Wednesday, November 01, 2006

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?

4 comments:

Anonymous said...

My feeling is that short of overthrowing capitalism as we know it, reducing carbon emissions will have to involve economic incentives -- i.e. companies will do it because it benefits their bottom line. I have no problem with that. People respond to incentives and we cannot afford to not take advantage of that.

Some of these incentives may come from higher energy prices without any government intervention at all -- manufacturers of battery-powered vehicles I spoke to at a recent transport conference say it is already cheaper to use these zero-emission vehicles if you're just doing city delivery. Other incentives may come from schemes such as carbon trading.

I hope pressure from investors to build a sustainable business will also be part of it. The subject regularly comes up at shareholder meetings I attend.

Finally, executives in the European transportation sector already at least pay lip service to the idea of reducing the emissions their sector causes, and with some of them, I actually believe that their heart is in it...

(I have to post anonymously because I cannot post with my blogger beta login on a non-beta blog. That feature, blogger tells me, is 'coming soon'.)

Anonymous said...

My feeling is that short of overthrowing capitalism as we know it, reducing carbon emissions will have to involve economic incentives -- i.e. companies will do it because it benefits their bottom line. I have no problem with that. People respond to incentives and we cannot afford to not take advantage of that.

Some of these incentives may come from higher energy prices without any government intervention at all -- manufacturers of battery-powered vehicles I spoke to at a recent transport conference say it is already cheaper to use these zero-emission vehicles if you're just doing city delivery. Other incentives may come from schemes such as carbon trading.

I hope pressure from investors to build a sustainable business will also be part of it. The subject regularly comes up at shareholder meetings I attend.

Finally, executives in the European transportation sector already at least pay lip service to the idea of reducing the emissions their sector causes, and with some of them, I actually believe that their heart is in it...

(I have to post anonymously because I cannot post with my blogger beta login on a non-beta blog. That feature, blogger tells me, is 'coming soon'.)

Rob Elliott said...

Thanks for the comment. I belive pressure from investors and NGO's can have a large impact on MNE behaviour. I tend to agree with your comments - good economic incentives always help.

Re: Beta - I hope to move this blog to beta but I am not sure how to do this yet whilst maintaining the same "blog address".

Keith R said...

I've been grappling with this issue myself for several weeks now, as I try to write a blog piece on the impact, positive and negative, of this and similar initiatives by Wal-Mart within the Latin American and Caribbean (LAC) context. Over the past year they have begun pushing organic foos and compact flourescents in their LAC stores, entering into pacts to recycle the huge amounts of plastics and cardboard they handle, and trying to make their stores more energy efficient -- at least so they claim. I'm in the midst of trying to verify that, if possible. Just these actions alone could have a big impact on LAC consumers, given Wal-Mart's retail market share in places like Mexico and Brazil. If they start working back through the supplier chain to promote similar efforts, the ripple effect potentially could be very significant. Now if Carrefour, the other retail elephant in the LAC market, matches them... Well, I am trying to balance the excitement over the potential with some consideration of the possbile negative impacts, especially any of the "unintended" variety. Have any thoughts on that subject? All input welcome!
Best Regards,
Keith R