Business finds benefits in going green

[Tatar Khan]

BUSINESSES PROVE THE BENEFIT OF GOING GREEN

UNITED STATES

Gardner: More companies are

signing up to going green.

Global investors, institutions and corporates are increasingly looking to improve their sustainability profile, according to a report by the Worldwatch Institute released in January. The report, State of the World 2008: Innovations for a Sustainable Economy, looks at how global firms, governments and NGOs are working to change global infrastructure and business practices to improve sustainability.

Over the last few years businesses have begun to realize the advantages of looking at what they can do to improve their sustainability profile,

[Dunenewt]

Walmart's getting rid of carrier bags...well they are in this country anyway, but then so are most stores over here.

[Andrew]

Yah, a lot of grocery stores are promoting their "green" re-usable bags. So you go buy a bunch of these bags and use them every time you go to the grocery store.

Several years ago a business on the outskirts of a city put up a windturbine next to their business. The government also built one of its greenest buildings recently, although there was trouble with a pipe bursting because it froze... which makes no sense since we live in temperatures that reach -30 celcius in the winter, so someone screwed up with that.

The sad part is if say everyone cut consumption by 10%, the electric company will increase its rates by 10%. They need to keep increasing revenues and profit margins. Currently my power company is planning on increasing rates because of green programs. Even after they announced largest profit ever they said they would increase rates. I need to buy some stock in them since they are a monopoly as they will simply increase rates to maintain profit margins.

[Dunenewt]

They're selling Fairtrade bags as well, made from some kind of cotton.

[Tatar Khan]

The sad part is if say everyone cut consumption by 10%, the electric company will increase its rates by 10%. They need to keep increasing revenues and profit margins. Currently my power company is planning on increasing rates because of green programs. Even after they announced largest profit ever they said they would increase rates. I need to buy some stock in them since they are a monopoly as they will simply increase rates to maintain profit margins.

I should look into this. You live in Ontario right? All Ontario power companies are regulated which means that price increases must be cleared with provincial government. Prices rise due to inflation but I think they been upkept thus every year. Than there is possibility that electrical companies are being engaged in new projects or the old ones becoming more expensive.

Possible restructuring of nuclear plants is costing more. Greener projects in electricity generation also require additional money to be used.

Profit margin is not the right terminology in this case. Profit margin is how much of every dollar gained goes towards profit rather than being eaten up by costs. So if there is less power needed to be generated, than the costs are smaller and so profit margin is kept.

[Andrew]

I don't live in Ontario. But power is regulated here as well. I think rates are going up or recently did go up about 5%.

I know in the USA I read articles about how individuals decreased their power consumption so power companies increased their rates. :P Same for phone companies.

A brand new nuclear power plant and oil refinery needs to be built to meet demand.

Alberta is running out of gas because their oil refinery is running at 1/2 capacity. A new oil refinery needs to be built somewhere. None have been built in 30 years.

[Sneakgab]

The companies will go green if it is more profitable for them. Here in SA our environmentalists have realized this for some time and have succeeded in convincing companies to go for far greener options by demonstrating or showing the superior profitability of these actions. Have to hand it to the ecologists here in SA. Now, it seems SA ecologists are showing the world the way just as the lecturers said they would. One of the nice things about SA, don't have to worry about smog and such results of excessive indifference to the environment. Apparently Johannesburg is the most densely ''forested'' city in the world. Didn't notice it before, but after reflecting on such a thing and looking out my car window (or out my balcony window) I notice that the city is practically a forest. Were like a bunch of wood elves over here! lol. Sadly, being surrounded by such scenery and nature (well, the latter not being in city but just generally abundant in SA are untouched natural areas) I still rarely enjoy these things.

''I know in the USA I read articles about how individuals decreased their power consumption so power companies increased their rates''

Why stop at maintaining their profits? Why not continue to increase them if they have such power? If a non-monopoly incr their prices like this then they will receive no business. Unless they have some accountability, and maintaining their profits despite decreasing costs is somehow justified?

[Tatar Khan]

I have a friend that works in Ontario Power Generation company and he does stats work for them. He said that there is no such thing as the decreased power consumption, he is yet to see such phenomena. I am not sure about Alberta but I think that decrease in power consumption is not going to happen.

The companies that are monopolistic cannot increase prices due to the fact that they are regualted by government. The companies that are oligopolies or close to monopolies (Microsoft, Oil Companies, Auto Makers, etc) can not also raise price too much for the following reasons:

1. It sends a huge market signal that in this area of business there is money to be made and companies would rush in to grab at the profits thus increasing supply and decreasing the price

2. There is always a fear that one of your competitors will cut prices in order to capture your share of the market.

3. Increase in prices would make it profitable to look for alternative products that could replace the product that is currently under control of monopolies or oligopolies.

