The Ecological Environment Presentation

8/6/2019 The Ecological Environment Presentation

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The Ecological EnvironmentPresentation 1

In te rn a tio n a l B u sin e ss


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Group 5

Omaer Ahmed ZR-09Gaus Samdani ZR-12Kawsar Ahmed ZR-50Rafaat Wasik Ahmed ZR-53Nasim Ul Haque ZR-54Rashed Al Ahmad Tarique ZR-61


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Todays Topics1.Introduction

EcologicalEnvironment andBusiness

InternationalSummits onEcological Issuesand theiroutcomes

2.Demand-Supply Modelof Market

MechanismDemand Supply

MechanismTypes of CompetitionMarket Failure

3.ExternalitiesDefinition and Types

4. Internalization of Externalities

Pigovian TaxCoase TheoremCalculating the

Amount ofNegativeExternalities

Carbon EmissionsTrading

5. Sustainability6. 5-Stage

Transformationtowards Sustainability


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Oil spill dumped 4.9 million barrels into Gulf of

Mexico


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To put it simply, there was a bad cement joband a failure of the shoe track barrier at thebottom of the well, which let hydrocarbonsfrom the reservoir into the production casing.

The negative pressure test was acceptedwhen it should not have been, there werefailures in well-controlled procedures and inthe blow-out preventer; and the rigs fire and

gas system did not prevent ignition


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Ecological effectThe number of animals killed during the spillor injured and captured alive was

4,417 birds,

730 turtles,

69 dolphins and

one sperm whale


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TourismThe U.S. Travel Association estimated that theeconomic impact of the oil spill on tourism acrossthe Gulf Coast over a three-year period couldexceed approximately $23 billion


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Economic Consequences

Market value reached 52 week low.54% loss in market value in 2010

Second quarter loss is 17 billion

BP gas station, majority of which it does notown reported sales reduction of 10 40%

According to UBS total loses could be 12billion


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In the 1980s, energy efficiency wasnumber ten or eleven in consumerpriorities. In the last four or five years, it

has come up to number three behind costand performance, and we believe theseconcerns will continue to grow.

CaseyTubman,

Brand Manager of Fabric Care Products,Whirlpool


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Changing businessenvironment

Regulatory exposure

Competitive exposure

New technological and businessopportunities


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Regulatory Exposure (1 of 3)

The implementation scheme on the tradingof greenhouse gas emissions quotas

Labeling regulations pursuant to the CO2directive

Tax policiesChina enacted a 20% tax on large cars in an

effort to decrease the demand for thosepolluting vehicles.


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Cap of CO2emissions for all aircraftdeparting from EU airports

the introduction of taxes on aviation fuel

(kerosene)

=by 2020 the price of a return flight would be1.8 to 9 more


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In Europe power stations are required tohave a permit for each tone of CO2emitted.

In China, while the current regulations focusmore on the reduction of SO2 emissions, itis likely that regulations on CO2 emissionswill follow


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Competitive Exposure

Steel, aluminum, and glass may increasein (relative) price

Price of electricity generated from coal mayincrease

Standards are likely to divert consumerdemand towards smaller and more fuelefficient cars


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New business opportunities (1 of2)

Hybrid technologiesAlternative fuels are gaining increasing

attention

Cylinder deactivation technology;

Advanced diesel technology


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New business opportunities (2 of2)

Nuclear power generation,Extended use of renewable energy (solar,

wind, and hydroelectricity

Electricity production using photovoltaic

cellsBio-degradable plastic


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SUPPLY AND DEMAND: THEMARKET MECHANISMDemandThe desire to own anything and the ability

and willingness to pay for it

Quantity demanded moves in the opposite

direction to price (all other things heldconstant)


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SUPPLY AND DEMAND: THEMARKET MECHANISMSupplyThe amount of some product producers are

willing and able to sell at a given price

The higher the price, the larger the quantity

supplied, (all other things held constant).


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SUPPLY AND DEMAND: THEMARKET MECHANISM

PerfectCompetition MonopolisticCompetition Oligopoly Monopoly

Number OfCompetitors

Many Few to many Very few No direct competition

Entry Or ExitBarrier

Easy SomewhatDifficult

difficult Regulated by government

Similarity OfGoods AndServices OfferedBy CompetingFirms

same Seeminglydifferent butmay be quitesimilar

Similar ordifferent

No direct competing product

Individual Firms

Control OverPrice

None (set by

market)

Some some Considerable(in true

monopoly), Little (inregulated Monopoly)

Examples Farmer Fast FoodRestaurant

Automotivemanufacturer

Power Company


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Externalities (TransactionSpillover)

Harmful or beneficial side effects borne bythose not directly involved in theproduction or consumption of a commodity.

