Environment and the Global Economy

This article will focus on the relationship between the environment and the global economy. This article will provide an overview of the global economy and the global environment. This overview will serve as a foundation for discussions about the three main ways that the global environment is managed and protected in the global economy: voluntary corporate environmental protection, national environmental regulation, and international governance by global policy regimes. Examples of global environmental governance, including the United Nations Earth Summit, the Kyoto Protocol, and Organization for Economic Co-operation and Development's environmental efforts, will be described and analyzed. The environmental concepts of ecology, biodiversity, and sustainable development will be introduced.

Keywords Biodiversity; Environmental Regulation; Global Economy; Global Environment; Global Governance; Globalization; Sustainable Development

International Business > The Environment & the Global Economy

Overview

Economic globalization complicates the relationship between the global economy and the global environment. Economic processes, such as the production of goods, and waste disposal, strip-mining, over-farming, and the transportation of goods to and from markets, impact the Earth's ecosystem and result in polluted landfills, ozone depletion, global warming, and loss of biodiversity. The global environment, including resources such as air, fresh water, oil, timber, coal, natural gases, gold, salt, and arable land, is used in the global economy. The use of these environmental resources for economic purposes, such as manufacturing of goods, farming, and energy production, creates new environmental problems and scenarios. The global economy-environment relationship is often referred to as entropic in nature (Preston, 1996). “Entropic,” or “entropy,” refers to the steady deterioration of a system. Economic globalization processes, such as the internationalization of trade, ubiquity of gas-powered modes of transportation, migration, and the transnational development and production cycle of goods, challenge the traditional nation-based environmental protection strategy of sustainable development. Neither the global environment nor the global economy respects national boundaries.

In the twenty-first century, global environmental-affairs are characterized by an inextricable link between the world economy and the global environment. Global environmental politics are coordinated and managed by nonstate actors such as nongovernmental organizations (NGOs). The connections between the global environment and the global economy are demonstrated in global environmental policies such as those that govern hazardous waste collection. For example, international trade, production, and financial relationships determined the direction and extent of the toxic waste trade between industrialized and developing countries until the practice of toxic waste trade was ended in 1992 through the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal (Clapp, 1994).

Economic globalization has shifted economic, political, and environmental power from local, national, and regional bodies to international governing institutions. The goals and objectives of global environmental governance are complicated by the agenda and motives of economic governance. Global environmental governance has the challenge of simultaneously protecting global and local environments. The need to protect local and global environments as well as promote the economic growth demanded by the global market is challenging. Consumers, producers, and cities need to think globally and locally to protect the earth's environment. For example, cities must address urban air pollution problems to benefit local residents and, in part, to solve global warming problems. Ultimately environmental governance in the global economy will likely require reducing demand and using financial instruments, such as corrective taxes on fuel, to curb consumption (Eskeland, 1998).

The following sections provide an overview of the global economy and the global environment. These sections will serve as a foundation for later discussions about the three main ways that the global environment is managed and protected in the global economy: voluntary environmental protection, national environmental regulation, and international governance by global policy regimes. Examples of global environmental managementincluding the United Nation's Earth Summit, the Kyoto Protocol, and Organization for Economic Co-operation and Development's environmental efforts will be described and analyzed.

The Global Economy

The global economy is characterized by growth in populations and in output and consumption per capita, in interdependence of nations, and in international management efforts. Indicators of global growth and interdependence include the huge increases in communications links, world output, international trade, and international investment since the 1970s. The global economy is built on global interdependence of economic flows that link the economies of the world. The global economy is characterized by economic sensitivity. National economic events in one region often have profound results for other regions and national economies. National economies exist not in isolation but in relationship and tension with other economies worldwide. The global economy includes numerous economic phenomena and financial tools shared among all countries. Examples include the price of gold, the price of oil, and the related worldwide movement of interest rates. The new global economy is characterized and controlled through global management or governance efforts. International organizations, both public and private, work to establish norms, standards, and requirements for international financial governance. These international organizations, including the G-20, Financial Stability Forum, the International Organization of Securities Commissions Organization for Economic Co-operation and Development (OECD), and the Basel Committee on Banking Supervision, develop and encourage implementation of standards, principles, best practices, and economic architecture (Preston, 1996).

The Global Environment

The global environment encompasses the global climate, human use of resources (particularly resources that have become accessible only as a result of technological innovation and advances), and cross-border effects (the environmental concerns arising in different parts of the world involve more than one political jurisdiction) (Preston, 1996). Environmental problems entered public and political consciousness in the 1970s. In 1972, the United Nations Conference on the Human Environment, held in Stockholm, established a connection between economic growth and environmental degradation. The relationship between economic development, poverty, and environmental degradation has been researched in depth since the late twentieth century.

