The Global Business Environment - Essay Example

RELATIVE MERITS OF COMMAND AND CONTROL School: Lecturer: RELATIVE MERITS OF COMMAND AND CONTROL Introduction As the globalbusiness environment becomes highly competitive, it is important that the activities and programmes of entities on the business environment be monitored. Such monitoring is necessary to ensure that the quest to be competitive does not result in the need to taking undue advantage of others; either those in the same business or consumers (Kelley, 2006). It is for this reason that issues like regulations are always in place to guide the activities of companies and businesses. This paper seeks to outline the merits of command and control (CAC), emissions tax and marketable permits, all as forms of regulation. Based on the analysis, there will be recommendations made on the best way to approach each of these policies. Merits of CAC, Emissions Tax and Marketable Permits CAC regulation can be explained to be an approach regulating industries whereby there is the application of direct regulation on activities by the use of legislation (Goulder and Parry, 2008). Such legislation clearly states actions that are considered permissible and those that are illegal. The use of CAC regulation has a number of merits. In the first place, it has been described to be a proactive approach to dealing with most of the issues that face society and for that matter the environment today. CAC regulations are considered proactive as they emphasise on enforcement rather than enactment (Holling and Meffe, 1996). It would be noted that most of the environmental issues that face society today such as the depletion of the ozone layer, greenhouse gas emission and environmental degradation are all issues that require proactive approaches to salvage them, given the depth of their effects. What is more, CAC regulations have been found to be beneficial when it comes to the need to having a swift way of acting. Unlike the use of economic incentives which take long to implement, CAC is not only a proactive way of getting things done but it also makes it possible to do things in the quickest while. In most of the cases, all that is required is to get lawmakers to agreeing to the merits of the laws so that they can be passed and implementation started. The use of emissions tax is one of the most popular ways in which legislators, particularly the government have applied CAC. The carbon tax is one of such popular emissions tax. Generally, emissions tax is in place to ensure that a tax is levied on the pollutant content of fuels and other industrial products (Goulder and Parry, 2008). From the diagram below, it would be noted that emissions tax work on the basis of key economic models and principles. Source: The Cromulent Economics Blog (2013) From the diagram, it would be noted that optimal abatement, which is the ultimate goal of imposing emissions tax is achieved at the dot where the marginal benefit and marginal cost curves intersect. To attain the level of abatement, it is advised or required to set tax to levels where marginal benefit equals marginal abatement cost. In the diagram, this is represented by the horizontal line named “tax”. Using the principle from the diagram, it would be noted that in whichever side, whether to the left of e* or right of e* the firm chooses, government benefits. This is because when they move to the left of e*, they will be choosing to abate emissions, which is beneficial. When they choose the right also, they will be paying more tax, which is economically beneficial. As a way of controlling emissions from the perspective of policy makers, the tax line is raised so that the polluting company will find it cheaper and cost benefiting to abate carbon emissions so as to keep marginal abatement costs lower than the tax. The European Union portal, EIONET (2014) defines a marketable permit as a permit that is issued from the government, allowing a firm to emit certain amount of pollution. This permit can generally be bought and sold, depending on the arrangement that the firms enter with the government. Marketable permits can be seen to be environmental regulatory schemes that enable the government to have adequate information about the sources of the pollutant and the effects of the pollutants so that the right form of regulations on specific tons of pollutants that can be emitted can be given. Even though governments have argued on the merits of marketable permits as a way of controlling environmental emission, there continue to be some theorists who debate the effectiveness of this, saying that as long as there is some form of permit, marketable permits only act as documented ways of doing the wrong thing in the right form (Kelley, 2006). From the perspectives of governments and policy makers, they have however justified the merits of marketable permits, stating that the essence of marketable permits is not in giving permits to make economic gains per se but in having an opportunity to investigating the activities of polluter firms to know whether it is right or wrong to issue certain kinds of permit. Evidence of this has been given to cases where there has been the refusal of permits, and cases of reducing the limits that firms sought to emit. From such a perspective, it can be said that marketable permit is a beneficial way of regulating the emission of