Chapter 12 - Managing Environmental Issues

CHAPTER 12

MANAGING ENVIRONMENTAL ISSUES

INTRODUCTION

Growing public interest in protecting the environment has prompted political and corporate leaders to become increasingly responsive to environmental issues. In the United States and other nations, government policy makers have moved toward greater reliance on market-based mechanisms, rather than command and control regulations, to achieve environmental goals. At the same time, many businesses have become increasingly proactive and have pioneered new approaches to effective environmental management, often conferring a competitive advantage.

PREVIEW CASES

Hewlett-PackardEuropean UnionEnvironmental Defense Fund

Teaching Tip: Preview CasesThese Preview Cases illustrate new approaches to environmental protection. Hewlett-Packard has appointed product stewards, responsible for the ecological impact of its products, and has initiated an effort to develop sustainable future businesses. The European Union has adopted a flexible, market-based approach to cutting greenhouse gas emissions. Environmental Defense has partnered with many companies to improve their environmental performance. The preview cases are designed to highlight trends towards voluntary business efforts to reduce or prevent pollution, market-based mechanisms, and industry- environmentalist collaboration. All three trends are described at greater length in the chapter.

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CHAPTER OUTLINE

I. ROLE OF GOVERNMENT

A. Major Areas of Environmental Regulation

*Air Pollution

*Water Pollution

Teaching Tip: RecyclingMost students are familiar with recycling – profiled in Exhibit 12.B -- from their own communities, schools, or workplaces. A useful class project would be to investigate the economics of recycling in a particular community. What steps can local businesses take to help improve the economic incentives for recycling? In some regions, businesses have formed alliances to guarantee a market for recycled materials. An alternative would be to investigate the economies of recycling at the students’ own college or university.

*Land Pollution

Teaching Tip: The Endangered Species ActThis chapter does not provide full coverage of the Endangered Species Act. The ESA’s authorization expirred in 1992; various bills to reauthorize or amend it have been proposed numerous times since then, but as of 2006 none had become law. Students may wish to investigate the current status of endangered species legislation at http://thomas.loc.gov. They may also wish to discuss the merits of the ESA and its impact on business. A detailed treatment of this subject may be found in Charles C. Mann and Mark L. Plummer, Noah's Choice: The Future of Endangered Species (New York: Knopf, 1995).

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B. Alternative Policy Approaches

Teaching Tip: Alternative Policy Approaches VideoPaul Solman reports on voluntary business participation in an emerging market in greenhouse gas “credits.” The segment includes interviews with a dairy farmer who captures methane from manure to power electrical generators, the chair of the President's Council on Environmental Quality, the founder of the Chicago Climate Exchange, and the former Administrator of the EPA. The segment may be used with the discussion of alternative policy approaches (including tradable permits and other market mechanisms).* The video segment is from the Public Broadcasting Services’s “News Hour with Jim Lehrer” and is available on the Instructor’s Resource Manual DVD that accompanies the textbook, available upon request from the publisher.

*Environmental Standards

*Market-based Mechanisms

*Information Disclosure

* Civil and Criminal Enforcement

Teaching Tip: Alternative Policy ApproachesFigure 12.2 summarizes some of the advantages and disadvantages of alternative policy approaches to reducing pollution. Students could be broken into four groups, with each assigned to one policy approach. They could be asked to discuss--for a particular kind of pollution, such as air or water--how their policy approach would be implemented, and if they think it would be effective. They could then be asked to report their conclusions to the rest of the class.

II. COSTS AND BENEFITS OF ENVIRONMENTAL REGULATION

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III. THE GREENING OF MANAGEMENT

A. Stages of Corporate Environmental Responsibility

B. The Ecologically Sustainable Organization

Teaching Tip: The Ecologically Sustainable Organization

Students could be asked to select a business with which they are familiar and to make recommendations for steps the business could take to become an environmentally sustainable organization.

