Unit 6, GRE401

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Sustainable Development and
Competitive Advantage

Unit 6; Part 1:

Sustainable Development:
Policy Prescriptions

© Jeremy B Williams 2012

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Outline

1) Introduction
2) Rhetoric or reality?
3) Policy instruments
4) Trends in policy development
5) 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; or
 The 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 administer
 Offer 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)


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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
Arthur C. Pigou

• Example: carbon tax.


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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)


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Cap and trade


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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


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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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Sustainable Development and
Competitive Advantage

Unit 6, Part 2:

Sustainability Policy:
Leaders and Laggards


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Outline

1) The leaders
2) The laggards
3) 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.

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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.


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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

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

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

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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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Unit 6, GRE401

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