A benefit in this case is called a positiveexternality or external benefit, while a costis called a negative externality or externalcost.


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Classification of Externalities

Externalities are divided into five differentcategories:

External Diseconomies of Production:Uncompensated costs imposed on others

by the expansion of output by some firms.Example: Increased discharge of waste

materials by some firms along a waterwaymay result in antipollution legislation that

increases the cost of disposing of wastematerials for all firms of that area.


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External Diseconomies of ConsumptionUncompensated costs imposed on others by

the consumption expenditure of someindividuals.

Example: The riding of a snowmobile by anindividual imposes a cost (in the form ofnoise and smoke) on other individuals whoare skiing, hiking or ice fishing in that area.


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External Economies of Production:Uncompensated benefit conferred on others

by expansion of outputs by some firms.

Firms training more workers to increaseoutput and some workers go on to work forother firms.


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External Economies of ConsumptionUncompensated benefits conferred on

others by increased consumption by someindividuals.

Example: Increased expenditures to

maintain his or her lawn by a homeownerincreases the value of neighbor's house.


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Technical ExternalitiesDeclining long-run average cost as output

expands lead to monopoly, so priceexceeds marginal cost.

Not even regulation to achieve competitivemarginal cost pricing is then viable.


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Pareto Optimum

The situation in which no re-organization ofproduction or consumption can lead to anincrease in welfare of some without, at thesame time, reducing the welfare of others.

Efficiency and Pareto Optimality are notachieved whenever private and socialcosts or benefits differ.


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S

SS

D

Market Failure


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Market Failure and CorrectiveActions

.1 ExternalDiseconomies ofConsumption

Tax on consumers rather.than the product

.2 External Economies

of Production andConsumption

Requires a subsidy on

.the producers

.3 Technical

Externalities

Marginal cost pricing isneither possible nor

;viable and Pareto optimum

.cannot be achieved


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TRAGEDY OF THE COMMONS

Garrett Hardin first wrote on the topic inScience1968 Used the example of medieval common

grazing fields


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Negative Externality 1 Public Utilities Business

:Private Costs taken into consideration Fuel and operating Expenses

:Social Cost NOT taken into consideration ,Security Environment and Health

=Result Market failure that leads tooverproduction -of fossil fuel fired powerplants


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Negative Externality 2Logging

Private Costs and benefits taken into:consideration

Cost of capital and labor Social Cost and benefits NOT taken into:consideration

, ,habitat preservation forest cover,biodiversity conservation carbon sink

=Result Market failure resulting indeforestation


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Negative Externality 3Industrial farm animal production

:Private Costs and benefits taken into consideration fewer and often- - ,less highly skilled employees and a greater output of uniform animal

products: -Social Cost NOT taken into consideration pool of antibiotic resistant

; ;bacteria because of the overuse of antibiotics air quality problems, ,the contamination of rivers streams and coastal waters with

;concentrated animal waste animal welfare problems=Result Market failure resulting in overproduction and consumption

due to low equilibrium prices


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Solutions

To solve.1 Privatize public property.2 Provide permits.3 Pigovian Taxation

.4 Coasian solutions


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Internalizing Externalities Equating Social Costs and Social benefits toachieve an equitable price

:Two approaches

.1 Centralized Approach.2 . (2 Decentralized Approach Free Market)Operation


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Underlying framework

1.Two alternatives

.1 Pigovian Taxation

.2 Coasian solutions


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Pigovian Taxation Considered the traditional approach

The tax shifts the marginal cost curve by theamount of negative externality caused

Pigovian TaxRevenue

MarginalPrivate Cost

+TaxNew

Equilibrium

NewQuantity

OldQuantity

=PriceMarginal

Revenue

MarginalPrivate Cost

rice

Quantity

MarginalSocial Cost


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Problems with the Pigovian Tax

No strict method for calculation of the exact,quantity of externalities exists pointed

out by Pigou himself

Government lobbying by industries can set the

taxes too high or too low

All Ecotaxes are based on these Pigovianprinciples


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Private responses

Coase theorem

Mergers

Social conventions


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Coase Theorem

Insight: root of the inefficiencies fromexternalities is the absence of property

rights.The Coase Theorem states that onceproperty rights are established andtransaction costs are small, then one ofthe parties will bribe the other to attain

the socially efficient quantity.The socially efficient quantity is attained

regardless of whom the property rightswere initially assigned.


