Worldwide, consumers use an estimated 1 trillion plastic bags each year—nearly 2 million a minute—with the use time of a typical bag just 12 minutes. California became the first state to pass a bill banning the ubiquitous disposable plastic bag. If signed into law, starting in July 2015 the measure will prohibit grocery and retail stores to use plastic bags and would institute a charge of 10 cents for paper bags, compostable bags, and reusable plastic bags. (Quandt 2014) Putting a price on waste such as plastic bags is one method that governments can take to create economic incentives that can be more sustainable for the planet and society. Economics is key in helping us to explain how societies current practices in supply and demand increase unsustainable incentives and how we can reverse that to a more sustainable behavior for future generations. The rise in population is expected to reach 9 billion in 2050. Along with that an average of about 60% of GDP is accounted for by consumer spending on goods and services.
This means that the earth cannot handle this continued global consumption of rising economies combined with existing carbon-use intensive countries like the United States. (Weybrecht 2010) To address this problem societies, governments and business can now look at how much Carbon /CO2 they are contributing and find ways to reduce pollution. One of these tools is the Marrakech Process. The Marrakech Process is a global process to support the elaboration of a 10 year plan on sustainable consumption and production. The Marrakech Process assists countries in efforts to green their economies and help corporations develop greener business models. Finally encourage consumers to become more sustainable in daily life. (Marrakech Process 2008)
3.1. Externalities
Externalities are costs or benefits that are received by a person/ society who did not choose to receive them. Oftentimes externalities in relation to corporations are caused by organizational boundaries. Meaning that there is a limit to what a company or organization feels they are responsible for. Anything that falls outside that boundary can be considered an externality when it effects environment or society. An example of positive externality might be college
‧
education, which benefits you but also helps make society better off by having intelligent work force. A small business opens and needs employees, so it creates employment opportunities for society. Positive externalities usually contain societal benefits greater than personal benefit.
Examples of negative externalities could be a timber and pulp company chopping down trees and sending excess silt into the rivers hurting fish populations or car companies that don’t have to pay for building and maintaining roads. When you drive a car you create air pollution and increase congestion, which is passed on to other citizens who live in the city. A new government policy does not pay for business impact from its new regulations. All these examples can promote unsustainable practices in an organization.
3.2. Market Based Instruments MBI
In order to reduce negative externalities and increase corporate responsibility market based instruments are being introduced to promote better choices for society and business.
“Market-based instruments seek to address the market failure of 'environmental externalities' either by incorporating the external cost of production or consumption activities through taxes or charges on processes or products, or by creating property rights and facilitating the establishment of a proxy market for the use of environmental services.” (OECD 2007)
Oftentimes sustainable agendas are not included in corporate strategy and long-term goals because there is a lack of economic incentives to protect the environment. MBI’s can increase financial opportunity and protect the environment. This is usually achieved by altering market prices, setting limits on resource use and creating new markets to drive demand for change actions. Below is a survey showing the geographical areas using MBI’s and most popular types.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Figure 3. Identified MBIs by Geographic location and type
Source: (European Commission for Environment. OECD. 2007)
The main types of MBI’s are Price Based, Quantity Based and Market Friction. The majority of MBI’s implemented are Price based. According to one study 3/4 of all projects are happening in Europe followed by US and Oceania. There are three broad based types of MBI’s Price based, Quantity based and Market Friction.
Price Based instruments work towards having prices for goods and services that reflect relative impact on the environment. This is achieved through adding or subtracting a tax or fee.
An example might be introduced tax on water use or subsidies for use of bio fuels. Other options implemented could be charges. Charges would be used to encourage companies to change current practices. An example would be charging a fee for garbage disposal and thus company is encouraged to minimize waste. Deposit Refund system buyers pay upfront charge in addition to price of the product, which is refunded when product is returned. Commonly seen as beverage container deposit, this encourages recycling.
Quantity Based instruments involve creating markets for the right to undertake an activity.
An activity that has negative impact like discharging pollutants into a river requires pay for the right to access clean water for production. QBI’s are mainly used to control quantity of resources or service to socially accepted level. Examples of QBI would be tradable permits.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
permit they can sell credits to other companies who have not cut their pollution. Another method is Offsets. Offsets are actions to compensate for unavoidable impacts to environment.
For example clearing land for factory could be offset by purchasing land to increase area for ecological nature park or marine preserves.
Market Friction instruments want to improve existing markets in order to improve environmental outcomes. Market Friction provides enhanced and better information between producer and consumer. An example of improved information is eco labeling. Eco labeling provides for product differentiation in the form of certification schemes. This allows customer preferences to take on greater importance in marketplace. A few such labels are Fairtrade Labeling International (FLO) and Forest Stewardship Council (FSC). FSC sources and protects communities and high conservation forests promising timber is not harvest illegally. With Fairtrade FLO works largely based off labeling. Producers sell coffee, cocoa, tea, nuts or other raw material to a “Certifier” the certifier offers total transparency in source, safety, quality and benefit to producer. The merchant buys this coffee with guarantee of information that can be passed on to customer. The customer has no way of knowing what is happening in the fields so this label provides a level of trust of quality and good labor practices.
Figure 4. Fairtrade Monitoring Process
Source: (Marketing and Monitoring Fairtrade. 2006)
‧
Organization for Economic Cooperation and Development (OECD) whose member countries account for 63% GDP works on promoting economic growth and sustainable development. The OECD states that SME’s account for 60-70% of jobs in most OECD countries with high concentration of SMEs in Japan and Italy. There is a need for growth economy young or old to provide new jobs and innovative solutions. SMEs are often in a better position to offer these ideas and services. (Small Business Job Creation 2014)Sustainability is important to SMEs to think about for a number of reasons. Innovation opportunities for new sustainable products and services in clean tech and green tech for example offer SMEs ideal position to gain advantage entry to new markets. Build stronger business by using sustainability to cut costs, explore new revenue opportunities and retain productive staff.
SMEs have greater flexibility and speed allowing them to integrate sustainability into business plans efficiently. (Weybrecht 2010)
Some key concepts for entrepreneurship are: Social and environmental ventures, Intrapranuership, generating ideas and funding. Entrepreneurs start SMEs in response to a new opportunity. A social Venture company should be financially sustainable and profitable as well as self sufficient on its earned revenue. It also has a bottom line that relates to social or environmental practice. The Skoll Foundation, started by Jeff Skoll, founding member and first president of ebay has pursued a mission to achieve sustainable world of peace and prosperity. Skoll Foundation describes a social entrepreneur as:
“Society’s change agents: creators of innovations that disrupt the status quo and transforms our world for the better.”
To date the Skoll Foundation has awarded 413 million, including investments in 108 social entrepreneurs and 87 organizations on five continents. (Skoll Foundation 2015)