[gunner154]

The investment in green technology causes a company to incur initial tech investment cost, unless the green method actually makes production more productively efficient. The investment cost causes a non price-induced fall in supply. Ceteris paribus, consumption falls and prices rise.

What went wrong with the mechanism then? And how will smaller firms adopt such practices? Unless the tech investment cost was wrong right from the start.

[Tatar Khan]

gunner154 could you explain to me in more detail how the green project effects consumption. Because I can see how it is possible to affect the supply side if it is interrupting the production process.

[gunner154]

Assuming the green project would allow resources to be used more efficiently in future, it expands the maximum production level of the economy, pushing real national income at full employment level out (rightwards shift of aggregate supply). However, this requires the allocation of resources away from production, and at the same time it results in firms abandoning low-cost methods that result in greater pollution (eg dumping, as an extreme example. Basically anything with an external cost attached to it). This causes unit cost of output to rise, represented by an upward shift of the aggregate supply curve.

The effects of the rightward shift are not felt if the shift is not great enough to offset the effect of an upward push of the aggregate supply curve (assumption). If assumption is true, prices rise (inflation) and real national income will fall.

Consumption in real terms falls. Correct me if I'm wrong.

[Sneakgab]

''Assuming the green project would allow resources to be used more efficiently in future''

Well, going green can mean many things not just altering means of productions or extraction. Eg: Here in SA, company was going to strip mine famous (?) desert dunes. This company was convinced that leaving these dunes alone to serve as as tourist attract would be more profitable to them. They agreed to do this as long as the dune remained to be more profitable. I don't know why anything contractual entered into the matter, but basically they received reports and as long as the generated profit was higher than the predicted for the strip mining they would continue to use the dunes for tourism. To this day the dunes have proved more profitable this way.

An important thing to remember is that the means of profit is often dependent on ecology (not the best word for it, but whatever). Power harvesting the forest seems fun and profitable today, but tommorrow you won't have any trees left to harvest and you're means of profit is gone. In the case of the dunes the more ecologically freindly alternative was more profitable in the short and long run. In the case of sufficiently huge corporations, these corp's hold enough power to determine whether a place will become a useless wasteland or not. Of course, they can move on to other pieces of land, but these are likely to be owned in this day and age. It is not as the days of long ago where timber companies could just move from forest to forest cheaply.

Finally, a greener option is good for advertising. These are the only factors I can think of off the top of my head, but if I recall correctly there are certainly more.

Bleh, perhaps the ''captains of industry'' are starting to realize they live in this world to, and they can no longer lay ruin to it without it affecting them.

[Tatar Khan]

Assuming the green project would allow resources to be used more efficiently in future, it expands the maximum production level of the economy, pushing real national income at full employment level out (rightwards shift of aggregate supply). However, this requires the allocation of resources away from production, and at the same time it results in firms abandoning low-cost methods that result in greater pollution (eg dumping, as an extreme example. Basically anything with an external cost attached to it). This causes unit cost of output to rise, represented by an upward shift of the aggregate supply curve.

The effects of the rightward shift are not felt if the shift is not great enough to offset the effect of an upward push of the aggregate supply curve (assumption). If assumption is true, prices rise (inflation) and real national income will fall.

Yeah sounds rights.

Consumption in real terms falls. Correct me if I'm wrong.

[Andrew]

On CBC The National tonight spent a good 40 minutes talking about green businesses and houses. It was called Green Rush

Mostly to do with geothermal energy to heat a large manufacturing plant, and a home.

I do know someone who knows about geothermal stuff and he says he'll be using it if he builds a house.

Several people in the region are completely off the grid. Some are hippies, and others were frustrated with losing power during winter storms and the cost factor.

[Tatar Khan]

Canada has a lot of good housing R&D development into energy efficient structures and etc. but due to the fact that there is not much government support for them they can not get on the feet. Part of the problem is that most of Canada's construction companies are small and so can't organize an effective enough lobby force. A lot of products of R&D can't be realized due to the fact that construction companies are too small and can't get the information on them or can't take on the risk that big.

[gunner154]

Looks like you need an oligopolistic market to make things work here.

[Tatar Khan]

Not much of oligopolistic market but more concentrated as the average construction company size in Canada is 5-7 people. So when they decide to build something a company with money contracts out architectural firm to do the design and plans and than contracts out the builders to to do the building and than contracts out the interior finish guys to do that, and different guys for landscaping.

