Effects of Imposing Environmental Legislation Using Free-Market and Pro-regulatory Approach - Coursework Example

EFFECTS OF IMPOSING ENVIRONMENTAL LEGISLATION USING FREE-MARKET AND PRO-REGULATORY APPROACH By (Student’s Name) Professor’s Name City Name plus Date Course Name Effects of Imposing Environmental Legislation Using Free-Market and Pro-Regulatory Approach Introduction: Since the introduction of numerous environmental policies in Australia there has a perception that most of these environmental policies determine most aspects concerned with operations of companies throughout the country. These Australian environmental laws which include the National Pollutant Inventory (NPI), the National Greenhouse Energy Reporting Act as well as the Carbon Tax Act have been perceived to be taking almost the center stage the aforementioned activities. It has now become apparent that corporate governance should embark on strategies which embrace environmental principles in respect to such organizational activities as innovation, raw material sourcing, marketing processes, and transportation of both raw materials as well as finished good to their respective intended destinations as well as activities involved with disposal of company’s wastes. The purpose of this paper is to provide an illuminative stand on whether the free-market and pro-regulatory approaches are considered effective in the course of business operations as well as corporate governance (Barrett 1994, 325-335). Within a free-market approach, in respect to the imposition of the environmental legislation, businesses are allowed to exercise environmental sensitive approaches in the course of conducting their respective production activities. In this approach, businesses are allowed to embrace the self-regulatory approaches upon which they are not mandated to report their environmental-related activities with neither government agencies nor other environmental established overseers (Barrett 1994, 337-338). It is referred to as the free-market approach because businesses are allowed to design their own operational calendar with respect to environmental concerns but within minimal or no supervision. Therefore, in this case, businesses are allowed freedom to either engage in operational production activities which infringe the protection of environmental or choose to participate in environmental-sensitive form of production as a whole (Feurer and Chaharbaghi, 1994, 49-56). On the other hand, the Pro-regulatory approaches for business-to-environmental regulation is established to see it that the process of business production activities is gauged within the limits provided for in the numerous environmental laws. In short, businesses operating under this structure are required to report the manner in which their production activities infringe the environmental concerns. It should be noted that under this approach, businesses are required to conform to the stipulated and laid-out policies failure to which might cause immense imposition of taxes (Feurer and Chaharbaghi 1994, 56-58). In Australia, there have been numerous policies which have been formulated in order to regulate companies’ operational production activities in respect to the depletion of the larger part of the environment. For instance, the formulated National Pollutant Inventory (NPI) is defined as a form of Australian-based database which provides relevant and reliable information on various emissions occurring within the different vicinities of various industrial facilities as well as present sources to the information seeker about the rationale to go about the reporting of emissions (Feurer and Chaharbaghi 1994, 59). It assists managers to deduce the approximate amount of emission as required by the NPI Act. Notably, managers use the inventory to determine whether their respective companies are mandated with the responsibility of reporting their level of emissions to the resultant environment (National Pollutant Inventory Publication 2011). Subsequently, there is the National Greenhouse and Energy Reporting Act. This act was established by the Australian government to aid in having corporations report on the amount of greenhouse gases emissions that they undertake as well as the amount of energy they use as well as the amount of energy production (National Pollutant Inventory Publication 2011). It should be noted that under this act, those corporations which meet the postulations laid-out in the National Greenhouse and Energy Reporting are expected to register their activities and thus, provide extensive levels of reports each and every year of operation. It should also be noted that the data collected through the NGER is later used to assess the numerous liabilities companies hold in respect to carbon-pricing mechanisms (Clean Energy Regulator 2007). Effects of Imposing Environmental Legislation on Operational Activities of a Firm: It is considered a worth notion to investigate on the numerous intervention of the effects of environmental legislation on businesses since a company’s desire to attain environmental regulation is only successfully on the case that it internalizes the activity. Notwithstanding, this is incorporation is considered to be irrespective of whether or not the Company operates under a free-market or pro-regulatory approach (Gunningham and Sinclair 1999, 50-57). Extensive research by environmentalists on business impositions such as Parkinson note that despite the assumption that external modes of control regulations are helpful in bringing about the element of corporate governance conduct in line with the expectations, it is however limited in respect to