In 1992 the United Nation's Earth Summit brought environmentally sustainable growth into the public's consciousness. Sustainable development has been championed by many environmental organizations that recognize the importance or inevitability of worldwide economic growth. Traditional notions of sustainable development are being challenged by economic globalization. National environmental regulatory controls are increasingly ineffective when faced with increased trade integration, capital mobility, technological innovation, and changes in production.

Global environment stakeholders debate how best to protect the global environment in the context of economic globalization. Economic globalization, which challenges traditional regulatory approaches to environmental protection, requires new environmental governance approaches. Economic globalization empowers international economic and environmental organizations to create environmental policy rather than the local governments, where environmental efforts have traditionally been developed (Conca, 2001). In the global economy, the environment is managed and protected in three main ways: voluntary corporate environmental protection, national environmental regulation, and international governance by global policy regimes.

Voluntary Corporate Environmental Protection

Corporations are responding to stakeholder and shareholder concern for the environment by incorporating environmental ethics into their corporate activities and business practices. A form of corporate social responsibility, the most prominent and common voluntary effortsinclude lifecycle analysis, industrial ecology, design for disassembly, and strategic alliance. One study has found that voluntary corporate environmental protection does help increase profits for participating companies (Yu, 2012). Lifecycle analysis refers to the analytical tool used to calculate how much energy and raw material must be used, and what quantity of solid, liquid, and gaseous waste is generated, at every stage of a product’s lifespan. Industrial ecology refers to the business practice of designing production and distribution facilities as closed systems that are dependent on recycling, reuse, and creative energy production. Design for disassembly refers to the environmentally friendly practice of designing a product that can be taken apart and reused in the manufacture of different products at the end of its useful life. Strategic alliance or partnerships refer to the practice of partnering businesses to share their resources and expertise in an effort to benefit the environment. Strategic alliances are part of a larger trend in corporate cooperation and research consortia. Corporations worldwide are increasingly practicing cooperative research. Companies, which remain competitors, may pool resources to undertake collaborative large-scale or highly technical research. Strategic alliances among competitors and government-business partnerships are becoming increasingly common. Critics of voluntary corporate environmental protection efforts argue that some of the most environmentally damaging business practices, such as land disposal, underground injection, and the transfer of wastes to other communities, are generally not reduced or addressed by voluntary environmental protection efforts of corporations (Harrison, 2003).

National Environmental Regulation

Environmental management has become a common feature of corporations. Environmental management, since its beginnings in the 1960s, has been characterized by the need to satisfy environmental regulations. Environmental regulation refers to state and federal statutes intended to protect the environment and wildlife, to prevent pollution, to save endangered species, and to conserve water. Environmental regulations often grant individuals and organizations the right to bring legal actions to enforce the law. Environmental regulation began in the United States with the Clean Water Act and the Clean Air Act. Regulation to address the problems of future and past hazardous waste disposal include the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) or the Superfund program. Environmental regulation began in Europe with a common environmental protection policy built into the Treaty of Rome (1987) and extended and expanded by the Treaty on European Union (1992). Environmental regulation has been criticized by businesses for ignoring production processes, for being expensive, and for excessive oversight. Critics argue that environmental regulation has traditionally focused on "end-of-the pipe" solutions (such as emissions or waste control) rather than on addressing the basic processes that created the problem initially (Anderson, 1999).

Environmental regulation, both design and content, is evolving to create and promote "gains in corporate environmental performance through the creation of a hybrid system of public regulation, government-supervised corporate self-regulation, mandatory information disclosure, and green procurement or purchasing" (Eisner, 2004, abstract). In addition, the practice of managing environmental issues is transitioning from a regulatory phase to an increasingly common environmental management systems phase. Within corporations, environmental management practices are increasingly formalized into environmental management systems (EMS’s). EMS’s, as described by the U.S. Environmental Protection Agency, refer to a set of processes and practices that enable an organization to systematically assess and manage its environmental footprint. EMS’s developed during the 1990s as the importance of environmental management increased in response to government and consumer pressure. EMS’s complement and, in some cases, substitute for environmental regulations (Jayathirtha, 2001).

