16. Unit 4 Chapter 16 Environmental Issues in IB

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Dayalbagh EducationalInstitute

Unit 4 Lecture 16Environmental Issues &International Business

(Deemed University)

BBM 602


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1. Why Environmental issues have become oneof the key issues in International Marketing ?

2. What kind of legal and regulatory framework

exist ?3. What are the key environmental issues that

are impacting the world

4. What is CDM and how it is intended to act ascheck on global warming ?

Learnings at the end of

Chapter


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Explain key environmental issues thatare impacting the international businessand their current status .

What is Kyoto protocol and CDM and itsimpact on India ( positive and Negative )

Questions


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Context

Some of current developed countries exploited the useused technology that resulted in making money whilelosing nature.

They damaged nature while making money and

became developed countries. 23% of natural land of forests and greenery reduced

between 1950 and 1980.

Now developing countries are going thru same cycle .

As size and impact is large , one finds that it is havingimpact on environment , which is impacting them dueglobal climate change .


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Hence : Need for study in IB

This makes it necessary some regulatory mechanismsare in place

The regulatory agreement is considered as a cost ofrunning business, the regulatory landscape of climate

change is intricate and emerging on various levels. To structure strategic position of business according to

the environmental change regulation, mangers shouldimplement multi-pronged approach.

They should have the awareness of policy standards in

regional, national and international level. They should beready to face the standards whenever they appear


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Business and Environment is gettinglinked

The important points to be considered bythe business peoples are warning signs of future market shifts

where Safety , heath and environment arebasic premise of sustainable development .

Identify the business opportunities whilekeeping environment issues

Develop methods to integrate businessstrategy and climate change in order tocontribute to the bottom line and save itselffrom implications due to ignoring

environmental impact.


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Environment :Impact

The physical risks due to theenvironmental change are visible . Theinsurance industry concerned about $46

billion in losses due to natural disaster inthe year 2004 and business interruptionlosses in industry is $83 billion in the year2005.

These kind of physical risks highly affectsthe industry like fisheries, real estate,forestry, agriculture, tourism and health

care


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Trans boundary pollution

Transmission of pollution thru water , air , and soil fromone country to next country knowingly ( Hazardouswaste ) or unknowingly ( accident in Nuclear power plant) .

Chernobyl accident released 50 tons of radio activepoison impacting many nearby countries.


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Environmental degradation ?

Environmental degradation is defined as a processwherein the natural environment of the planet isdegenerated to such an extent, that the biodiversity andthe general health of the planet is subjected to drastic

reduction. In other words, this phenomenon can be defined as

deterioration of the Earth's natural surroundings as aresult of excessive exploitation of the available resources

due to human activities. These resources include water,air, flora, fauna, soil etc. Basically, the life on the planetis interwoven to such an extent that a decrease in aparticular attribute triggers a domino effect on all theother attributes dependent on it.


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What Causes Environmental Degradation?

Environmental degradation can be attributed tovarious human activities.

Exploitation of the fossil fuels is the best

example of this phenomenon. Large scaleexploitation has depleted the fossil fuel reservesacross the world, thus leaving us with no optionbut to find an alternate source of energy.

Other human activities which have beencontributing to environmental degradationinclude urbanization,

overpopulation, deforestation, pollution, hunting,


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Key Environmental issues

We entered the 21st century with these key environmental issues whichaffect international business:

1. The Climate Change

2. The Water Crisis

3. The Energy Crises

4. The Ocean and Fisheries

5. Global warming

We are dealing specifically with the Climate Change crisis and globalwarming, since these affect international business in a verysignificant way. Moreover, the solutions entitled to solve this crisiswill indirectly help in resolving the others.


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1. Climate Change

The Climate Change crisis has topped the list of the environmentalchallenges that have emerged in the last few decades. It hasbecome the most threatening and alarming one the humanity hasever faced. Most scientists agree that the environmental crises ingeneral and the Climate Change in specific are caused primarily by

the human activities stemmed from the Industrial Revolution thathad been empowered under the carbon-based economic systems.

The Environmental Crises impacts are becoming more apparent in

our daily life, because of which the sustainable management ofresources and stewardship of the natural environment have become

urging issues that aim at giving the natural world a stronger voice inthe human affairs. Under this scope the Environmentalism hadsignificantly surfaced the social movements in the last century.


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The Climate Change Science

Figure 1 below is to illustrate how the Natural Warming process has turned into anAmplified Warming process, the main ecological reason causing the Climate Change,because of the increasing CO2 concentrations in the atmosphere resulted fromburning the fossil fuels for energy .


