Multinationals and the Environment: good, bad or indifferent?

Just to get away from Climate Change economics for a while this post gets back to one of our current research themes investigating the relationship between MNEs and the environment. The fundamental question is whether there environmental spillovers exist between MNEs locating in a developing country and the subsequent environmental performance of local firms or suppliers to MNEs from developing countries.

Evidence is thin on the ground to date (although we hope to contribute to literature this in the near future in additon to our study on Ghana [PDF]). However, todays article from PlanetArk "Wal-Mart Eyes Carbon Bounty in its Supply Chain" is a good example of the sort of thing we would expect to find.

Can we therefore conclude that "Globalisation is good for the environment"?

NEW YORK - Retailer Wal-Mart Stores Inc. has begun to send engineers into its chain of suppliers to find ways to reduce greenhouse gas emissions and profit by doing so, a company executive said Monday.

Wal-Mart's trucks, stores and refrigerators emit about 19.5 million tonnes of greenhouse gas carbon dioxide equivalent per year.
Its suppliers generate about 200 million tonnes per year, said Jim Stanway, Wal-Mart's director of project development, at a conference on carbon strategy.

"Those are much bigger funds to go fishing in," said Stanway. "That's where our strategy moved to," he said, adding that it is also cutting its direct emissions.

Unlike the European Union, the United States does not have a mandatory market for trading carbon credits. In such markets, companies that cut emissions under a set level generate credits they can sell to companies that don't cut emissions. They can also bank the credits in hopes their worth rises on carbon markets.

When Wal-Mart first sent engineers into supply-chain factories, "what we found absolutely staggered us," said Stanway. He said they helped cut electricity bills by 60 percent at the first factory they audited by installing readily available low emissions lighting and technologies.

According to a report this month by the Pew Center on Climate Change, most multinational businesses believe US standards to limit greenhouse gases will be in place before 2015. Stanway said any future US mandatory emissions regime would make cutting emissions in the supply chain a virtual gold mine.

"There's obviously an enormous number of carbon credits to be harvested there," he said.

We should observe however that Walmart are not doing this for the love of the planet but for the love of cold hard cash. It is clear that incentives matter and if the cost of lower Greenhouse gas emissions is higher profits for Walmart is this a problem?