Market regulations Carla K. Smink Environmental Management, 8 th semester Spring 2005.

Market regulations

Carla K. Smink

Environmental Management, 8th semester

Spring 2005

Outline

• What are market regulations?

• Network relations of companies

• Strengths and weaknesses of market regulation

• Government’s role in market regulation

Market regulation

The ways in which market actors exert pressure on companies with regard to their environmental performance

Market regulation

The ways in which market actors exert pressure on companies with regard to their environmental performance

Market actors: those actors who have a commercial relationship to the company, as they buy and/or sell products from/to the company

Market actors

Market actors can be regarded as surrogate regulators. Companies might change their environmental behaviour because of market pressure

Government Company Neighbours

Environmental groups

Pressure on companies (late 1980s)

Company


NeighboursGovernment/EU

Financial institutions

Consumers/customers

EmployeesSuppliers

Environmental consultancies

Pressure on companies (1990s)

Company


NeighboursGovernment/EU


Consumers/customers

(Employees)Suppliers

(Environmental Consultancies)


Company


Consumers/customers

Suppliers


Outline





Company

Network relations of companies

Company

Knowledge network• Consultants• Suppliers• Authorities • Colleagues• Business associations

Consultants

Colleagues

Business ass.

Authorities

Suppliers

Company

Business network• Financial institutions• Suppliers• Customers• Consumers


Financialinstitutions

Suppliers

Customers

Consumers

Company



Regulation network• Standardising org.

• Authorities• Business ass.

• EU

Standardising org.

Authorities

Business ass.

EU

Company


Financialinstitutions

Consumers

Suppliers

Customers


Regulation network• Standardising org.

• Authorities• Business ass.

• EU

Colleagues

Authorities

EU

Business ass.

Consultants

Standardising org.

(Søndergård et at., 1997:301)

The business network: market actors

• Supplier-buyer relationships

• Green consumers

• Financial institutions (banks, insurance companies, institutional investors)

Supplier-buyer relationships

• Incentives between supplier and producers can cause incentives to innovate and to respond to environmental market demands– Upstream pressure– Downstream pressure

Supplier

Manufacturer

Retailer

(buyer/supplier)

Inputs Specifications anddemands

Dow

nst

ream

pre

ssu

re

Specifications and demands

Up

stream

pre

ssure

Products

Consumer

Products Specifications and demands

Supply chain dynamics on companies

Environmental requirements of Volvo

• Environmental Management System• Objectives and action plans• Follow-up of development activities• Environmental related data• Chemicals or materials requirements• Design solutions

(Source: Volvo, 1999)

Scott Paper

• Many environmental problems ’imported’ through the supply chain

• Systematic review of their suppliers:– Questionnaires on air, water and land releases,

energy consumption and energy sources: CO2 emissions varied a factor 17 between suppliers of kraft pulp

• Scott dropped the worst 10% of their suppliers



• Green consumers


• Owners and shareholders

Green consumers

• Green consumerism: consumers ask for goods that are perceived to be less damaging to the environment

Green consumers

• Green consumerism: consumers ask for goods that are perceived to be less damaging to the environment

• Green consumerism is an important element in the move towards sustainable development– Changes the climate in which companies

operate and alters the attitude of some companies into a more environmentally friendly direction

Green consumers

A company’s overall image is of major importance:

’the fear of environmental failure is perhaps a more potent consideration in driving corporate environmental policy for many companies than is the prospect of expanding market share through green claims’ (Howes et al., 1997: 15)

For example Shell/Brent Spar

Disposal of the Brent Spar oil platform in 1995 (Shell)

’In case of Brent Spar, we secured all necessary regulatory approval for deep sea disposal but were, in retrospect, insufficiently sensitive to public concerns’(Chris Fay, chairman and chief executive in Shell UK Environmental Report 1995)



• Green consumers


• Owners and shareholders

Banks

• 70% of the banks believe that environmental issues have a material impact on their business

• Over 80% of the banks perform some degree of environmental risk assessment on the debt side of their business

Source: Vaughan, 1995 quoted by Schrama, 1997: 11-12)

Banks

• Lender liability is the greatest issue currently facing banks

• All banks (n=90) believe that environmental issues will receive more attention and become increasingly integrated with their core business activities over the next 15 years

Source: Vaughan, 1995 quoted by Schrama, 1997: 11-12)

Insurance companies

• Offer insurance coverage for environmental liabilities and other kinds of damage related to environmental issues

• Good environmental performance of companies in order to minimise the risks of environmental damage

Institutional investors

• Are able to demand that the companies in which they invest account for their environmental performance

’the extent to which investors are able to effectively discriminate between companies that do and do not have commendable environmental practices will ultimately determine the overall impact of environmentally responsible investment’

(Grabosky, 1998: 14)

