If it's Good for the Environment, is it Bad for the Economy? If it's Good for the Environment, is it Bad for the Economy?

"This report makes clear that in the future, business needs to be green to grow, said the CBI's director general, Richard Lambert. To manage their costs and to maintain the trust of their customers, they will need to build carbon management into their corporate DNA. Business has already made significant progress in responding to the climate change agenda. It is well placed to make an early and decisive contribution to finding and implementing solutions to the challenge of climate change. Climate change - everyone's business Report of the CBI Climate Change Task Force

u Priorities Incorporate climate change policies into its DNA. Consumer demand will stimulate competition to produce greener alternatives to current products and services, and reward those businesses that take a lead. In the low carbon future, companies will have to be green to grow. Redouble efforts to improve energy efficiency, by focusing on areas such as transport and buildings. Work with employees and the supply chain to reduce emissions, and adapt the current workplace to cope with the climatic and other changes that are already likely as a result of past CO2 emissions. Measure its carbon footprint, and develop reporting systems to benchmark performance. Provide consumers with the reliable communications and product developments they will require. u Priorities Incorporate climate change policies into its DNA. Consumer demand will stimulate competition to produce greener alternatives to current products and services, and reward those businesses that take a lead. In the low carbon future, companies will have to be green to grow. Redouble efforts to improve energy efficiency, by focusing on areas such as transport and buildings. Work with employees and the supply chain to reduce emissions, and adapt the current workplace to cope with the climatic and other changes that are already likely as a result of past CO2 emissions. Measure its carbon footprint, and develop reporting systems to benchmark performance. Provide consumers with the reliable communications and product developments they will require.

The Environmental Problem

The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste

(Clipart for the environment: e.g. countryside scene) Goods and services Labour Waste The economy and the environment Resources Amenity value

The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value dump for waste v. productive resource u Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value dump for waste v. productive resource

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation The environmental problem

Total damage Accelerating environmental damage O W1W1 Environmental damage Waste

u Cause for optimism? Increased price of non-renewables u Cause for optimism? Increased price of non-renewables u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation The environmental problem

Oil prices (Brent crude) Oil prices (Brent crude)

Technological developments Public opinion Green business Government attitudes/action Technological developments Public opinion Green business Government attitudes/action u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables The environmental problem BUT growing damage

The OECD environmental 'traffic lights'

USA Germany Belgium Sweden UK Spain Cars per thousand population W Germany Increase in car ownership Energy and Transport in Figures (EC, 2007); Federal Highway Administration: Italy

An Optimum Use of the Environment

An optimum use of the environment Different approaches to sustainability u The free-market approach Prices reflect scarcity of resources u The social efficiency approach Market failures: can be corrected u The conservationist approach Care for environment for its own sake: importance of sustainable development u The Gaia approach Deep green approach: environment has rights Different approaches to sustainability u The free-market approach Prices reflect scarcity of resources u The social efficiency approach Market failures: can be corrected u The conservationist approach Care for environment for its own sake: importance of sustainable development u The Gaia approach Deep green approach: environment has rights

O D = MSB Q2Q2 Output of good Costs and benefits (£) Optimum level of an activity that involves pollution Q1Q1 Q3Q3 Free-market outcome Conservationist approach MSC S = MPC MSC 1 MPC 1 Marginal pollution externality Socially efficient output Gaia maximum output Q4Q4

Market effects for green companies u Short term Often higher costs – BUT can reduce costs in some cases (e.g. reducing plastic bags) Loss of competitive advantage BUT changing consumer tastes – Fair trade movement – Ethical investment movement – Environmental auditing u Long term Regulations are likely to get tighter around the world Growing stakeholder pressures around the world – Consumers, shareholders, employees, local communities Competitive advantage from investment in green technology Market effects for green companies u Short term Often higher costs – BUT can reduce costs in some cases (e.g. reducing plastic bags) Loss of competitive advantage BUT changing consumer tastes – Fair trade movement – Ethical investment movement – Environmental auditing u Long term Regulations are likely to get tighter around the world Growing stakeholder pressures around the world – Consumers, shareholders, employees, local communities Competitive advantage from investment in green technology

Climate change - everyone's business Report of the CBI Climate Change Task Force Market forces will drive big changes, but they will not by themselves be enough to do the job. The full range of public policies must be deployed to create the right incentives. u Government priorities must include promoting an effective market price for carbon revenue-neutral tax reform (such as changes to business rates and council tax) to reward greener behaviour bigger, more focused R&D programmes to finance new technologies and solutions until they become commercial. Market forces will drive big changes, but they will not by themselves be enough to do the job. The full range of public policies must be deployed to create the right incentives. u Government priorities must include promoting an effective market price for carbon revenue-neutral tax reform (such as changes to business rates and council tax) to reward greener behaviour bigger, more focused R&D programmes to finance new technologies and solutions until they become commercial.

Market Failures

Market failures Environment as a public good u The global commons u Features of a public good Non-excludability BUT rivalry u Over use at a zero price Externalities u External costs from pollution u External benefits from green activities u Problems of identifying and measuring Ignorance Inter-generational problems Environment as a public good u The global commons u Features of a public good Non-excludability BUT rivalry u Over use at a zero price Externalities u External costs from pollution u External benefits from green activities u Problems of identifying and measuring Ignorance Inter-generational problems

Government Policy towards the Environment

Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate Government Environment Policy

O D = MSB Q2Q2 Output of good Costs and benefits (£) Q1Q1 MSC S = MPC Optimum green tax A socially efficient green tax P P – t

Green tax revenues as a % of GDP

Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate Government Environment Policy u Subsidies for R&D u Problems with green taxes and subsidies u Subsidies for R&D u Problems with green taxes and subsidies

Non-market-based policies u Command-and-control systems u Alternative standards Technology-based standards Ambient-based standards Social impact standards u Effects on business Advantages Disadvantages Voluntary agreements Education Non-market-based policies u Command-and-control systems u Alternative standards Technology-based standards Ambient-based standards Social impact standards u Effects on business Advantages Disadvantages Voluntary agreements Education Government Environment Policy

Tradable permits u Permit to emit Credits can be traded u Market price for permits Efficient solution? u Use in USA u The EU carbon trading system u Effects on business u Basis for international agreements? Quotas for emissions or use of resources Tradable permits u Permit to emit Credits can be traded u Market price for permits Efficient solution? u Use in USA u The EU carbon trading system u Effects on business u Basis for international agreements? Quotas for emissions or use of resources Government Environment Policy

Can we rely on governments? u Short-termism u The free-rider problem u The weakness of international agreements Can we rely on governments? u Short-termism u The free-rider problem u The weakness of international agreements Government Environment Policy

If its good for the environment, is it bad for the economy? Possibly, but not necessarily. Environmental challenges offer challenges to business and the government. Some will gain; some will lose. Is it another case of survival of the fittest? Or is it survival of the greenest? Can Britain gain a competitive advantage? Possibly, but not necessarily. Environmental challenges offer challenges to business and the government. Some will gain; some will lose. Is it another case of survival of the fittest? Or is it survival of the greenest? Can Britain gain a competitive advantage?

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