Green Power Has Business a bit hot under the collar

Business is losing the public policy debate on the environment.

by David Uren from 'The Australian'

Green power is growing in Australia and Internationally, posing a dilemma for business. Does it push back and resist the rising tide of regulation? Or dose it go green itself in the hope that it may gain some competitive advantages or at least ameliorate the effects of the regulation? The Greens scored a spectacular victory in Doha, with the members of the World Trade Organisation agreeing to include the environment in the new round of trade negotiations.

Nobody expected the European Union to win this concession. Attempts to put labour rights into the world trade agenda got nowhere. But at the last minute Europe's negotiator, Pascal Lamy, won an agreement that negotiations would cover areas of conflict between multilateral agreements and the WTO'S free trade rules.

The Friends of the Earth dismissed it as "a big step for the negotiators, a small step for humankind", but the World Wildlife Fund hailed it as a political breakthrough and praised the leadership and determination of the European Union in getting it included.

Green parties are influential in many European parliaments with the result that the European Union has the world's toughest environmental regulation. Because of the costs this imposes upon European industry, the EU has an incentive to globalise its policies.

At the same time the Doha meeting was under way, the Kyoto Protocol on greenhouse gas emissions, which is essentially a European initiative pressed upon the world community, won the support of the environment ministers of more than 170 nations meeting in Marrakesh. It is now certain to come into force. It has the support of every developed nation in the world except the United States and Australia.

Environmental issues supported by Europe include the precautionary principle, which says that products should not be made if there is a possibility that they may cause harm, even if there is no scientific evidence that they will.

Europe endorses the principle of lifetime stewardship, which says that companies are responsible for the safety of their products through to their eventual recycling. It also supports supply chain responsibility, which makes corporations accountable for the environmental practices of their suppliers. Germany has a law that obliges corporations to take back any packaging from consumers.

A worry for the plastics industry is a proposal being considered by the European Union that all hazardous chemical should be banned. Although these issues are becoming official European policy, they are not yet covered by multilateral environment agreements. Were Europe to succeed as it has with greenhouse gases, the WTO round could lead to trade restrictions being imposed upon companies from signatory nations that do not abide by them.

A new impetus for multilateral environmental agreements could result from the United Nations World Summit on Sustainable Development to be held in Johannesburg next year, 10 years after the similar Rio de Janeiro summit put sustainable development on to the global political agenda. The business case at the summit is being co-ordinated by the World business Council for Sustainable Development, which generally supports European environmental positions.

Australia is a long way behind Europe, but the influence of the Greens is growing. The Greens are likely to wind up with three senators, which, with the support of one of the three independents, would give them the ability to offer the Government the balance of power and cut deals to get legislation through in the teeth of opposition from Labour and the Democrats.

Business is already experiencing creeping green regulation. For example, the Financial services reform Bill passed in August was the subject of a late amendment from Labour and the Democrats that requires all investment products to disclose the extent to which environmental, ethical and social considerations have been taken into account.

A new section of the Corporation Law requires companies to disclose material environmental issues in their annual report. The Democrats were also influential in the final shape of the Environmental issues. The Democrats recently launched a corporate code of conduct. It got nowhere in the Senate but it is the kind of measure that could find its way to into legislation as part of a late night negotiation. As a general rule, legislation is the preferred path for green activists.

Some within the business community believe that only the most trenchant resistance can hold back the tide of environmental regulation. However, the mainstream response of organisations such as the Business Council of Australia to the Minerals Council is to endorse the principals of sustainable development, arguing that environmental concerns area reality and a political force. It is better to listen, learn and engage, with the hope of having some influence.

Australia's mining companies believe they face less public hostility since they adopted a voluntary code of environmental conduct and generally embraced environmental reporting standards. Some companies believe they can exact a benefit from environmental policies. For example, the waste stream of any manufacturer represents purchased raw materials that are not being sold. There is scope for greater efficiency. Some, such as BP and Shell, believe the gain to their reputation from supporting the green regulations, such as the Kyoto protocol, is greater than the cost of its implementation.

However, the fact is that environmental regulation, such as that which the European Union would incorporate in the world trading regime, would bring heavy costs upon industry. There is an asymmetry in the policy debate. The Greens know exactly what they want and argue that theirs is the cause of the public good. Business is divided about what regulation it supports and opposes. Any opposition is inevitably portrayed as self interest.

David Uren