Outline


• Environmental incentives on companies




Strengths of market regulation

• Can be a stimulus for companies to develop cleaner products– Cleaner products might lead to an increased market

share and better image

• Both economy and environment can benefit from market regulations

• Production of cleaner products does not necessarily remain to one company, whole production-consumption networks might be involved

Strengths of market regulation

• Regulatory relief for government:– Different enforcement strategies/environmental

performance companies

Weaknesses of market regulation

• Single companies are not able to bring about a greening of industry

• In order to be able to involve whole production-consumption chains, several companies have to be active

• With greater freedom for the market, comes greater responsibility

Outline


• Environmental incentives on companies




Government’s role in market regulation

• Government can influence market actors’ behaviour

Or

• Government is able to enhance the quasi-regulatory function of market actors


• How does government influence:– Buyer-supplier relationships– Green consumerism– Financial institutions

Mixes of environmental regulation

Public environmental regulation

Market regulation

Self-regulation

Government’s role in market regulation: buyer-supplier relationships

• Duty of care on producers– For example waste management in the Netherlands

and Denmark

• Extended Producer Responsibility (EPR)– Manufacturers have to take back their products, with

the aim of re-using, recycling or re-manufacturing, or delegate this responsibility to a third party

• For example: car-dismantling in the Netherlands

EPR and car-dismantling in the Netherlands

• No car industry in the Netherlands:– Who is the third party?

Auto-recycling Ltd.

• Establishment of the ’Auto-recycling Ltd’ (1995) by the business associations involved:

– Stiba (car dismantlers)– RAI (car manufacturers and importers)– BOVAG (car dealers and workshops)– FOCWA (damage repair companies)

ARN*

(* Auto Recycling Nederland)

Car manufacturersRaw materials extracting and processing

Car importers

Suppliers of car-parts

Car dealers/workshops

Damage repair shops

Shredder companies

Car-dismantling companies

Consumers

Incineration

Landfill

Pro

du

ct f

low

Productionnetwork

Use-, recycling,anddisposalnetwork

Recycling

(Smink, 2002: 233)

ARN: the role of a third party

• Increase recycling percentage• Collection and dismantling end-of-life

vehicles• Waste disposal fee• Waste removal premium• Control with car-dismantling companies

ARN: privatised public environmental regulation

• ARN has taken over a number of tasks of government:– ARN controls companies at least once a month– ARN requires technology-based standards

Government’s role in market regulation: green consumers

• Retail price– For example buyers of ’clean’ cars in the

Netherlands get a once-only bonus (economic instrument)

– Information

Mixes of environmental regulation

Public environmental regulation

Market regulation

Self-regulation

Government’s role in market regulation: financial institutions

• Liability legislation:– European Commission adopted a White Paper

on Environmental Liability on 9 February 2000– Objective: to explore how the polluter pays

principle – one of the key environmental principles in the EC Treaty – can best be applied to serve the objectives of EU environmental policy

Objectives of EU’s environmental policy

‘to preserve, protect and improve the quality of the environment, protect human health and utilise natural resources prudently and rationally’

Objectives of EU’s environmental policy

‘to preserve, protect and improve the quality of the environment, protect human health and utilise natural resources prudently and rationally’

EC regime should cover both ’traditional damage’ (damage to persons and goods) and environmental damage

Liability legislation: why?

• Several cases where human activities have resulted in substantial damage to the environment:– Examples: accident with oil tankers at sea,

pollution of the Doñana nature reserve in the South of Spain

Liability legislation: what has happened so far?

• Member States have:– established national environmental liability

regimes that cover damage to persons and goods– Introduced laws to deal with liability for, and

clean up of contamined sites

But

• Member States have not really addressed the issue of liability to damage to nature


So:

• Economic actors have focused on their responsibilities to other people’s health or property, but have not tended to consider their responsibilities for damage to the wider environment


• ’The’ environment is a public good:

Society as a whole should be responsible, rather than the individual actor who actually caused the damage should bear

Or…

Environmental liability EU: objective

To set out the structure for a future EC environmental liability regime that aims at implementing the polluter pays principle and to describe the key elements needed for making such a regime effective and practicable.

Environmental liability: Polluter Pays Principle

Environmental liability aims at making the causer of environmental damage (the polluter) pay for remedying the damage that he has caused (the polluter pays principle)

Environmental liability: effective regulations?!

For the principle of liability to be effective:– Polluters must be identifiable

– The damage must be quantifiable

– There must be a link between the polluter and the damage

The principle of liability cannot be applied for dealing with pollution of a widespread, diffuse character (climate change)

Market regulations Carla K. Smink Environmental Management, 8 th semester Spring 2005.

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Transcript of Market regulations Carla K. Smink Environmental Management, 8 th semester Spring 2005.