EMS’s are characterized by proactive activities rather than reactive activities. EMS’s, which can be used in factories, small businesses, service industries, and government agencies, come in many forms. Common corporate environmental management practices include clean production and ecologically sustainable development. Clean production refers to the initiatives undertaken by businesses to reduce the environmental impact of production activities. Examples of cleaner production approaches include the conservation of energy, reduction of raw material consumption, decreased use and production of hazardous materials, and the reduction of waste. Benefits of cleaner production approaches include improved community relations as well as reduced operating costs and liability risks. Ecologically sustainable development refers to the business practice of using, conserving, and enhancing the community's resources so that vital ecological processes are maintained for present and future generations. Ecologically sustainable development, which requires environmental, social, and economic cooperation, necessitates changes in the nature of production and consumption. Biodiversity (the maintenance and conservation of which is a main goal of ecologically sustainable development) refers to the variety of life forms and to the ecosystems in which they live.

Global Policy Regimes

In addition to voluntary environmental business initiatives, businesses and nongovernmental organizations are forming groups and coalitions to establish shared environmental principles. International governance, including environmental, political, and economic governance, is one of the most significant trends of economic globalization. The global economy and the global environment are managed and coordinated by international organizations or policy regimes. Policy regimes refer to the agreements that help to promote international harmonization and coordination of financial, ecological, and political matters. Policy regimes tend to be cooperative, mutually beneficial alliances.

There are four main types of international policy regimes: Global and comprehensive regimes refer to regimes that can surround the whole globe and any sphere of international activity. Regional and associative regimes refer to the acknowledging of less than global scope and with differing levels of comprehension within their geological boundaries. Functional financial regimes refer to preparations that might have worldwide geographical force, but particularly restricted functional scope. Environmental regimes refer to arrangements that involve natural resources and surroundings.

Major international policy regimes that manage and control the global economy and global environment include the United Nations, the International Monetary Fund, the World Trade Organization, the World Bank, and the Organization for Economic Co-operation and Development. Regional policy regimes, such as the North American Free Trade Agreement and the European Union, also have great control and influence over the global environment and global economy. Environmental regimes depend on compliance by all parties. The environment cannot be managed or tended to by one country and ignored by another. The responsibilities and effects of global environmental management are, by definition, global in nature.

Policy regimes are characterized by their scope, purpose, organizational form, decision and allocation modes, and strength. Scope refers to the domain of international economic or business activity covered by the administration. Purpose refers to the certain aims that are expected. Organizational form refers to the company structure and group members. Decision and allocation modes refer to the methods of voting or making decisions and the methods of allocating various costs and profits. Strength refers to the extent to which the membership conforms to the standards and rules of the regime (powers that allow for alteration).

The management of the global environment is based on economic analysis techniques and, to varying degrees, economic growth and development. Environmental decision-making, including decisions involving permanent environmental modification, is based on economics that benefit modern society rather than long-term plans or projections. International policy regimes concerned with both economic and environmental activities tend to link these two global systems without sufficient long-term planning and thought about the future of the global environment. Ultimately, international policy regimes having to do with both economic and environmental activities must work against environmental irreversibility and toward its sustainability (Preston, 1996).

Applications

Global Environmental Governance

The successful operation of the global economy requires the development and adoption of effective global environmental governance strategies. Environmental protection organizations, development organizations, business groups, corporations, and governments develop and implement environmental governance procedures. These stakeholders work together to create global environmental-use principles, recommendations, and tools for use worldwide. Examples of global environmental governance include the UN Earth Summit, Kyoto Protocol, and the Organization for Economic Co-operation and Development's environmental efforts.

Earth Summit

In 1992, the United Nation's Earth Summit in Rio de Janeiro was held to help governments reconceptualize economic development and find ways to promote sustainable development in developing and industrialized countries alike. The 1992 Earth Summit produced a treaty called the Convention on Biological Diversity that specified conservation strategies, species protection, ecosystem oversight, environmental restoration, and economic incentives for environment-friendly policy and actions. The Convention on Biological Diversity gained rapid acceptance around the world (193 countries have signed and ratified the treaty into law in their home countries). The United States signed the treaty but has not ratified the treaty. The Convention on Biological Diversity requires each member government to develop a self-implemented strategy and plan of action for the conservation and sustainable use of biodiversity in their country. In addition to the Convention on Biological Diversity, the Earth Summit had major impact on developing environmentally friendly strategies for patterns of production, alternative sources of energy, public transportation, and water sources. Follow-up meetings to the 1992 Earth Summit were held in 1997 at the UN General Assembly in New York and in 2002 in Johannesburg, South Africa.