C. Environmental Partnerships

D. Environmental Management in Practice

Teaching Tip: Environmental JusticeSince land values are often lower in predominantly minority communities, environmental racism may be the indirect result of decisions to site waste facility on expensive land. This raises an interesting ethical issue for class discussion. Can a company’s decision to site a waste facility in a predominantly minority community be considered racism if the primary motivation was economic? A video that may be used in conjunction with this discussion is “Fenceline: A Company Town Divided” (PBS, 52 minutes, first aired 2002). This film tells the story of a conflict between Shell Chemical Company and the Dimond community of Norco, Louisiana. The Dimond community was a largely African-American neighborhood that was immediately adjacent to one of Shell’s chemical plants. Members of the community felt that they were subjected to very high levels of chemical contamination, and they wanted to be able to move away from the community and to be reimbursed by the company. For more information, go to: http://www.logtv.com/films/fenceline/default.html

E. Environmental Audits

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IV. ENVIRONMENTAL MANAGEMENT AS A COMPETITIVE ADVANTAGE

A. Cost Savings

B. Product Differentiation

C. Technological Innovation

D. Strategic PlanningGETTING STARTED

KEY LEARNING OBJECTIVES

1. Knowing the main features of environmental laws in the United States and other nations.

Government environmental regulations focus on protecting the ecological health of the air, water, and land. Environmental laws are designed to limit the amount of pollution that companies may emit.

2. Understanding the advantages and disadvantages of different regulatory approaches.

Environmental laws have traditionally been of the command and control type, specifying standards and results. New laws, in both the United States and Europe, have added market incentives to induce environmentally sound behavior and have encouraged companies to reduce pollution at the source.

3. Assessing the costs and benefits of environmental regulation.

Environmental laws have brought many benefits. Air, water, and land pollution levels are in many cases lower than in 1970. But some improvements have come at a high cost. A continuing challenge is to find ways to promote a clean environment and sustainable business practices without impairing the competitiveness of the U.S. economy.

4. Defining an ecologically sustainable organization and the stages through which firms progress as they become more sustainable.

An ecologically sustainable organization is one that operates in a way that is consistent with the principle of sustainable development. Companies pass through three distinct stages in the development of green management practices. Many businesses are now moving from lower to higher stages. An ecologically sustainable organization is one that operates in a way that is consistent with the principle of sustainable development.

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5. Understanding how businesses can best manage environmental issues.

Effective environmental management requires an integrated approach that involves all parts of the business organization, including top leadership, line managers, and production teams, as well as strong partnerships with stakeholders and effective auditing.

6. Analyzing how effective environmental management makes firms more competitive.

Many companies have found that proactive environmental management can confer a competitive advantage by saving money, attracting green customers, promoting innovation, and developing skills in strategic planning.KEY TERMS AND CONCEPTS USED IN THE CHAPTERacid rain, 255

command and control regulation, 258

ecologically sustainable organization, 266

environmental justice, 257

environmental partnerships, 266

Environmental Protection Agency (EPA), 253

environmental standards, 258

green marketing, 269

greening of management, 264

market-based mechanisms, 259

source reduction, 258

Superfund (CERCLA), 258

sustainability report, 268

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INTERNET RESOURCES

www.epa.gov Environmental Protection Agencywww.envirolink.org Environmental organizations and newswww.GreenBiz.com Green Business Network

www.sustainablebusiness.com Network of sustainable small businesses

DISCUSSION CASE

DIGGING GOLD

Teaching Tip: Discussion Case Video"Frontline/World: The Curse of Inca Gold," aired on October 25, 2006. The first segment of this one-hour document deals with the environmental impact of gold mining in Peru. It may be used with the discussion case, "Digging Gold." The DVD may be ordered from:http://www.shoppbs.org/sm-pbs-frontline-world-iv-the-curse-of-inca-gold-october-25--pi-2121557.html.

