Business and the Economy Knowledge
From Common Energy UVic
Contents |
[edit] Framing the Problem
Addressing climate change is impossible without first looking at the role of modern economics in causing and perpetuating the crisis. In an ever expanding global economy where cross-continental trade increases by the day, more energy resources are being used with their associated environmental effects to meet trade demand.
Detailed analyses of the increasingly global, free trade economy have been done, and are well documented in numerous sources. This section will provide only a very brief overview of the fundamental workings of modern capitalism and its implications for the natural environment and climate change.
The last few decades have seen a tremendous shift toward a new international order. We are developing a transnational economy where traditional borders separating states are becoming ever more porous to allow the unregulated movement of goods, services, capital, and investment. Economic competition today has gone fully global. Each nation faces “an obligation to accord at least the same rights to foreign as to domestic investors.” (Sachs, 1999) Several international institutions exist to enforce this ideology, most notably the World Trade Organization (WTO).
The motivating factor for going global is essentially cost efficiency in production. In an increasingly global communications network, geography is no longer a limiting factor, and transnational integration has never been easier. Companies today are now able to segment their operations to specific areas of the world with the most lucrative wage policies, environmental restrictions (or lack thereof), skill base, etc. For a given product, “the early stages may take place in Russia, the further processing in Malaysia, the marketing in Hong Kong, the research in Switzerland, and the design in England.” (Sachs, 1999).
The measure of success of a nation’s economy is geared specifically towards this type of international trade, and is called the Gross Domestic Product (GDP). It is a measure of the market value of all goods and services of a country at a specific time. The GDP is often used as an indicator of the standard of living within an economy, and with good reason. A list of countries by GDP/Capita shows that the most modern Western nations - who enjoy a quality of life vastly superior to most nations - have the highest GDPs.
Economic growth then implies an increase in the standard of living within a nation’s economy, and for this reason it has retained high (if not the highest) priority for most nations' policy makers for decades.
[edit] Sustainability
A dependence on consistent economic growth to maintain a high quality of life operates, however, outside the realm of the natural environment. An economy’s ability to grow is seemingly without bounds, yet often it ignores its dependence on the limited natural resources of the earth to sustain it. A healthy economy needs unfettered access to a variety of mineral and energy sources to maintain growth in production - whether it be the digging of a mine to access raw minerals for steel production, to clearing a forest for agricultural use, or using gasoline to transport goods across the Pacific.
What modern economics does not consider is the pressure put on the natural environment to fuel such energy intensive operations. We see effects of overexploitation every day through climate change, ozone depletion, extensive loss of biodiversity, contamination, deforestation, soil erosion, acid rain, etc. An economy does not concern itself with these effects because in modern economics, nature is what is referred to as an externality. Though dependent on the environment for various forms of natural capital, whether it be soil to grow crops, trees to make paper, or diesel to power transport trucks, modern economics puts no value on critically important natural resource. A lumber mill for example that contaminates a nearby river has the benefit of not paying for waste treatment, while the hazards related to such contamination are "externalized" outside the mill's production cycle. The burden rather is placed on people and ecosystems downstream, which had nothing to do with the contamination and are powerless to alleviate it.
[edit] Possible Solutions
This is beginning to change to some extent in many countries, as each comes to terms with the new reality of limited resource. A popular term for the new economic order is the triple bottom line. Here the economic, environmental, and social realms of the business world are all given value, and decision-making is altered to reflect this. The lumber mill would put a negative value to the contaminated water, and negative value to perhaps a loss of species in the river, and when weighed against lumber profit would be enough to reconsider.
Regulatory entrepreneurship by environmental organizations: Environmental Defense, the World Wildlife Fund, Center for Energy and Climate Solutions. These have all found separate agreements with transnational corporations including DuPont, Shell, BP, Alcan, and IBM to name a few. (Lipschutz, 2005)
[edit] Corporate Greening
- An Article on Ray Anderson of Interface in the New York Times: Executive on a Mission: Saving the Planet
[edit] Green Business Clusters
Here is a paper by Dr. Boyd Cohen, previously of UVic, on creating a green business cluster in the region: Image:Sustainable Valley.pdf
Summary of Sustainable Valley by Boyd Cohen
[edit] Local Economic Trading Systems
These systems are designed to create a complimentary trading system that encourages the development of a local and sustainable economy. One area with high promise for university student communities are Use Communities. In Use Communities the gadgets (like screwdrivers) that are widely owned by rarely used are organized so that we need far fewer of them, but they are being used far more often.
Link:
- An excellent article on Use Communities
[edit] Carbon Trading and Markets
These are created through voluntary associations and government regulations to provide a mechanism for the exchange of emissions permits. The European Union Emissions Trading Scheme is the first functioning emissions trading market.
[edit] Carbon Taxes
These are created through government regulation to increase the price of carbon.
The Stern Report has much to say on the economic solutions to climate crisis, especially chapter 14 and 15, which review carbon taxes and tradable quotas.
[edit] Carbon Offsets
- Plant a Tree, Belch a Cloud? - April 20th, 2007, the Globe and Mail
- Carbon Neutral is Hip - But is it Green? - April 19th, 2007 the New York Times
[edit] Climate Financing
Climate Financing is the term that we are developing to describe the variety of strategies for investing in climate impact reductions. Many strategies for reducing climate impacts require substantial up-front capital investment and are also net-benefits for the economy.
Here's a report by the International Energy Association on policies and practices for reducing the financial barriers to energy efficiency investments in home: Financing Energy Efficient Homes
[edit] Ecological Economics and Policy
The Centre for Integral Economics develops policy tools for shifting local economies and research for understanding the economic relationships between people and places.
[edit] Program for Action
[edit] References
Lipschutz, Ronnie D., “Globalization, externalities, and regulation” in Globalization, Governmentality and Global Politics: Regulation for the rest of us? by Ronnie D. Lipschutz with James K. Rowe (New York: Routledge, 2005): 25-46.
Sachs, Wolfgang, “ Globalization and Sustainability” in Planet Dialectics: Explorations in Environment and Development (London and New York: Zed Books, 1999): pp. 129-155.