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The Climate Change ScienceFigure 2 is to illustrate the correlation between the changes in carbon dioxide

concentrations (in blue) & changes in temperature (in red).

Both Figures 1 and 2 are images courtesy of the Marian Koshland Science Museum of the National Academy of


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2. . The Water Crisis The industrial sector currently consumes approximately a quarter of the worlds

available water resources, although the volumes of industrial water withdrawal varydepending on the type of industry, the different kinds of production, and thetechnology used in the industrial process.

Even in high tech industries, where mistakenly perceived as being clean industry, thesector is one of the most water-dependent and water-damaging sectors.

Each 300 millimeter (mm)silicon wafer (computer) chip produced requires 8,622 litersof de-ionized freshwater12. In Santa Clara, California, the electronics industry usedabout 24% ofcitys water between 1994 and 199513.

Water also plays an increasing role as a supplier of energy. In the second half of the20th century about 40,000 large dams were built throughout the world.

About one-fifth of the worlds electricity requirement is now covered by hydropower. In

countries like Brazil and Norway, up to 90% of the electricity is supplied byhydropower.

Considering how vital water is to many of the key economic activities, the risks ofwater scarcity can take on strategic importance to businesses and their financialbackers around the world.


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3. Energy crisis

World resource depletion, particularly the depletion of fossil fuel energy withits potentially disastrous impact on world food production.

Depletion of finite resources such as oil, gas, useable water, or minerals islikely to impact on world GDP

Historically, global economic growth has never occurred without asimultaneous increase in the use of fossil fuel energy; GDP growth andworld oil production growth have tracked each other for decades.

It seems that while the IEA expects a steady increase in available oil,recent, more believable, evaluations of the decline in oil from the majorgiant oil fields that are already in the phase of depletion (e.g., Cantarell in

Mexico and the North Sea province) suggests that Peak Oil arrived in 2008and that by 2030 the production from fields currently on stream could havedecreased by over 50 per cent (Hook 2009). The probable effect will be highprices flowing on into every walk of life, especially the cost of food with itshuge embedded fossil fuel energy costs. This will inevitably increasefinancial instability and produce more recessions.


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4. Ocean and Fisheries

The scope of human dependence on marine life issignificant, both in terms of the nutritional value providedby fish and other seafood to populations (especially inthe developing world) and in terms of the level of

economic security the fishing industry provides forcoastal communities

Marine biodiversity, in itself, also offers tangible benefitsto society, via revenues earned from tourism as well as

by providing useful ecosystem services, such as themaintenance of water quality [Stokstad, 2006].

Currently, however, about 25% of world fish stocks areoverexploited or fully depleted and overcapacity infishing fleets is the norm rather than the exception [FAO,2007:29].


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Ocean and Fisheries

Tourism is an important source of income in some countries, where thevibrant aquatic life (around coral reefs, for example) attracts divers, sportsfisherman and other visitors. Income generated by tourism could be lost iffisheries are depleted and marine biodiversity is lost.

More substantial, however, is the importance of fish exports for developingeconomies. Indeed, there is a direct link between overfishing and poverty.Approximately half of the total export value of the world trade in fish andfisheries products (US$71.5 billion in 2004) comes from developingcountries. Poverty among coastal communities in developing countries isoften high (especially in Asia and Africa), and fishing industries helpalleviate this, employing 150 million people and 3

Providing a last resort livelihood for the poor. The collapse of fisheries canthus have devastating economic impacts for developing countries, as wellas for countries whose trade in fishery products makes up a largepercentage of their total merchandise exports (Greenland and Iceland, forexample) [World Bank, 2005:4-5 and 7].


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5. Global Warming

Global warming is the increase in the average temperature of Earth's near-surface airand oceans since the mid-20th century and its projected continuation. Global surfacetemperature increased 0.74 0.18 C (1.33 0.32 F) between the start and the endof the 20th century.

The effects of global warming in the 21st century and beyond are expected to bedisastrous, according to the summary of a scientific report issued on April 6, 2007 by

the worlds leading panel of climate change scientists. And many of those changesare already under way.

Environmentalists , in their campaign against globalwarming , strongly call for the replacement of power plants that run onfossil fuels like coal , oil and natural gas with renewable power sources (Kahihla ,2007) .This , on the one hand , offers business opportunities to existing windproducers and new investors in ventures on wind turbines to generateenergy efficiently while emitting zero carbon dioxide , and , at the same time , earnsufficient profits .

On the other hand , however , these business opportunities on wind turbines denoteloss in some industries ,particularly , the power plants relying on fossil fuels .


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What Industries Would Global WarmingHave Negative Effects On?