Kyoto Protocol

In 1997, the Kyoto Protocol to the United Nations Framework Convention on Climate Change called for the creation of three mechanisms to effectively control global greenhouse gas emissions: The first mechanism was an emissions trading mechanism. The second mechanism was a clean development mechanism. The third mechanism was a financial mechanism that facilitated the transfer of income and technology from rich to poor countries. The United States, the world's biggest emitter of greenhouse gases, did not ratify the Kyoto Protocol (Caplan, 2003). Overall, the impact of the Kyoto Protocol on the climate is believed to outweigh the economic costs of implementation. The Kyoto Protocol has resulted in numerous associated environmental gains, including the creation of the European Climate Change Program in 2000 and the development of a pro-climate alliance across all decision-making levels of the European Union system (Hovi, 2003).

Organization for Economic Co-operation & Development

The Organization for Economic Co-operation and Development (OECD) is an international governance organization with thirty-four member nations and a commitment to democracy and market economies. The OECD produces internationally supported instruments, decisions, and recommendations intended to promote economic progress within the globalized economy. The OECD promotes sustainable development in developing and industrialized countries alike. Sustainable development refers to a wide view of human welfare, a long-term outlook regarding the effects of current activities, and worldwide cooperation to come to practical solutions.

The OECD produces and provides analytical tools and environmental indicators to national governments. The OECD encourages national governments to develop environmental policies that are economically efficient and based on performance reviews, information collections, policy evaluations, and financial predictions. The OECD's corporate governance interests include the following fields:

• Biosafety
• Climate change, energy, and transport
• Chemical safety
• Economic policy and the environment in developing countries
• Environment and sustainable development: economic issues
• Consumption, production, and the environment
• Environment in emerging and transition economies
• Environmental country reviews
• Environmental-social interface
• Environmental indicators and outlooks
• Environmental policies and instruments
• Environment and trade
• Infrastructure into 2030
• Natural resource management
• Environment and development cooperation
• Waste (OECD, 2007)

Conclusion

before the 1960s, there was no corporate or national accountability for the costs of environmental damages. Environmental costs were externalized to national governments and local communities. The practice of environmental management began, as a legislated activity and requirement of corporate behavior, in the 1960s and 1970s in response to growing concern about environmental pollution highlighted and publicized by high-profile pollution stories. Beginning in the 1990s, economic globalization, and the global economy, created numerous problems for preserving the ecological health of the global environment. In particular, the relationship between the environment and global economic governance is complicated and contentious.

New configurations of power in the global economy have led to economic restructuring, spatial and social distancing between production and consumption, and a loss of traditional region-based approaches to environmental protection, such as sustainable development. These changes challenge global environmental protection efforts (Conca, 2001). Development policies and environmental policies are often at odds. For example, developing world metropolitan cities, such as Beijing and Sao Paulo, which struggle to enhance their own aggressive and ambitious edge in the global economy, are beginning to grow quickly and are enduring major urban-environmental forces. The growth of corporate districts, business headquarters, and global hotels is creating an immense verticalization and densification of land use. These emerging land-use patterns, which promote economic growth, are influencing the urban surroundings and foundation in many devastating ways (Melchert, 2005). In the final analysis, the future of the global environmental is intimately tied to the global economy and may depend on energy-efficient technologies, environmental legislation, and modest economic growth (Lejour, 2003).

Terms & Concepts

Biodiversity: The variety of life forms and the ecosystems in which they live.

Clean Production: The initiatives undertaken by businesses to reduce the environmental impact of production activities.

Ecologically Sustainable Development: The business practice of using, conserving, and enhancing the community's resources so that vital ecological processes are maintained for present and future generations.

Environmental Footprint: The environmental impact associated with an individual's or business's activities, products, and services.

Environmental Management: The process of managing business operations or activities in the best way to minimize the impact, or the potential to impact, on the environment.

Environmental Management Systems: An arrangement of methods and routines that allow for a company to consistently evaluate and control its environmental footprints.

Environmental Regulation: State and federal statutes that are arranged to guard the environment from harm, counteract pollution and over-foresting, protect endangered species, conserve water, create and initiate general plans, and attempt to stop various dangerous practices.

Policy Regimes: The preparations and understanding involved in facilitating global agreements and the coordination of financial, environmental, and political affairs.

Sustainable Development: A wide view of human welfare, a future-oriented view regarding the results of the present activities and designed to aid the globe in achieving viable solutions.

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Suggested Reading

Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal (2011). Retrieved November 19, 2013, from http://www.basel.int/Portals/4/Basel%20Convention/docs/text/BaselConventionText-e.pdf

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Bernstein, S. (2005). Globalization and the requirements of "good" environmental governance. Perspectives on Global Development & Technology, 4(3/4), 645-679. Retrieved May 14, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=19099444&site=ehost-live

Climage change is seen as a strategic threat to supply chains (2013). Corporate Board 34, 26–27. Retrieved November 24, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=85869222

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