its underlying scope(Gunningham and Sinclair 1999, 63-65). Companies are thus encouraged to embark on considering the different possible environmental implications for most of their trading activities regardless of whether or not there are guided through a pro-regulatory approach. Therefore, it is expected that companies dealing with distinctive production activities should engage in proper decision-making processes for these environmental implications to be taken as a crucial facet and thus be directed to the company’s directors as significant duties to be undertaken under their jurisdiction (Gunningham and Sinclair 1999, 69-70). Furthermore, research study conducted to determine the level of the internalization process into the company’s environmental values indicated that most companies were aware of the fundamental integration need hence the pace at which it was being conducted was fairer. The notion of including the environmental concerns into the balance sheet of each and every year of a company is considered to be compliance-based methodology of operation. Hence, companies operating different business sectors are called on to embrace environment-based responsibilities in order to avoid possible liabilities under the applicable environmental laws within the country. In addition to this facet, there has been witnessed adoption of beyond-compliance methodology of operation in respect to environmental regulations put forth which considered to exercise more tight measure as compared to extensive policies. Thus, directors of companies are encouraged to take the responsibility of ensuring companies operational activities both abide by the environmental laws stipulated as well as in the overall environment protection activity as a whole (Gunningham and Sinclair 1999, 71-73). To that effect, it has been realized that the fundamental existence and thus operations of a company goes beyond participation in activities which focus on the increasing of the shareholders wealth. It has then become a safe perception to devise a framework which is based on the aspect of focusing on stakeholders’ aspirations. By definition, stakeholders are all interested personnel who are considered to being affected directly by the manner in which a company conducts its operational activities. Stakeholders of a company include suppliers, creditors, government, employees, the society as well as the customers. A company’s reform structure for inclusion of environmental concerns in its corporate governance structure is accountable for remitting all of the aforementioned stakeholders who have immense interests with the company as a whole (Gunningham and Sinclair 1999, 74). Unlike the aforementioned visible and perceivable stakeholders, the environmental concerns are also considered to wear the tag of being a stakeholder although a perceive one and as such, it is not placed at fair position upon which it can showcase its interests to the company at hand. This partial invisibility of “environmental concerns” is considered to be the rationale behind the challenges faced by non-governmental organizations in their effort to effect regulations to business operations on behalf of the presiding government. The core-challenge on the imposition of the environmental law on numerous companies’ operations is dependent on whether or not the stakeholder’s problem exists within the legal framework of the existing environmental policies put forth for adherence (Hart and Ahuja 1996, 30-33). The effectiveness and thus the efficiency of adoption of environmental policies into the structure of any given business structure relies on the fundamental facet that of whether the policy is meant to serve slightly fewer functionalities or take the plight of the protecting the environment as a whole broader area. With intense respect to the aforementioned stakeholders of a company, it is fair to assume that the underlying corporate response to rather tight regulations are based on regimes which tries to conform to the pressures exerted by business markets, increased levels of corporate social responsibility as well as activities concerned with attainment of environmental sensitive awareness programs which are considered to be fairer platforms for achieving goals attributed with environmental protection. The need to engage in environmental protection strategies are never solely based on legislation set alone but on the external influences attributed with combination of such facets as the legal, economical environment, political as well as the social environments. In the effort to conduct its operational activities without hindrances it is fair that companies engage and thus devise strategies to manage the existing influences from outside the normal business operating environment (Hart and Ahuja 1996, 34-36). Businesses are thus called to embrace environmental codes of conduct which formulate industry-based regulations which might be influential in ascertaining a company’s involvement towards the improvement of their previously held poor environmental-compliance past conformities. Such conformities as the company’s environment auditing is considered to a methodology that can be used in order to attain the relevant imposition of environmental values which thus renders protection of the environment a rather significant role altogether(Hart and Ahuja 1996, 36-37). Notwithstanding, elements of self-regulation in order to impose the necessary internalization of a corporate environmental values is considered to be the fairer methodology to be adopted by firms in order to effectuate possibilities of environmental protection concerns. A newly proposed ecological