Effect on Water Industry

Natural Resources

Effect on Tourism

Effect on Insurance Industry

Effect on Construction Industry


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International legalframeworks United Nations Environment Programme (UNEP) is among

the earliest attempts towards cooperation between nationstates on environmental issues and dates s far back as 1972.

1992, The UN Conference on Environment and Development

at Rio Summit, which adopted the concept of sustainabledevelopment.

The Convention on Climate Change- beginning of aninternational framework and process to tackle the issue ofclimate change.

1992, Convention on the Trans boundary Effects of IndustrialAccidents adopted by the UN

1994, Convention on Nuclear Safety adopted by the UN


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What is Kyoto protocol and CDM and itsimpact on India ( positive and Negative )


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The KYOTO PROTOCOL

The Kyoto Protocol is an international agreement linkedto the United Nations Framework Convention on ClimateChange. The major feature of the Kyoto Protocol is that itsets binding targets for 37 industrialized countries andthe European community for reducing greenhouse gas(GHG) emissions .These amount to an average of fiveper cent against 1990 levels over the five-year period2008-2012.

The major distinction between the Protocol and the

Convention is that while the Convention encouragedindustrialized countries to stabilize GHG emissions, theProtocol commits them to do so.


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Recognizing that developed countries are principallyresponsible for the current high levels of GHG emissionsin the atmosphere as a result of more than 150 years ofindustrial activity, the Protocol places a heavier burden

on developed nations under the principle of common butdifferentiated responsibilities.

The Kyoto Protocol was adopted in Kyoto, Japan, on 11December 1997 and entered into force on 16 February

2005. The detailed rules for the implementation of theProtocol were adopted at COP 7 in Marrakesh in 2001,and are called the Marrakesh Accords.

The KYOTO PROTOCOL


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The Kyoto mechanisms

Under the Treaty, countries must meet their targets primarily throughnational measures. However, the Kyoto Protocol offers them anadditional means of meeting their targets by way of three market-based mechanisms:

The Kyoto mechanisms are:

Clean Development Mechanism (CDM)

Emissions Trading known as the carbon market"

Joint Implementation (JI).

The mechanisms help stimulate green investment and help Partiesmeet their emission targets in a cost-effective way.


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Global warming potential of six gases, theKyoto Protocol deals with

Source: IPCC Third Assessment Report, 2001 Climate Change: The ScientificBasis. Intergovernmental Panel on Climate Change.

Carbon dioxide 1

Methane 21

Nitrous Oxide 310

Hydroflourocarbons 140-11,700

Perflourocarbons 7,000-9,200

Sulphur Hexaflouride 23,900


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Clean Development Mechanism(CDM) The Clean Development Mechanism (CDM), defined in Article 12 of

the Protocol, allows a country with an emission-reduction oremission-limitation commitment under the Kyoto Protocol(Annex B Party) to implement an emission-reduction project indeveloping countries. Such projects can earn saleable certified

emission reduction(CER) credits, each equivalent to one tonne ofCO2, which can be counted towards meeting Kyoto targets.

It is the first global, environmental investment and credit scheme ofits kind, providing a standardized emissions offset instrument,CERs.

A CDM project activity might involve, for example, a ruralelectrification project using solar panels or the installation of moreenergy-efficient boilers.

The mechanism stimulates sustainable development and emissionreductions, while giving industrialized countries some flexibility in

how they meet their emission reduction or limitation targets.


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Emissions Trading: the carbonmarket"Greenhouse gas emissions

a new commodity

Parties with commitments under the Kyoto Protocol (Annex BParties) have accepted targets for limiting or reducing emissions.These targets are expressed as levels of allowed emissions, orassigned amounts, over the 2008-2012 commitment period. The

allowed emissions are divided into assigned amount units(AAUs). Emissions trading, as set out in Article 17 of the Kyoto Protocol,

allows countries that have emission units to spare - emissionspermitted them but not "used" - to sell this excess capacity tocountries that are over their targets.

Thus, a new commodity was created in the form of emissionreductions or removals. Since carbon dioxide is the principalgreenhouse gas, people speak simply of trading in carbon. Carbonis now tracked and traded like any other commodity. This is knownas the "carbon market."


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Joint Implementation (JI).

Joint Implementation is like CDM but with projects inother Annexure countries instead of developingcountries.

Eastern European countries in Annexure such asBulgaria and Romania are likely to benefit from theseprojects and have already signed MOUs for their

projects.

These projects are competition for CDM and areexpected to give CDM projects in developing countries aserious run for their money beginning 2008.


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Shortcomings of the Protocol

Exclusion of Developing Countries

Costs and Economic Implications

Result: Too Little, Too Late.


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16. Unit 4 Chapter 16 Environmental Issues in IB