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Property rights: entitlements which holders cannot be forcedto give up.Example: water pollutiona chemical plant may have the property right to pollute a river.swimmers and bathers may have the property right to cleanwater

ransaction costs a re th e co sts th a t p a rtie sincur in the process of agreeing to and following

.through on a bargain


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When is the Coase Theoremrelevant or not?

Low transactioncostsFew parties involved

Source of externality

well definedExample: Several

firms with pollution

Not relevant withhigh transactioncosts or ill-definedexternality

Example: Airpollution

C Th


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Coase Theorem

u ng e grap


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u ng e grap

Producer creates output

Creates benefitsmarginalbenefits (diminishing)

pollution

u ng e grap


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u ng e grap

Producercreates

output

Createsbenefits

marginalbenefits (diminishing)

pollution

otal enefit toCompany

B ildi th h


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Building the graph, contd

ithpollution

ommunityexperiences

Costs leanup ealthcare

otal Costso Community

pt ma so ut on max soc a


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pt ma so ut on max soc abenefit) withoutactualtransactions ??

Net Social Gainoptimal @ outputproducing 60 units ofpollutionMBcompany = MCcommunity

Optimal amountof pollution

Equitable toBoth parties


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Coase Theorem says same optimaloutcome obtained via market transactions

Case 1Communityownsright todetermine howmuch pollution

is permissibleBegin with zero

pollutionCompany would

like to produceoutput & gainbenefit.

But, creates

Pollution

o th p a rtie sb e n e f i t ,,hus both a g r e e ptimal

0 eachedia arketmechanism

What has beenCommunity has


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What has beenachieved?

Communityhas

1.pollutioncosting$6000 (C)

2.$12000 newincome(B+C)

3.Net Gain

$6000Companyhas

1.Made pmts of$12000

(B+C)

2.Gained benefitsof $21000(A+B+C)

3.Net profit of

C = $6000= $6000

A = $9000

Same Optimalresult obtained

via Market

Case 2

C i ht t d t i h h ll ti th


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Companyowns right to determine how much pollution theymake

Begin withoutput thatcreatesmaximum

benefits of$25,000(A+B+C+D)

and

creating 100units pollution

Communityincurring

costs of1

A = $9000

B = $6000C =$6000 D=$4000

E =$4000

F=$3000


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Case 2 Companyowns right, ContdCommunity

wants toreducepollution

Offers tomake pmt of$200 unit tocutback

output

oth partiesb e n e f i t ,,hus both a g r e e

What has been achieved?C it h


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What has been achieved?For community

Communityhas1.Eliminated

$11,000inpollutioncosts(D+E+F)

2.Made pmts of

$8,000(D+E)3.Left with

pollutioncosts of

$6,0004.Total Outlay(to get ridof allpollution)

$14,000(C+D+E)

F=$3000E=$4000

D=$4000C = $6000

What has been achieved?C h


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What has been achieved?For the company

Companyhas

1.Reduced output &pollution,giving upbenefit of$4,000 (D)

2.Received pmts of$8,000 (D+E)

3.Retains existingbenefit of$21,000(A+B+C)

4.Existing benefit

plus pmts =Total Benefit$29,000(A+B+C+D+E)

F=$3000A = $9000

C = $6000= $6000 E=$4000

D=$4000


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Mergers

Mergers between firms internalize theexternality.

A firm that consisted of both the steel firm& fishery would only care aboutmaximizing thejointprofits of the twofirms, not eithers profits individually.

Thus, it would take into account the effectsof increased steel production on thefishery.


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Social Conventions

Certain social conventions can be viewedas attempts to force people to account

for the externalities they generate.Examples include conventions about not

littering, not talking in a movie theatre,etc.


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Carbonfootprint

What is it?

Why do it?

How is it

calculated?


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Carbon Footprinting57

What is a Carbon Footprint?

What is a Carbon Footprint?The total set of greenhouse gas emissions

caused directly and indirectly by an individual,

organisation, event or productCarbon Trust

2007

Different types of carbon footprint:

1.Individual footprints2.Organisational footprints

3.Event footprints

4.Product footprints

5.


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fro m in d u stry

fro m tra n sp o rtfro m b u ild in g s

fro m a g ricu ltu r


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Metrics for expressing carbon footprints:

1.Tonnes ofCO2 equivalent (CO2e)

2.Tonnes ofcarbon (approximately of mass ofCO2 is carbon).



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What does CO2 equivalent (CO2e) mean?