management methodology has been incorporated in the course of business culture and has stipulated that the internalization process be adopted in all sectors of corporate management structure in the effort to realize the objectiveness of a transcendent entity. however, it is noted that holistic company’s aspirations to commence with environmental improvement strategies in their respective performance is enhanced through the ability and will of the relevant stakeholders to meet their objectives as per their respective interests on the firm at hand(Hart and Ahuja 1996, 37). Another significant feature to note in the course of going about implementation of corporate governance strategies in respect to the unique interests of each and every stakeholder is determined effectively through balancing the aforementioned interests against each other. In Australia, the aspect of environmental legislation on companies’ activities has been connected to eliminate completely the phenomenon of fault-based liability and has been effectively replaced with a stringent-based form of liabilities for those companies which are found to have gone against the laid-out stipulations (Jaffe, Peterson, Portnoy and Stavins 1995, 132-138). The implementation of environmental regulation policies to the undertakings of businesses is attributed with the creation of environmental risks which are established by private parties. These private parties are involved in extensive industrial and technological operational activities while the resultant government agencies is perceived as a having a say on that effect. In free-market approach, there are no mandatory implementation strategies which have been put forth to aid companies in the exercising of operational production activities. Thus, these companies are allowed to apply those regulations which they perceive relevant and applicable in their respective area of jurisdiction in respect to the performing of the environmental activities. It should also be noted that companies will choose to embark on a path whereby the costs involved in adhering to the environmental regulation is considered to be cheap and affordable in that matter. The free-market approach also takes to allowing companies purchase such elements as carbon credits in order to conduct their activities in a level which they consider suitable and profitable in that matter (Jaffe, Peterson, Portnoy and Stavins 1995, 140-143). In the effort to expand business operational activities into cross-border territories, it is quite clear that they are expected to conform to the international set policies and procedures which have been laid-out to guide on the whole business community. Failure to adhere to these policies may mean that the companies might lose their licenses to operate in certain global markets. In that case, companies are encouraged to adopt environmental policies whether in a free-market or pro-regulatory approach in order to attain the sustainable development in the course of business developments altogether (Jaffe, Peterson, Portnoy and Stavins 1995, 147-150). Among the most reliable and sought after environmental regulation principle is the principle concerned with integration of environmental concerns which should be incorporated into policy-making procedures as well as implementation strategy. The principle encourages immense levels of confirmation towards greening of the surrounding environment through such application methodologies as horizontal approach. Consequently, this principle is concerned with depicting environmental conditions in a manner which corporate as well as government structures enhance decision-making processes. It requires that numerous environmental concerns be involved in a direct tackle at the top-most management level which in most cases is the board-level (Jaffe, Peterson, Portnoy and Stavins 1995, 155-160). There have been numerous groups who have come up with the argument that stipulates against imposition of environmental legislation procedures into business activities claiming that it possesses a negative perception on the level of trade as well as competitive ability of any given firm. This negative influence is perceived as having the effect of causing the migration of polluting industries. In respect to this philosophy, it is argued that there is the influence of social forms of benefits on one hand and the resultant costs which are attributed with costs on the other end. It is further assumed that the resultant private costs will lead to a significant raise in the prices of products generated by a company and in turn, it may lose the competitiveness required for future survival (Jaffe, Peterson, Portnoy and Stavins 1995, 163-164). In a study conducted to determine the level of effects environmental legislation has on the cot/benefits activities of a firm, the operations of a chemical company were evaluated and the results presented in that effect. The Company CEFIC, the European Chemical Industry Council, indicated that it had for a substantial amount of years conducted its operational activities with conformity to the environmental legislation across the globe. According to this company, participation in effective environmental protection programs leads to diminishing levels of competitiveness as well as possibility of newer innovations (Ong 2001, 685-688). In its recommendations, the company indicated that the fairer methodology which can be used by a company interested with containing the limited performance levels as well as innovations and as well as conforming to the environmental legislation is through activities involved with self-regulation. In the case that