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Market regulations. Carla K. Smink Environmental Management, 8 th semester Spring 200 5. Outline. What are market regulations? Network relations of companies Strengths and weaknesses of market regulation Government’s role in market regulation. Market regulation.

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    1. Market regulations Carla K. Smink Environmental Management, 8th semester Spring 2005

    2. Outline • What are market regulations? • Network relations of companies • Strengths and weaknesses of market regulation • Government’s role in market regulation

    3. Market regulation • The ways in whichmarket actorsexert pressure on companies with regard to their environmental performance

    4. Market regulation • The ways in whichmarket actorsexert pressure on companies with regard to their environmental performance • Market actors: those actors who have a commercial relationship to the company, as they buy and/or sell products from/to the company

    5. Market actors • Market actors can be regarded as surrogate regulators. Companies might change their environmental behaviour because of market pressure

    6. Pressure on companies (late 1980s) Government Company Neighbours Environmental groups

    7. Pressure on companies (1990s) Financial institutions Suppliers Employees Government/ EU Company Neighbours Consumers/ customers Environmental consultancies Environmental groups

    8. Pressure on companies (1990s) Financial institutions Suppliers (Employees) Government/ EU Company Neighbours Consumers/ customers (Environmental Consultancies) Environmental groups

    9. Pressure on companies (1990s) Financial institutions Suppliers Company Consumers/ customers

    10. Outline • What are market regulations? • Network relations of companies • Strengths and weaknesses of market regulation • Government’s role in market regulation

    11. Network relations of companies Company

    12. Consultants Authorities Company • Knowledge network • Consultants • Suppliers • Authorities • Colleagues • Business associations Business ass. Suppliers Colleagues

    13. Business network • Financial institutions • Suppliers • Customers • Consumers Financial institutions Consumers Company • Knowledge network • Consultants • Suppliers • Authorities • Colleagues • Business associations Suppliers Customers

    14. Business network • Financial institutions • Suppliers • Customers • Consumers • Regulation network • Standardising org. • Authorities • Business ass. • EU EU Authorities Company • Knowledge network • Consultants • Suppliers • Authorities • Colleagues • Business associations Business ass. Standardising org.

    15. Business network • Financial institutions • Suppliers • Customers • Consumers • Regulation network • Standardising org. • Authorities • Business ass. • EU Consultants Financial institutions EU Authorities Consumers Company • Knowledge network • Consultants • Suppliers • Authorities • Colleagues • Business associations Business ass. Suppliers Standardising org. Customers Colleagues (Søndergård et at., 1997:301)

    16. The business network: market actors • Supplier-buyer relationships • Green consumers • Financial institutions (banks, insurance companies, institutional investors)

    17. Supplier-buyer relationships • Incentives between supplier and producers can cause incentives to innovate and to respond to environmental market demands • Upstream pressure • Downstream pressure

    18. Supply chain dynamics on companies Supplier Inputs Specifications and demands (buyer/supplier) Manufacturer Specifications and demands Products Upstream pressure Downstream pressure Retailer Specifications and demands Products Consumer

    19. Environmental requirements of Volvo • Environmental Management System • Objectives and action plans • Follow-up of development activities • Environmental related data • Chemicals or materials requirements • Design solutions (Source: Volvo, 1999)

    20. Scott Paper • Many environmental problems ’imported’ through the supply chain • Systematic review of their suppliers: • Questionnaires on air, water and land releases, energy consumption and energy sources: CO2 emissions varied a factor 17 between suppliers of kraft pulp • Scott dropped the worst 10% of their suppliers

    21. The business network: market actors • Supplier-buyer relationships • Green consumers • Financial institutions (banks, insurance companies, institutional investors) • Owners and shareholders

    22. Green consumers • Green consumerism: consumers ask for goods that are perceived to be less damaging to the environment

    23. Green consumers • Green consumerism: consumers ask for goods that are perceived to be less damaging to the environment • Green consumerism is an important element in the move towards sustainable development • Changes the climate in which companies operate and alters the attitude of some companies into a more environmentally friendly direction

    24. Green consumers A company’s overall image is of major importance: ’the fear of environmental failure is perhaps a more potent consideration in driving corporate environmental policy for many companies than is the prospect of expanding market share through green claims’ (Howes et al., 1997: 15) For example Shell/Brent Spar

    25. Disposal of the Brent Spar oil platform in 1995 (Shell) ’In case of Brent Spar, we secured all necessary regulatory approval for deep sea disposal but were, in retrospect, insufficiently sensitive to public concerns’ (Chris Fay, chairman and chief executive in Shell UK Environmental Report 1995)