There are six gases which are controlled under the Kyotoprotocol:

Greenhouse Gas Global Warming Potential

Carbon dioxide (CO2) 1

Methane (CH4) 23

Nitrous oxide (N2O) 296

Sulphur Hexafluoride (SF6) 22,200

Perfluorocarbons (PFCs) 4,800 9,200

Hydrofluorocarbons (HFCs) 12 12,000


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CO2e expresses the amount of greenhouse gas

in terms of the amount of carbon dioxide (CO2)

that would have the same global warming

potential

E.g. 1 kg of CH4 = 23 kg of CO2e

CO2e is useful has it expresses the amount ofgreenhouse gas emitted in a single figure.

Why carry out a carbon


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Why carry out a carbonfootprint

Three main reasons for calculating a carbonfootprint:

1.To manage the footprint and reduce emissions overtime.

2.

3.To off-set emissions (to go carbon neutral)

4.

5.To accurately report emissions to a third-party (e.g.the public.)

6.

How to Calculate a Carbon


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How to Calculate a CarbonFootprint.

How to calculate a carbon footprint:

The steps needed to work out a carbon footprintare different depending on whether thesubject is an organisation, product, or eventetc.

More details on:

Organisational assessments

Product assessments



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How to calculate a carbon footprint organisational carbon footprints (3steps):

1.Define the boundaries (what you want toassess)

2.Collect the data

3.Calculate emissions and convert GHGs toCO2e

4.



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Step 1 define the boundaries:

Operational boundary:o Scope One emissions (direct

emissions from the organisationsbuilding, vehicles, plant etc)

o Scope Two emissions (indirectemissions from electricityconsumption or other energygenerated by third parties)

o Scope Three emissions (all otherindirect emissions, e.g. businesstravel, deliveries, commuting,

waste).

Scope 1: Direct Emissions


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Scope 1: Direct Emissions

Relatively easy:

Combustion SourcesSite owned vehicles

On site electricalgeneration

CFC and HFC losses fromrefrigeration equipment

Sulfur hexafluoride lossesfrom electrical

equipment

Scope 2: Indirect Emissions PurchasedEnergy


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Energy

Relatively easy:Emissions from

consumption ofpurchased utilities:Typically electricity

Could be steam orhigh temperaturehot water

Could be negative(ex: electricity fromlandfill gas)

cope : er n recE i i


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pEmissions

Can be very difficult:Transportation of purchased

material or goodsEmployee business travelEmployee commuting impactsOutsourced work

Emissions from finished productsTransportation of wasteVegetation & Trees

Scope 3 has various challengesBoundary issues

Can be a magnitude higher thanScope 1 and 2

Costly value chain analysis

C b F i 3 S
http://usnews.rankingsandreviews.com/cars-trucks/Ford_Escape/photos-exterior/


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Carbon Footprint 3 Scopes

: ( )R e m e m b e r th e re a re th re e le ve ls scop e s/to a g re e n h o u se g a s carb o n fo o tp rin t

.ca lcu la tio n


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Step 2 Collectthe data:

Gas and electricity bills

Company ownedvehicles

Other business travel

Deliveries

Weight of waste Refrigerant gas losses



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Step 3 Calculate Emissionsandconvert GHGs to CO2e:

Emissions factors convert units of energy or

material flows into quantities of greenhousegas.

E.g. One kWh of UK grid electricity produces

0.523 kg of CO2.

10,000 kWh per year = 5 tonnes CO2



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Electricity or otherimported energ y

consumption(kWh, M J)

Grid/energyspecific CO2

emission factorKg CO2=X

Grid/energyspecific CH4

emission factorX

X

Grid/energy

specific N2Oemission factor

X

X

CH4 globalwar ming potential

N2O global

warm ing potential =

= Kg CO2e

Kg CO2e



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Standards and protocols:

World Business Council for Sustainable

Development/World Resources Institute(2004) - the Greenhouse Gas Protocol.

ISO 14064 (2006) Specification withguidance at the organisation level forquantification and reporting ofgreenhouse gas emissions andremovals.

Sources for emissions factors:

Defra 2007. Guidelines to Defrasgreenhouse gas conversion factors forcompany reporting.