the environment legislation put forth for adherence are considered stricter for those industries whose undertake activities involves immense “dirtying” of the environment, it is noted that the firms will tend to relocate to lower-income countries where there is lesser stringent regulations which have been put forth. In that sense, there operational activities will be conducted at an optimum level and thus save the company involved with costs that should have been paid for polluting the environment. (Ong 2001, 698-701). However, on the other hand, there are agencies which have thought otherwise concerning the adoption and thus the implementation of environmental legislation with respect to business activities. These agencies have argued in favor of the implementation process given the fact that it translates to a win-win situation (Wubben 1999, 105). This is because of the fundamental improvements witnessed in resource productivity, job creation as well as positive competitiveness of the industry at hand. Statistically, it has been indicated that there has been more than $ 250 billion in terms of product market that has been created due to deployment of environmental strategies. This market is also perceived as having the capability to increase its scope to about 8 % in respect to growth rate. It is considered illogical for companies to indicate that environmental costs cover a larger portion of their financial position given the fact that it only accounts for about 1-2 % of a the overall operating costs of a firm (Wubben 1999,97-102). It is believed that by maintaining a rather higher-level of environmental conformity a company is placed at a position upon which elements concerned with efficient and effective technologies as well as fairer competitive representation is achieved altogether. Researchers have been able to figure out that whenever companies are concerned with designing and implementing effective and strict environmental policies it leads to subsequent increase in the amount of innovations, the lowering of the total cost of commodities produced as well as the value attributed to both the Company involved and the generated product as a whole (Ong 2001, 703-710). Furthermore, it is believed that companies which engage in environmental concerns in their operational activities are able to attain optimum levels of production capabilities due to the fact that the innovations established as a result of the adherence ensures input materials are used effectively and efficiently in that matter. It is fair to assume that the resource capability which companies experience in the course of adhering to the environmental policies transforms them into more competitive entities given the fact that they should have desired better methodologies needed in managing ecological variables. Statistically, it has been established that the empirical tests conducted on the 500 Poor firms across the globe do not adhere to environmental legislation and thus making their survival instincts lesser. In addition to this, by companies adhering to environmental legislation it is expected that the resultant export of technologies functions as a variable to create high-quality jobs thus enhancing on the industry competitive advantage over the others (Ong 2001, 712-718). Conclusion and Recommendations: To sum up, it is fair that industries concerned with emissions embrace environmental legislation given the fact that it acts towards improving on the competitive position of the company at hand. The fundamental need for industries to adhere to environmental legislation opens up doors for immediate expansion activities into the international markets. Adherence to this environmental legislation creates innovative notions which can later be used to create high-quality jobs thus enhancing on the economy of a given sector. It is not right for companies to assume that by avoiding environmental legislation they are cutting on costs since environmental costs only cover for about 1-2 % of the overall operational costs. As a recommendation strategy, it is fair that companies embark on preventive strategies rather than avoiding the environmental legislation put forth in both the free-market as well as pro-regulatory markets. This is because prevention strategies are considered to be costly as compared to avoidance. Subsequently, the companies involved should rectify the environmental harm caused at the source in order to avoid further costs involved. In addition to this, these companies should choose not to “foot the bill” since by doing so they are placed in a position upon which they incur long-term costs. Reference List Barrett, S. 1994, Strategic environmental policy and international trade, Journal of Public Economics, vol.54, no.3, p. 325–338 Clean Energy Regulator 2007, National Greenhouse and Energy Reporting, Australian Government Publication, Retrieved on 8th December 2012 from http://www.cleanenergyregulator.gov.au/national-greenhouse-and-energy-reporting/Pages/default.aspx Feurer, P. and Chaharbaghi, K.1994, Defining competitiveness: a holistic approach, Management Decision, vol.32, no.2, p. 49–58 Gunningham, N and Sinclair, D 1999, Regulatory pluralism; designing policy mixes for environmental protection, Law & Policy, vol.21, no.1, p.50-74 Hart, S.L. and Ahuja, G.1996, Does it pay to be green? 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(1995) Environmental technologies and competitive advantages, Strategic Management Journal, vol.16, p.183–200 Wubben, E 1999, what’s in it for us? Or; the impact of environmental legislation on competitiveness, Business Strategy and the Environment vol.8, p. 95–107 Read More