[Edric O]

Well this should give crazy environmentalists something to chew on. Well this is good news that businesses are finally discovering that they can gain from environmental technologies. Of course the world oil prices are also making them more costly effective.

The development of hybrids and hydrogen engines has become feasible thanks to higher oil prices.

Basically, the article is saying that some businesses are going green for two reasons: (1) it helps them cut costs, and (2) it's good for publicity.

This should not surprise anyone. Of course companies will use green technologies if those technologies are cheaper than the more polluting ones. The problem is that in most cases, going green is not cheaper than maintaining the status quo.

The second reason for companies to go green - the fact that it may be good for publicity - is whimsical and completely unreliable. It means that companies will only stay green as long as they can get public attention with their green initiatives, and only if their consumers happen to care a lot for the environment.

The companies that are oligopolies or close to monopolies (Microsoft, Oil Companies, Auto Makers, etc) can not also raise price too much for the following reasons:

1. It sends a huge market signal that in this area of business there is money to be made and companies would rush in to grab at the profits thus increasing supply and decreasing the price

2. There is always a fear that one of your competitors will cut prices in order to capture your share of the market.

3. Increase in prices would make it profitable to look for alternative products that could replace the product that is currently under control of monopolies or oligopolies.

Right, which is why oligopolies and near-monopolies cannot keep raising prices forever. The increased revenue they get from higher prices is balanced by the lower number of people buying their products (because they can't afford them or because they find alternatives), and by the risk of some competition moving in (though it takes time and effort for a new competitor to move into the market, so the dominant company has plenty of time to react - for example by buying the new competitor while it's still small).

So yes, oligopolies and near-monopolies can't set infinitely high prices, but they can still set prices much higher than normal companies.

Power harvesting the forest seems fun and profitable today, but tommorrow you won't have any trees left to harvest and you're means of profit is gone. In the case of the dunes the more ecologically freindly alternative was more profitable in the short and long run. In the case of sufficiently huge corporations, these corp's hold enough power to determine whether a place will become a useless wasteland or not.

And that is precisely the problem. Companies have the power to decide what happens to most of the land on the planet - whether it becomes a wasteland or not. Companies have the power to make environmental decisions that will affect all of us, along with future generations.

The problem is not that they could make the wrong decisions. The problem is that they should not have the power to decide what happens to our environment in the first place. A good company is like a benevolent dictator - it may make the right decisions, but that's not the point; the point is that it is an undemocratic institution with too much power.

[Tatar Khan]

The problem is that in most cases, going green is not cheaper than maintaining the status quo.

But as the energy prices are rising the greener solutions based on alternative fuels is becoming more and more attractive. Also the economics of scale will start kicking in in green technologies making them much more cheaper so movement to greener tech is going to be accelerating.

The second reason for companies to go green - the fact that it may be good for publicity - is whimsical and completely unreliable. It means that companies will only stay green as long as they can get public attention with their green initiatives, and only if their consumers happen to care a lot for the environment.

This is true, there are a rising number of the mutual funds and investors that only want to invest in companies that will be using green technology.

And that is precisely the problem. Companies have the power to decide what happens to most of the land on the planet - whether it becomes a wasteland or not. Companies have the power to make environmental decisions that will affect all of us, along with future generations.

The problem is not that they could make the wrong decisions. The problem is that they should not have the power to decide what happens to our environment in the first place. A good company is like a benevolent dictator - it may make the right decisions, but that's not the point; the point is that it is an undemocratic institution with too much power.

For this purpose governments need to enact environmental regulations, the problem is that this is very hard to do. So far there was no ultimate solution to protection of environment. Different solutions that do exist tend to backfire. Overall the general rule is that if the people in control are interested in preserving environment they will but if they are not they would not, it  doesn't matter if it is one person, group of people, a community.

[Edric O]

But as the energy prices are rising the greener solutions based on alternative fuels is becoming more and more attractive.

Yes, to a certain extent, but coal - the most polluting fuel of them all - is also becoming more attractive due to the rising price of oil. And "green energy" is still only a tiny fraction of total energy production, with only mild growth predicted for the near future.

It's not so easy to switch to something other than oil. There is an enormous infrastructure in place for the extraction, transport and processing of oil. Energy companies have made colossal investments in oil. They are determined to make the most of their investment, and will keep pumping oil until the bitter end.

Keep in mind that more oil is consumed today than ever before, and consumption just keeps on growing, seemingly oblivious to the high prices.