WBCSD website. www.ghgprotocol.org IPCC 2006. Guidelines for National

Greenhouse Gas Inventories.http://www.ipcc-nggip.iges.or.jp/public/2006gl/index.htm

http://www.ipcc-nggip.iges.or.jp/public/2006gl/index.htmhttp://www.ghgprotocol.org/http://www.ipcc-nggip.iges.or.jp/public/2006gl/index.htmhttp://www.ghgprotocol.org/includes/getTarget.asp?type=d&id=MTM3NTghttp://www.ipcc-nggip.iges.or.jp/public/2006gl/index.htmhttp://www.ghgprotocol.org/


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Also available are online calculators:

Climate Care:http://www.climatecare.org/business/business-co2-c

The CarbonNeutral Company:

http://www.carbonneutral.com/sbc/index2.asp
http://www.climatecare.org/business/business-co2-calculator/http://www.carbonneutral.com/sbc/index2.asphttp://www.carbonneutral.com/sbc/index2.asphttp://www.climatecare.org/business/business-co2-calculator/


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How to calculate acarbon footprint

products:



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Product assessments - 5 steps:

1.Analyse the materials and supply chainprocesses

2.Build a supply chain map for the product

3.Define the assessment boundaries

4.Collect data

5.Calculate emissions using appropriatefactors

6.


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Raw material 1

Raw material 1

Transportation

Transportation

Production

facility

Materials Manufacture Distribution

Transportation

Waste and by-

products

MaterialsEnergy

Consumption Transportation Waste

Raw material 1

Raw material 1

Transportation

Transportation

Holding

warehouses

Consumption End of life

Consumption Waste

Fugitive

emissions

Fugitive

emissions



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Cradle to


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Standards andguidance forproductassessments:

Draft BSI Standard

Publicly AvailableSpecification(2050)

www.carbon-label.co.uk
http://www.carbon-label.co.uk/http://www.carbon-label.co.uk/http://www.carbon-label.co.uk/


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Carbon emissions trading

Often called Cap and Trade

A market uses economic incentives to reduceemissions of pollutants

Developed from the Coase Theorem

A central body creates a limited number ofpollution permits that are distributed to firms

Any firm who have leftover permits can tradethem on a market, hence promoting the most costeffective reduction of emissions

Sustainability and Sustainable


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Sustainability and SustainableDevelopment

Sustainable Development development which meets the needs of the presentwithout compromising the ability of future generations tomeet their own needs Brundtland Report,

United Nations, 1987

"interdependent and"m u tu a lly re in fo rcin g p illa rs

o f susta in a b le d e ve lo p m e n t,as econ om ic d eve lop m en t

,social d ev elop m e n t an de n viro n m e n ta l p ro te ctio n

U n ite d N a tio n s W o rldSu m m it 20 0 5

business model


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business model

-stage sustainabilityontinuum ,ob Willard h e S u st a in ab i l it y A d va n ta ge

5-stage sustainability continuum (1 of


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g y (3)

In Stages 1 & 2 major difference is legalrequirement

Stage 3 organization recognizes benefits to

proactive eco-efficiency but not only lessunsustainable

total institutionalization ofgovernance systems incomplete

5-stage sustainability continuum (2


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g y (of 3)

Stage 4 Massive shift of organizationalmindset Requires:

1.Eco-efficient processes and products

2.Improved supply chain conditions3.New eco-effective processes andproducts

4.Sustainable governance

Stage 5 Same as Stage 4 but with addedmotivationIn Stage 4 companies do the right thing to besuccessful businesses, in Stage 5 companiescontinue to do the right thing because they

are successful businesses

5-stage sustainability continuum (3


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g y (of 3)

In Stage 4 companies do the right thing to besuccessful businesses, in Stage 5 companiescontinue to do the right thing because theyare successful businesses

Only Stages 4 & 5 can be consideredsustainable


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Topics covered in todays


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p ypresentation

1.IntroductionEcologicalEnvironment andBusiness

International Summitson EcologicalIssues and their

outcomes2.Demand-Supply Model

of MarketMechanism

Demand SupplyMechanism

Types of CompetitionMarket Failure

3.ExternalitiesDefinition and TypesTragedy of the

Commons

4. Internalization ofExternalitiesPigovian TaxCoase TheoremCalculating the

Amount of

NegativeExternalitiesCarbon Emissions

Trading5. Sustainability6. 5-Stage

TransformationtowardsSustainability


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In the next presentation

1.Overview ofEnvironmentLaws

USA, EuropeanCommission,Bangladesh

2.Nature ofOrganizationsResponses toEcologicalRegulations

3.Developing aSustainableBusiness Model

Clean Development

4. Interest Groupsand their Influenceon theOrganizationConsumersStakeholdersEnvironmental

Pressure Groups5. Review of Case

Studies

1.

The Ecological Environment Presentation

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