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
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 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)

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 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
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 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. Open space
2. Wildlife habitat
3. Biodiversity
4. Flood prevention
5. Cultural heritage
6. Viable rural communities
7. And food security.
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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.
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 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
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3. Tradable permits
4. Regulation and legislation.

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.

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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.

4.4.3Tradable Permits
A more recent development in the area of controlling
negative externalities has been the use of tradable
pollution permits.

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.

3. 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.

4.5 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.

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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 :

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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

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 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.
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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.
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 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.
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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.
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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
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 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
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 - 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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