unit 6, gre401

© Jeremy B Williams 2012

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Sustainable Development: Policy Prescriptions

Sustainable Development and Competitive Advantage

Unit 6; Part 1:


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Outline

1) Introduction2) Rhetoric or reality?3) Policy instruments4) Trends in policy development5) Summary and conclusions


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1) INTRODUCTION• This Unit poses a number of questions:

– What kind of policy environment is most conducive to the realisation of sustainable development?

– While much has been made of harnessing the power of the market. How ought this be done?

– Will the market (effectively managed) necessarily produce ecological economic efficiency?


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2) RHETORIC OR REALITY?

• In Unit 5, we noted how corporations may indulge in ‘greenwash’ to put a positive spin on their activities to give the impression of being committed to sustainable development when this is not the case at all

• However, greenwash is not the exclusive domain of corporations.


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Political greenwash• Politicians are quite skilled when it comes to greenwash

• Statements like ‘the government is strongly committed to the objectives of sustainable development’ are not uncommon

• It may be that they have a poor understanding of the meaning of sustainable development

• On other occasions, rhetorical statements may be more expedient than statements about reality.


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3) POLICY INSTRUMENTS• In attempting to move toward sustainable

development in a ‘non-rhetorical’ way, three options are available to government: Education; Command-and-control; orThe creation of market-based incentives to induce

economic agents to adjust their behaviour.


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Command-and-control • When governments adopt a command-and-control

strategy they regulate activities that degrade the environment

• This they do in accordance with some legislated or agreed standard, and it involves the use of quotas or bans to restrict the use of renewable resources (e.g. fish), the emissions of air pollution, the release of hazardous waste, and so on

• These controls are usually mandatory and enforced through litigation, licensing and penalties for non-compliance.


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The disadvantages of command-and-control

• Regulations present a number of problems:Can be difficult to enforce and costly to administerOffer no incentive to those exploiting natural capital to

attain standards higher than those imposed by the law Can be inflexible –no choice in how to reach

environmental and social goals

• Logistics pose an additional problem; e.g. pollution is caused by a large number of individuals making it difficult to enforce standards.


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The advantages of command-and-control

• Change can be brought about quickly and efficiently; i.e. there is little or no debate (e.g. Singapore, China)

• The Porter hypothesis might apply; i.e. companies are encouraged to innovate to avoid restrictions (e.g. using renewable energy to avoid caps of emissions of GHG)

http://en.wikipedia.org/wiki/Porter_Hypothesis


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Market based incentives• Increasingly, regulation is looked upon as being less effective

than the use of market based instruments which explicitly affect private cost and benefits

• The thinking is that rational decision makers will base their decisions on a comparison of various options. Their rational choice will be the option which has the least cost for the number of benefits received

• Employed appropriately, these instruments can reward environmentally responsible behaviour, while punishing irresponsible behaviour.


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Pigovian taxes

• The most commonly known market-based policy instrument is the Pigovian tax (so named after its originator Arthur C. Pigou)

• The tax is set equal to the value of the marginal damage caused by pollution which has the effect of ‘internalising’ the externality

• Example: carbon tax.

Arthur C. Pigou


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Problems with Pigovian taxes• Implementing such a tax can be problematic:

It is difficult to determine the value of environmental damage and the cost of clean-up

It is therefore difficult to calculate the level of tax required

• In practice, environmental taxes tend to operate on a trial-and error basis where they are set at one level, moving up or down depending on their effect.


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Carbon trading• Policy makers have experimented with charges,

fees, tradable and marketable permits

• In addressing climate change, a popular initiative is the idea of carbon trading; e.g. the European Union Emissions Trading Scheme (EUETS)

• This was a recommendation of the Stern Report (2006)

http://en.wikipedia.org/wiki/Carbon_emissions_trading

http://en.wikipedia.org/wiki/European_Union_Emissions_Trading_Scheme


Cap and trade14


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Other alternatives

• Similar results can be achieved by providing compensation for not using polluting substances or technologies – subsidies, tax allowances, and grants have been used in this manner

• Other policy makers have opted for a combination of the two approaches utilising deposit/refund systems, distributive credits and ‘feebates’.


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4) TRENDS IN POLICY DEVELOPMENT• While attitudes and behaviour towards the

environment will be shaped by environmental laws and regulations, they cannot … on their own … be expected to solve all environmental and associated social problems

• Market-oriented approaches can certainly enhance a country’s capacity to deal with these issues, but it is important for there to be international co-operation – environmental problems (e.g. pollution) do not observe national borders.


