing to buy and producers are willing to sell. This is called the equilibrium price.

Price

Supply

Demand Qty

4.3 Market Forces and the Environment When every person’s standard of living is maximized, market forces can be said to be an efficient mechanism for the allocation of resources. In this case, the market can operate free from any regulatory control.

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This scenario is unrealistic: it is unlikely that a market can ever achieve such an allocation and so be completely free from intervention. The release of CFCs from, for example, aerosol containers, was thought to be having a serious impact on the ozone layer. Resources, in this case, were being detriment of society in general. Externalities The production and consumption of goods and services can generate spillover effects that indirectly affect persons other than those who produce or consume them. Pollution may result from economic activity. An organization producing chemicals may discharge waste into a river, causing fish to die. This is known as negative externality. Positive externalities are created when there is an external benefit from economic activity. Education provide spillover benefits to business organization by them having access to better quality staff. Multifunctionality Refers to the concept that, besides producing food and fibre, agriculture creates nonfood spillover – multifunctional – benefits such as: 1. 2. 3. 4. 5. 6. 7.

Open space Wildlife habitat Biodiversity Flood prevention Cultural heritage Viable rural communities And food security. 6

Organization, do not, generally, fully consider the wider social costs or benefits of their business activities. For example, a company may argue that is not in its economic interests in anti-pollution systems and so may economize on the provision of anti-pollution controls. However, if the organization were to take stock of all of the costs involved in its activities it would have to include external ones, that is, the cost to society of the externalities caused. 4.3.1Actions by companies which affect other companies Industrial waste from production processes can enter the sea and so impact on commercial fisheries. 4.3.2Actions by Companies which affect Individuals A common example is the case of a firm polluting an air or water sources as a by-product of production. Examples : Production of refrigerators using CFCs : A coal burning electricity plan with nitrous oxide and sulphur oxide by product. : A paper mill which dump chlorine bleach into a river as a by-product.

4.3.3Action by Individuals which affect Companies Road traffic has been growing substantially and is likely to continue for the foreseeable future. Example: Traffic condition in Bangkok in Thailand. 7

4.3.4Action by individuals which affects individuals Concerns have long been raised by communities across the world arising from higher volumes of tourism which can have an impact on the environment and culture. This is clearly an example of a negative externality where the activity of individuals affects other individuals. Example of positive externality is created when individual improve their driving habits or maintain the area in which they live. Immunization is also an example of positive externality. 4.4 Measures Available to Limit Externalities There is a disincentive for organization to develop or install new or more environmentally friendly equipment, because the cost of doing is likely to be a reduction in their competitiveness. Government do not have to let all negative externalities persist. They can intervene in the market through a range of means, including adopting policies that use, or improve the price mechanism, or by employing extra-market policies. Cost is a key consideration for government ( like installing solar panel, building dams, wind mills, extracting thermal enery from the ground, mirrors for solar energy ) and the organizations when deciding upon the appropriate type and timing of intervention.

Externalities can be limited under the following heading: 1. Property rights 2. Market solutions 8

Tradable permits 4. Regulation and legislation. 3.

4.4.1Property Rights For some negative externalities, such as pollution, if somebody has ownership rights to the air, sea, etc, then they can take the polluters to court and sue for compensation. If it is possible to identify the legal rights of the parties involved then bargaining may be viable. For example, a paper mill producing pulp may be willing to compensate a sailing club that owns a stretch of water if the later accepts a certain amount of pollution> In return the mill will save money on its waste treatment. Four problems arising from the use of bargaining: 1. It is difficult to establish the legal right involved 2. It would be impossible to list everybody who is affected by noxious emission from a particular factor for the purpose of compensation. 3. There may be no bargaining machinery in place 4. The cost to an organization of administering such a system, even if agreement were reached, could be enormous.

4.4.2Market Solutions The aim here is to change the costs of activity to account for the negative externality. 9

This involves the use of charges, taxes or subsidies Example: In Singapore, car older than 10 years are strongly discouraged by forfeiting the par value ( stored value, scrapped value ), requiring the owner to bid for a new COE ( Certficate of Entitlement ) and doubling of insurance premium. Older cars tends to polute the environment more by emitting more smoke and with higher carbon dioxide content. The tax mechanism can be used to impose extra costs on both producers and consumers. Tradable Permits A more recent development in the area of controlling negative externalities has been the use of tradable pollution permits. 4.4.3

Under the tradable permit system, a government issues a fixed quantity of permits giving authorization to discharge a certain level of waste. These permits are tradable, allowing those companies which find he cost of pollution control to be relatively low o sell their rights for a fee or allow those which have invested in long-term ‘clean-up’ measures to sell their permits to those whose emission exceed their permit. 4.4.4Regulations and Legislation A common method of intervening in the market to force organization to address negative externalities is by regulation, usually by imposing a set of obligations upon organizations or individuals. Regulations can take many forms which include:

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1. Prohibiting the abstraction, use or disposal of particular substance, product and process which are considered to be environmentally damaging. 2. Setting maximum limits for the abstraction of particular natural resources ( example water from rivers ) ExAMPLE : In New Zealand, every tree cut must be replaced with replanting of a new tree. Allocation of “No fishing zone” , “ No hunting zone” will provide the fist or animal, the sanctuary to grow, mature and reproduce. Setting maximum limits for discharge of pollutants to air, water or land ( example exhaust emission standards must be met by all cars , from factory and the frequency ) 4. Establishing ambient ( in surrounding area ) quantity standards. 3.

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Government Regulations at different Geo-political ( global ) Scales Government at various geo-political scales, from international to local, oversees the marketplace. Increasingly, much of the development of policy relating to environmental issues is taking place at global and regional scale. 4.5.1Regulations at Global Level At the global level regulation is primarily concerned with nations agreeing to environmental protection initiatives via international summit meetings: Example: The United Nations Framework Convention Climate Change ( UNFCCC ) shows how progress at this global scale is slow. 11

The Kyoto Protocol ( Started in 1997 : Update in 2003 ) : 1. Commitment At the heart of the is protocol lies its set of legally binding targets on greenhouse gas emissions for industrialized countries. 2. Implementation To meet their target, countries must put in place domestic policies and measures that cut their greenhouse gas emission. 3. Minimizing impact on developing countries The Protocol and its rulebook include provisions to address the specific needs and concerns of developing countries, especially those most vulnerable to the adverse effects of climate change and to the economic impact of response measure. 4. Accounting, reporting and review Rigorous monitoring procedures are in place to safeguard the Kyoto Protocol’s integrity, including the accounting system, regular reporting by countries and in-dept review of those report by expert review teams. 5. Compliance A compliance Committee consisting of a facilitative and an enforcement branch, will assess and deal with any cases of non-compliance.

4.5.2Regulations at Regional Level Example : 12

The Treaty of Rome ( 1957 ), which created the EEC ( not so concerned with environmental issue ) was rectified by the Single European Art ( SEA ) in 1987 which adopted the specific environmental objectives : 1. To preserve, protect and improve the quality of the environment 2. To contribute towards protecting human health 3. To ensure a prudent and rational utilization of natural resources. The Treaty of European Union ( 1992 ) – the Maastricht Treaty to include : 1. Sustainable and non-inflationary growth respecting the environment 2. Promotion of measures to help resolve global environmental problems. EEA ( European Environmental Agency ) Issues covered: 1. Climate change 2. Stratospheric ozone depletion 3. Acidification 4. Tropospheric ozone 5. Chemicals 6. Waste 7. Biodiversity 8. Inland water 9. Marine and costal environmental 10. Soil degradation 11.Urban Environment 12.Technological and natural hazards. 4.5.3Regulations at National Level 13

Example : In UK, the Environmental Protection Act ( EPA ) 1990 and the Environment Act 1995 ( EA ) , the following legislation were covered ( $ Rs ) 1.Reduction of the amount of waste produced 2. Reuse of durable items 3. Recycling of natural resources 4. Regeneration of discarded products for use as new materials or products. 4.5.4Regulations at Local Level Example: Contaminated Land( Scotland) Regulation 2000: In the UK, local authority environmental health department have regulatory responsibility for a number of areas : 1. Food hygiene 2. Health and safety 3. Pest control 4. Air and noise pollution 4.6 Organizational Agendas All organizations cause environmental problems and disasters as a direct result of their activities. The three categories of company : 1. High penetration companies have the greatest impact on the environment. They include agricultural, chemicals and plastics and metal and mining. 2. Moderate penetration companies have some impact and can save money by cutting wasteful practices. They include electronics, leisure and tourism and packaging and paper. 3. Low penetration companies feel that environmental matters do not concern tem. These include advertising, education, and local government. 14

4.6.1The Influence of Stakeholder Power The way in which organization perceive changes is dependent upon their unique ‘perceptual filters’. Divergent stakeholder interests add another level of complexity. It must be recognized that changing stakeholder views are beginning to have an impact on how organization perceive the environment and are likely to have effects on business and profit. 4.6.2Environmental Options Roome ( 1992 ) sets out a continuum of five possible environmental options for organizations:

a) Non –compliance An organization that adopts a non-compliance position may, because of lack of resources or managerial inertia, be unable to satisfy legal requirements. b) Compliance The compliance standpoint is a clearly a minimal response and focuses efforts upon the action required to satisfy the minimum legal requirements. c) Compliance plus ‘Green’ organizations, such as Body Shop, were said to have a positive and proactive stance toward environmental and ethical issues.