pollutants in a way that both firms and government can have a way of meeting their economic and social responsibilities (Perman, Common, McGilvray and Ma, 2003). It will be noted that both government and firms have social cost they pay on emission, which must be well balanced to ensure that none of the sides is disadvantaged. Regulating Marketable Permits According to the Stern Report (2006, p.14), there are a number of ways that marketable permits can be used to benefit the larger society and at the same time ensure that there is fairness in dealing with both firms and the environment. The core recommendation of the report borders on the banking of permits, which requires the need to issue fewer permits in one period and transferring the rest to other periods. According to the Stern Report (p. 14), “abrupt shifts in climate and rising costs of extreme weather events will affect global financial markets. This means that a refusal to take drastic and workable actions will not only have an environmental effect on society but that firms will also suffer negatively with low financial market outputs. This principle of allowing fewer permits would therefore mean an indirect way of suppressing the quantum of emissions that will be made. This is because greater percentage of emissions that influence climate change and depletion of the ozone layer have been noted to come from carbon emission (Holling, C. and Meffe, G. (1996). Meanwhile, the carbon emission is directly related to the activities of firms and the output of their products such as the burning of fuel for transportation purposes. According to the Report, by allowing fewer permits, the need will be created to first avoid a cluster of emission for given time frames. This means that instead of having so many quantities of pollutants in the environment at given time due to the number of activities emanating from the number of permits issued, there can be a transfer of the emission levels. A number of scientists have justified the use of the banking approach whereby there will be a ceiling on the issuance of permits at a given time frame till future need for permits arise. This is because the activities of pollutants, leading to their effects take place in a cyclical and sequential manner (Tietenberg, 2006). As part of the cycle, it is always possible to achieve a neutralisation of effect if through the natural activities of the atmospheric systems. Consequently, when there is a minimisation of the quantum of emission over a given period of time, it will be possible to slow down the effect of emissions, just as have been pointed out in the Stern Report. With this idea noted, what is left is the issue of implementation. This is because it is important to approach the implementation of a permit or the imposition in a manner that is acceptable to all stakeholders involved. Generally, the permit will be designed in a manner that puts limitation on scope of emission. As part of imposing this design, there will first be a stakeholder consensus on the relevance and importance of such a design. It is hoped that when all stakeholders are identified and engaged in a brainstorm about how well they can each play their part in the permit, it will be easier to get the most out of these people. It will also be necessary to have as part of the imposition, the need to provide for substitute products and alternatives. This is because as permits are delayed into the future there will be a consequence where the social cost of these pollutants will be lacking. Conclusion In conclusion, it will be stated reiterated that as much as it is important to have regulations and policies that guide the activity of businesses and companies, it will also be important to investigate thoroughly the impact of such regulations and policies not only on the tax ambitions of the nation and the general outcome on the environment but also on the impact of these on the businesses. To this end, it will be concluded that a 2-tier approach that factors in the interests of both businesses and the society should be the best way for in the enactment and enforcement of these regulations and policies. References EIONET (2014). Tradeable Permit. [Online] Available at http://www.eionet.europa.eu/gemet/development2/concept?langcode=en&cp=8564&ns=1 [22 April, 2014] Goulder, L. and Parry, I. (2008) “Instrument Choice in Environmental Policy”. Review of Environmental Economics and Policy. Vol. 2 No. 2. pp. 152-174 Holling, C. and Meffe, G. (1996) “Command and Control and the Pathology of Natural Resource Management”. Conservation Biology. Vol. 10 No. 2. pp. 328-337. Kelley, K. (2006). "City Approves Carbon Tax in Effort to Reduce Gas Emissions". The New York Reviews. Vol. 34 No. 4, pp. 45-66. Perman, R., Common M., McGilvray J. and Ma Y. (2003). Natural Resource and Environmental Economics. Pearson/Addison Wesley: Boston. The Cromulent Economics Blog (2013). ECON 101: An emissions tax. [Online] Available at http://www.env-econ.net/an_emissions_tax.html [22 April, 2014] The Stern Report (2006). Stern Review: The Economics of Climate Change. [Online] Available at http://mudancasclimaticas.cptec.inpe.br/~rmclima/pdfs/destaques/sternreview_report_complete.pdf [22 April, 2014] Tietenberg, T. (2006). Economics of Pollution Control, Chapter 15 in Environmental and Natural Resource Economics, 7th Edition, Pearson Boston. Read More