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-Packard
European Union
Environmental Defense Fund

Teaching Tip: Preview Cases

These 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.

CHAPTER OUTLINE

I. ROLE OF GOVERNMENT

A. Major Areas of Environmental Regulation

*Air Pollution

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*Water Pollution

Teaching Tip: Recycling

Most 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 Act
This 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 Video

Paul 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 Approaches

Figure 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

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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

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 Justice

Since 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

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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 Planning
GETTING 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 CHAPTER
acid 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

INTERNET RESOURCES

www.epa.gov Environmental Protection Agency

www.envirolink.org Environmental organizations and news

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www.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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