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The ‘compliance plus’ option demonstrates that a proactive towards legal standards can benefit the organization. d) Commercial and environmental excellence A business focused on ‘commercial and environmental excellence’ would ensure that its core corporate and managerial values always take account on environmental management issues. e) Leading edge ‘Leading edge’ business set the standard for a particular industry through the adoption of ‘state-of-the-art’ environmental management systems.

4.6.3The Importance of the Organization’s Environmental Context a) Stable context Here there may be either slow changes or no changes in environmental legislation. There may be a lack of public perception of environmental issues or an almost complete lack of consumer power. b) Reactive context Here environmental problems are known by small groups, consumer interest is limited and legislation evolves slowly. c) Anticipative context Here the public are more aware and have the ability to move issues onto the political agenda. 16

d) Proactive context Within this context ‘green’ consumers are said to have a major impact. Organization may need to demonstrate more concern for the environment if they are to prosper. e) Creative context Here public opinion is extremely aware of environmental problems but there is a lack of accepted technological solutions to problems.

4.6.4Self –Regulation These self-regulation schemes require organizations to ‘sign up’ to regimes which typically involves making information available to the public, principally via an environmental policy statement, together with clear targets and objectives needed to meet the policy.

4.7 The Position of the Consumer Environmental issues are becoming increasingly important in consumers’ buying decisions. The consumers will avoid products likely to: a) endanger health b) cause significant environmental damage or consume a disproportionate amount of energy during manufacture, use or disposal c) cause unnecessary waste d) use materials from threatened species or environments e) involve unnecessary cruelty to animals f) adversely affect other countries- particularly those in the developing world. 17

Global Warming 1 Causes - C O2 - Traffic - smoking ( very very minor source ) - Generation of electricity by burning fossil fuel ( coal and petroleum ) - Industrial emission of C O2 and other gases. - CFC found in refrigerator and the Styrofoam - Increase in air travel caused increase in emission of gases that trapped the sunlight and hence caused global warning. - In the Philippines, the improper disposal of waste cause germs and bateria to act on the waste and generate methane - Amount of deforestation. Plant takes in the CO2 to make food and provide oxygen. - Increase in volcanic activities – emission of sulphur and othe poisonous gases. 18

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Over fishing along the western cost of Africa, causing the plan tom to grow unchecked and as a result they eventually died and settle to the bottom of the sea and they were acted upon by bateria which generate methane. War and indiscrimate burning and destruction of property, burning of oil fields etc. depletion of the ozone layers due to the emission of CFC gaes. Increase in Globalization and this bring wealth to lot of people, Example in China. Thus, more and more Chinese are owing cars. Availability of cheap cars. For example, India produced a car for under US$2,000!.

Solution - Encourage the use of hybrid car ( use petrol and GNG ) - Introduction of Electric cars. - Alternative energy resources a) Wind energy – America and Holland b) Solar energy – Germany ( 12 hours a day, provided there is clear sky ) Expensive to install and maintained c) Thermal energy – Australia Cheap to install and 24 hours a day and little maintain. D ) hydroelectricity China – 3 Gorge Dams Vietnam New Zealand Problem – only countries with big rivers can implement 19

Very expensive Very dangerous if the dam burst Destruction to the environment due to the increase in the water level of the river.

Problem - Industrialized nations like China, America and India are reluctant to reduce the CO2 emission because it is very expensive to implement those equipment to filter the gases before they are released into the atmosphere. - Insisting on installing these equipment will increase the cost of goods and services and therefore the make the product become less competitive. - Some countries cheat by falsifying scientific data and thus claim lesser amount of emission that it actually does. - Due to the high level of corruption, financial aids donated to some poorer and developing nations are not used effectively to fight the industrial emission. Business Opportunity? - develop machinery or equipment that can filter the air 20

- Develop education material for sales.

Balanced approach to shareholders’ concern. On one hand, a company should show environmental concern and take care of the environment. This includes the purchasing of the necessary equipment to treat the industrial waste and improve on efficiency of manufacturing . Efficiency of manufacturing includes the use of lesser energy and generation of lesser waste. However, these machinery are generally very expensive and will reduce the amount of money available to the shareholder as dividend. On the other hand, a company should not use up all its earnings on improving the environmental issues by installing very expensive and extensive machinery and leave the shareholder with no dividend payment. Thus to have “the best of both worlds”, there should be a balance in the amount of investment on new machinery to cut down on pollution and still leave enough money for dividend to the shareholders.

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