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The ecological budget constraint

• While market-oriented approaches can enhance a country’s capacity to move toward sustainable development, assigning correct pricing to environmental resources may not be enough in some circumstances

• The goal of increasing the welfare of society through changing relative prices is all very well, but only if society remains within its ecological budget constraint – this requires an economy to meet human material needs while maintaining the stock of natural capital


What if the market doesn’t deliver?

• If changing relative prices does not allow a country to stay within its ecological budget constraint, then the market mechanism by itself is clearly insufficient to secure ecological economic efficiency, and some intervention on the part of the state will be necessary.

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5) SUMMARY AND CONCLUSIONS

• A range of policy tools are capable of harnessing the power of the market to induce a change in the behaviour of economic agents

• However, there are limits to the power of the market and, price signals may not be sufficient for society to remain within its ecological budget constraint and achieve ecological economic efficiency

• In these circumstances, alternative institutional arrangements will have to be put in place.


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Sustainability Policy: Leaders and Laggards

Sustainable Development and Competitive Advantage

Unit 6, Part 2:


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Outline

1) The leaders2) The laggards3) Summary and conclusions


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1) THE LEADERS

• Examples of countries that have shown some leadership in the move toward sustainable development are the Netherlands, the United Kingdom, and Germany


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National Sustainable Development Strategies

• Agenda 21, agreed to at the Rio Summit in 1992, called upon all countries to introduce National Strategies for Sustainable Development (NSSD)

• A target date of 2005 was set for NSSDs to be in the process in every country, with the goal of reversing trends in the loss of environmental resources by 2015

• Only a handful of countries had produced NSSDs by the time of the Johannesburg Summit in 2002.

http://www.unep.org/Documents.Multilingual/Default.asp?documentid=52


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The Dutch NSSD• The Dutch NSSD study considers 5 themes: population,

climate, water, biodiversity and knowledge

• Indicators serve to chart progress on the road to sustainability which, importantly:

can be easily interpreted and applied in the context of important sustainability issues;

focus on objectives and targets that are generally accepted; and

offer a frame of reference within which specific action can be taken in the Netherlands and the relevant parties can be held accountable.


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The British NSSD• A key element of the UK Government’s strategy has

been to devolve responsibility for sustainable development by encouraging the development of Regional Sustainable Development Frameworks (RSDFs)

• To date, RSDFs appear to have had a strong demonstration effect, allowing pluralistic conceptions of sustainable regional development to evolve in the English regions.


The German NSSD• Broad general political support for the concept of sustainable

development in Germany, and the government has kept sustainable development on top of the political agenda

• National Sustainable Development Strategy details targets, indicators, timetables and initiatives to meet key challenges.

• The Progress Report published in late 2008 strengthens sustainability management in that sustainability is to be mainstreamed in that new pieces of legislation should always be assessed against their possible impacts in terms of sustainability.

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Shining stars?

• These countries are not beyond criticism! • However, initiatives have been taken that at

least provide a framework to develop policy in support of sustainable development.

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2) THE LAGGARDS

• The governments that have been least enthusiastic about embracing the notion of sustainable development include those of United States, Australia, Canada, Japan and Russia

• Russia, Japan and (most recently) Australia have now softened their position and at least agreed to sign the Kyoto Protocol on climate change

• Canada, meanwhile, signed and then withdrew.


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John Howard refused to sign Kyoto


Kevin Rudd signed on his first day in office

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Julia Gillard’s government introduced a carbon tax in July 2012

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The US position under Bush

• If we were to send teams of ‘UN development inspectors’ into the United States, the results would not be pretty. First, they would discover a nearly total disconnect between global commitments and domestic politics. Mr Bush has not discussed America's commitments at Johannesburg with the American people (and perhaps his aides have not even discussed them with the President).

Sachs, Jeffrey (2002), ‘Weapons of Mass Salvation’, The Economist, 24 October.

Source: www.pbs.org/newshour/bb/economy/ jan-june00/debt_4-11.html

Professor Jeffrey Sachs, Harvard University

http://www.pbs.org/newshour/bb/economy/jan-june00/debt_4-11.html


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3) SUMMARY AND CONCLUSIONS• In comparing the approaches taken by different nation states,

the Europeans appear to be leading the way at this point in time

• The Netherlands, the UK and Germany have been more proactive than the US in terms of fulfilling their international obligations as defined by the various multilateral agreements on sustainable development

• It is likely, therefore, that businesses in these economies will be better placed in the future to take advantage of the business opportunities that a commitment to sustainable development provides.


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