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
Company
Environmental groups
NeighboursGovernment/EU
Financial institutions
Consumers/customers
EmployeesSuppliers
Environmental consultancies
Pressure on companies (1990s)
Company
Environmental groups
NeighboursGovernment/EU
Financial institutions
Consumers/customers
(Employees)Suppliers
(Environmental Consultancies)
Pressure on companies (1990s)
Outline
• What are market regulations?
• Network relations of companies
• Strengths and weaknesses of market regulation
• Government’s role in market regulation
Company
Knowledge network• Consultants• Suppliers• Authorities • Colleagues• Business associations
Consultants
Colleagues
Business ass.
Authorities
Suppliers
Company
Business network• Financial institutions• Suppliers• Customers• Consumers
Knowledge network• Consultants• Suppliers• Authorities • Colleagues• Business associations
Financialinstitutions
Suppliers
Customers
Consumers
Company
Business network• Financial institutions• Suppliers• Customers• Consumers
Knowledge network• Consultants• Suppliers• Authorities • Colleagues• Business associations
Regulation network• Standardising org.
• Authorities• Business ass.
• EU
Standardising org.
Authorities
Business ass.
EU
Company
Business network• Financial institutions• Suppliers• Customers• Consumers
Financialinstitutions
Consumers
Suppliers
Customers
Knowledge network• Consultants• Suppliers• Authorities • Colleagues• Business associations
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
The business network: market actors
• Supplier-buyer relationships
• Green consumers
• Financial institutions (banks, insurance companies, institutional investors)
• 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)
The business network: market actors
• Supplier-buyer relationships
• Green consumers
• Financial institutions (banks, insurance companies, institutional investors)
• 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
• What are market regulations?
• Environmental incentives on companies
• Network relations of companies
• Strengths and weaknesses of market regulation
• Government’s role in market regulation
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
• What are market regulations?
• Environmental incentives on companies
• Network relations of companies
• Strengths and weaknesses of market regulation
• Government’s role in market regulation
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
Government’s role in market regulation
• How does government influence:– Buyer-supplier relationships– Green consumerism– Financial institutions
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
• How does government influence:– Buyer-supplier relationships– Green consumerism– Financial institutions
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
Government’s role in market regulation
• How does government influence:– Buyer-supplier relationships– Green consumerism– Financial institutions
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
Liability legislation: what has happened so far?
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
Liability legislation: what has happened so far?
• ’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 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)
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