Discussion Questions

1. Using the classification system presented in the section, “Major Areas of Environmental Regulation,” what types of pollution are generated by gold mining? Which of these do you think is (are) most damaging to the environment, and why?

The three types of pollution discussed in “Major Areas of Environmental Regulation” are air pollution, water pollution, and land pollution. Gold mining, one of the most environmentally destructive industries in the world, generates all three kinds of pollution.

Air pollution: Gold mining produces air pollution. The process of metal extraction consumes large quantities of fuel, contributing to global warming. Smelters produce oxides of nitrogen and sulfur, components of acid rain, as well as traces of toxic metals such as lead, arsenic, and cadmium.

Water pollution: Most spent cyanide, a waste product of cyanide heap-leach mining, is stored in reservoirs, where it gradually breaks down. These reservoirs are prone to accidents. When they break, cyanide solution may spill into waterways, where they cause hugely destructive toxic plumes. For example, a spill at a gold mine in Romania in 2000 caused a massive kill of fish and birds in the Danube River in Eastern Europe. Some mines, such as Freeport McMoran’s Grasberg mine in Indonesia, discharge mining waste directly into waterways. Acid run-off from crushed rock often picks up toxic metals such as arsenic, mercury, and lead that drain into groundwater and waterways.

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Land pollution: Gold mining requires vast open-pit mines in which enormous quantities of dirt and rock are disturbed. Often, the land is not properly reclaimed. Transportion of dangerous materials to and from mines, which are often located in remote areas, poses additional risks. The case mentions an incident in which mercury was spilled on a rural road in Peru, sickened more than a thousand villagers who were not aware of its risks.

Although all these forms of pollution are severe, arguably water pollution caused by gold mining is arguably the most damaging to the environment.

2. Using the classification system presented in the section, “Alternative Policy Approaches,” what types of government regulation do you think would most effectively address the concerns you have identified?

The chapter discusses four alternative policy approaches, summarized in Figure 2.2; these are environmental standards, market-based mechanisms, information disclosure, and civil and criminal enforcement. Arguably, all four approaches could be used to address the concerns identified in the response to Question 1. For example, governments could establish strict standards for emissions of harmful substances (such as cyanide, mercury, lead, sulfur dioxide, etc.) to the air, water, and land. They could establish tradable allowances for carbon dioxide and sulfur dioxide, both produced by mining equipment. Fees and taxes, or incentives for cleaner processes, might also be appropriate. Information disclose would require gold mining operations to disclose emissions of various toxic chemicals, possibly mobilizing public opposition and leading them to cut back voluntarily. Finally, civil and criminal enforcement should be pursued when laws are broken, as occurred in the cyanide spill into the Danube River.

3. In your view, what role should nongovernmental organizations (NGOs) and citizen movements play in reducing the adverse environmental impacts of gold mining?

The case mentions three NGO or citizen initiatives. A Romanian citizen’s group called Alburnus Maior organized to block construction of a new gold mine after the spill that devastated the Danube. Villagers in Peru sued Newmont Mining after they were hurt by a mercury spill. Citizens in Montana voted to ban cyanide heap-leach mining in their state. Finally, Earthworks ran a campaign called “No Dirty Gold” aimed at jewelry retailers. These examples illustrate a range of techniques, from lawsuits, to public demonstrations, to electoral politics.

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4. Which of the gold mining companies mentioned in this case are more, or less, environmentally responsible? What factors, in your view, might cause these differences?

Of the gold mining companies mentioned in the case, Kennecott, which had made a public commitment to sustainability, appears to be the most responsible. Arguably, this is because one of Kennecott’s major customers was the retailer Tiffany, which was concerned about its public image. Another company, Canyon Resources, looked for less environmentally destructive methods to extract gold when citizens voted to ban cyanide heap-leach mining. In this case, strong regulations caused the company’s action. The least responsible companies (e.g., Freeport McMoran in Indonesia) appear to be doing business in nations with weak environmental laws and enforcement.

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