For this purpose governments need to enact environmental regulations, the problem is that this is very hard to do. So far there was no ultimate solution to protection of environment. Different solutions that do exist tend to backfire. Overall the general rule is that if the people in control are interested in preserving environment they will but if they are not they would not, it doesn't matter if it is one person, group of people, a community.

Right, so if we want to preserve the environment, we must give control over the environment to the people who have the most to lose by harming it. I believe those are ordinary citizens and communities - and perhaps their elected state representatives, if the people have sufficient control over those representatives. The environment should not be for sale to private companies.

[Andrew]

First thing that came to my mind when reading Edric's last comment.

http://en.wikipedia.org/wiki/Tragedy_of_the_commons

[Edric O]

Yes, when you have a common resource (like, say, the environment) which is available for use by individuals without any kind of overarching control or regulation mechanism, those separate individuals will tend to destroy the resource by overusing it for their own private gain.

[Tatar Khan]

The citizens and the government has proven themselves to be untrustworthy of protecting environment.  This is mostly due to the lack of proper knowledge on the subject the people are often would support programs that cause environmental degradation and oppose it at the same time leaving the government to try to sort out the mess of what to do.

The agricultural subsidies that are used in almost all western countries cause the farmers to produce higher amount of product as the costs are cut. To do so in turn in order to pump out higher yields use chemicals that overall poison the water and soil in the long run. However removal of such subsidies has proven to be impossible due to the fact that farmers appeal to the people on the arguments of job loss. Same goes for sea food industry.

What needs to be done is the clear definition of property rights that allows to sue the person who is damaging the property. Whether the property belongs to one individual or through the government to the public has less impact, as the property holder would be interested in protecting their property. There should be governmental legislations to prevent private holders from getting carried away in some cases, but the government should be also active in seeking out and punishing the abusers of public property. The problem lies that due to the history public property was always abused and people got away with it that charging people for its abuse is sometimes now too late or would be extremely hard.

[Edric O]

The citizens and the government has proven themselves to be untrustworthy of protecting environment.

No one in the world has a particularly good record of protecting the environment, but governments and NGOs have done the most good so far.

As for "the citizens," I'd like to remind you that everyone is a citizen. Saying that citizens cannot be trusted to protect the environment is saying that human beings cannot be trusted to protect the environment. That may well be true (though I really hope it is not). However, we have no alternative. The environment is and will continue to be in the hands of human beings - in the hands of citizens. The only question is whether all people should have equal power to determine what happens to the environment or if some should have more power than others. I don't see any good argument for giving some more power than others.

This is mostly due to the lack of proper knowledge on the subject the people are often would support programs that cause environmental degradation and oppose it at the same time leaving the government to try to sort out the mess of what to do.

The agricultural subsidies that are used in almost all western countries cause the farmers to produce higher amount of product as the costs are cut. To do so in turn in order to pump out higher yields use chemicals that overall poison the water and soil in the long run. However removal of such subsidies has proven to be impossible due to the fact that farmers appeal to the people on the arguments of job loss. Same goes for sea food industry.

That is correct. Public opinion is sometimes opposed to policies that would help the environment. However, that leaves us with only two possible choices: Either try to change public opinion through persuasion, or impose policies that the people do not want. Clearly the second option is not only morally wrong, but also impossible in a democracy. So we have no choice but to try and persuade people to be more environmentally conscious.

And it seems to be working. After all, this whole thread started from a news story about people making an effort to buy green products. That shows that people care more about the environment than they used to.

What needs to be done is the clear definition of property rights that allows to sue the person who is damaging the property. Whether the property belongs to one individual or through the government to the public has less impact, as the property holder would be interested in protecting their property. There should be governmental legislations to prevent private holders from getting carried away in some cases, but the government should be also active in seeking out and punishing the abusers of public property.

Right. But in most Western countries such legislation already exists; rights, obligations and boundaries related to property are clearly defined. I would argue that they are defined in an unjust, oppressive and exploitative manner, but they are nevertheless clearly defined.

The problem is that although property holders are interested in protecting their property, protecting a piece of land does not necessarily mean protecting the natural environment that exists on that piece of land. If you own a bit of wild forest and you determine that you could be making more money by cutting it all down and replacing it with a car park, you will cut it all down and replace it with a car park.

Also, a number of things, like the atmosphere, inevitably have free access. No one - neither the state nor a public organization - can "own" the air.

[nemafakei]

"The citizens and the government has proven themselves to be untrustworthy of protecting environment"

Mm, I do have to ask who you think is trustworthy. If it's "business" or "the market", do remember (to begin with) that the report you mention above is pretty much isolated in the history of capitalism, and does not necessarily apply to all industries.