    26. The business network: market actors • Supplier-buyer relationships • Green consumers • Financial institutions (banks, insurance companies, institutional investors) • Owners and shareholders

    27. Banks • 70% of the banks believe that environmental issues have a material impact on their business • Over 80% of the banks perform some degree of environmental risk assessment on the debt side of their business Source: Vaughan, 1995 quoted by Schrama, 1997: 11-12)

    28. Banks • Lender liability is the greatest issue currently facing banks • All banks (n=90) believe that environmental issues will receive more attention and become increasingly integrated with their core business activities over the next 15 years Source: Vaughan, 1995 quoted by Schrama, 1997: 11-12)

    29. Insurance companies • Offer insurance coverage for environmental liabilities and other kinds of damage related to environmental issues • Good environmental performance of companies in order to minimise the risks of environmental damage

    30. Institutional investors • Are able to demand that the companies in which they invest account for their environmental performance ’the extent to which investors are able to effectively discriminate between companies that do and do not have commendable environmental practices will ultimately determine the overall impact of environmentally responsible investment’ (Grabosky, 1998: 14)

    31. Outline • What are market regulations? • Environmental incentives on companies • Network relations of companies • Strengths and weaknesses of market regulation • Government’s role in market regulation

    32. Strengths of market regulation • Can be a stimulus for companies to develop cleaner products • Cleaner products might lead to an increased market share and better image • Both economy and environment can benefit from market regulations • Production of cleaner products does not necessarily remain to one company, whole production-consumption networks might be involved

    33. Strengths of market regulation • Regulatory relief for government: • Different enforcement strategies/environmental performance companies

    34. Weaknesses of market regulation • Single companies are not able to bring about a greening of industry • In order to be able to involve whole production-consumption chains, several companieshave to be active • With greater freedom for the market, comes greater responsibility

    35. Outline • What are market regulations? • Environmental incentives on companies • Network relations of companies • Strengths and weaknesses of market regulation • Government’s role in market regulation

    36. Government’s role in market regulation • Government can influence market actors’ behaviour Or • Government is able to enhance the quasi-regulatory function of market actors

    37. Government’s role in market regulation • How does government influence: • Buyer-supplier relationships • Green consumerism • Financial institutions

    38. Mixes of environmental regulation Self-regulation Public environmental regulation Market regulation

    39. Government’s role in market regulation: buyer-supplier relationships • Duty of care on producers • For example waste management in the Netherlands and Denmark • Extended Producer Responsibility (EPR) • Manufacturers have to take back their products, with the aim of re-using, recycling or re-manufacturing, or delegate this responsibility to a third party • For example: car-dismantling in the Netherlands

    40. EPR and car-dismantling in the Netherlands • No car industry in the Netherlands: • Who is the third party?

    41. Auto-recycling Ltd. • Establishment of the ’Auto-recycling Ltd’ (1995) by the business associations involved: • Stiba (car dismantlers) • RAI (car manufacturers and importers) • BOVAG (car dealers and workshops) • FOCWA (damage repair companies) ARN* (* Auto Recycling Nederland)

    42. Raw materials extracting and processing Suppliers of car-parts Production network Car manufacturers Car importers Product flow Car dealers/workshops Damage repair shops Consumers Use-, recycling, and disposal network Recycling Car-dismantling companies Incineration Landfill Shredder companies (Smink, 2002: 233)

    43. ARN: the role of a third party • Increase recycling percentage • Collection and dismantling end-of-life vehicles • Waste disposal fee • Waste removal premium • Control with car-dismantling companies

    44. ARN: privatised public environmental regulation • ARN has taken over a number of tasks of government: • ARN controls companies at least once a month • ARN requires technology-based standards

    45. Government’s role in market regulation • How does government influence: • Buyer-supplier relationships • Green consumerism • Financial institutions

    46. Government’s role in market regulation: green consumers • Retail price • For example buyers of ’clean’ cars in the Netherlands get a once-only bonus (economic instrument) • Information

    47. Mixes of environmental regulation Self-regulation Public environmental regulation Market regulation

    48. Government’s role in market regulation • How does government influence: • Buyer-supplier relationships • Green consumerism • Financial institutions

    49. Government’s role in market regulation: financial institutions • Liability legislation: • European Commission adopted a White Paper on Environmental Liability on 9 February 2000 • Objective: to explore how the polluter pays principle – one of the key environmental principles in the EC Treaty – can best be applied to serve the objectives of EU environmental policy

    50. Objectives of EU’s environmental policy ‘to preserve, protect and improve the quality of the environment, protect human health and utilise natural resources prudently and rationally’