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Economic Incentive for Environmental Regulations and Products within Companies

November 04, 2018
The debate over climate change and what (if anything) should be done about it has plagued the politics of the 21st century. These debates manifest themselves along partisan lines and different economic beliefs. For example, the Paris Climate Agreement has not proven to have lasting effects due to the absence of actionable agreements regarding contribution in funding and guidelines between the participating countries, mostly based on monetary concerns.[1] Another international agreement touching on the subject in a distinct way has been the Trans Pacific Partnership (TPP). The agreement, while rooted as a free trade agenda, acknowledged and laid out guidelines for environmental governance in the public as well as the private sector to break the cycle of government inaction. Unlike its predecessors, the language encouraged governments to develop “voluntary mechanisms” that “are truthful…and take into account scientific and technical information… [and] if applicable…are based on relevant international standards”, however, these notions have not been implemented.[2] Both of these agreements are examples of the relative failure of the current political order in addressing environmental governance.

An emerging concept to address this is to convert the root of the controversy, the economically focused mentality that dominates many opponents, into a strength in using economics as an argument for environmental standards. One way to move forward with the environmental agenda is to focus on room for private sector involvement and to discuss the economic drivers for industries to spearhead environmental initiatives and innovation. Private environmental governance encapsulates the actions taken by private actors, from internal environmental standards to implementing certain market-based pressures. They “reduce negative environmental externalities, manage common pool resources, and affect the distribution of environmental amenities.”[3] Recent studies, such as those by Sarah E. Light, describe the increasingly important role private industries should take in leading policy experimentation due to the slow progress of government policy experimentation, as some examples stated above.[4] Private Environmental Governance is an attractive theory because it can help create achievable environmental standards and better mechanisms of enforcement.

Private Environmental Governance not only be pursued in an ideal, isolated economy, but it should be utilized currently because it creates market opportunities for businesses. BP and Microsoft are two examples of companies capitalizing on internal promises to environmental regulation. As discussions began in the 1990s for heightened government involvement in greenhouse gas emissions, BP adopted an internal emissions trading system to reduce their own emissions. BP terminated the program in 2002 after exceeding its savings target by many years.[5] Furthermore, BP reported that their efforts created $650 million in value and made the company a key influencer in public policy, thus making them a more profitable company.[6] While not all assessments of the policy were positive because the motives seemed to be self-interested, this is irrelevant as the effort resulted in lowered emissions in one of the world’s biggest producers of greenhouse gasses. In 2012, Microsoft began an internal emissions fee approach, and by June 2013, reached its goal to become carbon neutral in several areas such as data centers and offices.[7] In addition, Microsoft created a viable product to further capitalize on this energy saving program they were undertaking. They created a service in which they would create and then sell business models with the help of various Microsoft software products to firms adopting similar processes in waste reduction.[8] By reevaluating procedures within their companies in the context of environmentally minded goals, these companies created new value. This shows that a shift in mindset from an environmentally friendly agenda to be motivated can also be fiscally attractive.

Image: Prices of pollution, Source: CDPImage: Prices of pollution, Source: CDP

Dissimilarly, rather than pursuing internal environmental company successes, Elon Musk has developed Tesla Inc. based on the marketing of environmental friendly innovation. One example that goes even beyond entering the market with an environmentally sound product is seeking out the market that is in need of it. In the wake of a declining manufacturing industry, Southern Australia has recently jumpstarted a revitalization effort to become an energy and technology hub.[9] This in combination with a blackout problem in the area encouraged Elon Musk to pledge that “Tesla will get the system installed and working 100 days from contract signature or it is free”. Tesla built the largest Lithium-Ion battery in Australia to conserve enough back up solar and wind power, thereby not only converting the energy system to a sustainable one, but also saving the region money and resources. The entire project is also economical to Tesla because if it proves to be successful, Tesla engineered energy methods may be implemented in many other areas of the world.[10]

These examples demonstrate the growing presence of private environmental governance and the economic opportunity present for businesses that adopt environmental agendas. As Sarah Light discusses in “The Insider Trading” private sector driven efforts can have a drastic effect (potentially more than certain governments) in her environmental focus, reducing emissions.[11] As explored in the examples of Microsoft, BP, and Tesla Inc., economic success is also a very possible outcome of these efforts if they are done innovatively. While there may be costs to these projects, and higher ones in certain industries, if more companies engage in these types of ventures they will drive competition in this field and only encourage more progress. The global economy allows for big companies to have large amounts of influence when applying these principles even compared to governments, and if they decide to engage with the movement, it will not only solve many decades of environmental concerns but also present new opportunities for growth.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1]Sushanta Kumar Mahapatra and Keshab Chandra Ratha, “Discussion, Paris Climate Accord: Miles to Go”, Journal of International Development, 2017. https://proxy.library.upenn.edu:2894/doi/epdf/10.1002/jid.3262

  [2]Steph Tai, “Private Environmental Governance and he Trans-Pacific Partnership”, Georgetown Environmental Law Review, 2016. http://www.law.georgetown.edu/academics/law-journals/gelr/index.cfm

  [3]Sarah E. Light & Michael P. Vandenbergh, “Private Environmental Governance” (Encyclopedia Chapter), Environmental Decision Making, Encyclopedia of Environmental Law, 2015. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2645953

  [4]Sarah E. Light, “The Role of Universities in Private Environmental Governance Experimentalism”, May 8, 2018. http://journals.sagepub.com/eprint/fjNWFZk6PQ2GPufWt7MV/full

  [5]Sarah E. Light, “The New Insider Trading”, Stanford Environmental Law Journal, 2015, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2591875

  [6]Ibid.

  [7]Amy Cutter et al, “Fulfilling the Rio +20 Promises”, Natural Resolution Defense Council, 2013.

  [8]Sarah E. Light, “The New Insider Trading”, Stanford Environmental Law Journal, 2015, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2591875

  [9]Mike Montgomery, “Why Elon Musk Chose South Australia for his New Battery Project”, Forbes, 2017. https://www.forbes.com/sites/mikemontgomery/2017/07/07/why-elon-musk-chose-south-australia-for-his-new-battery-project/#7c43b459347a

  [10]Katherine Hignett, “Elon Musk Renewable Energy : Largest Ever Lithium-Ion Battery Switched on in Australia”, Newsweek, 2017. https://www.newsweek.com/elon-musk-largest-lithium-ion-battery-switched-728065

  [11]Sarah E. Light, “The New Insider Trading”, Stanford Environmental Law Journal, 2015, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2591875

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  • <h3>MapStats</h3><p> A feature of FedStats, MapStats allows users to search for <strong>state, county, city, congressional district, or Federal judicial district data</strong> (demographic, economic, and geographic).</p><p> Quick link: <a href="http://www.fedstats.gov/mapstats/" target="_blank">http://www.fedstats.gov/mapstats/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>