Read Hydraulic Fracturing Can the Environmental Impacts Be Reduced? ?Answer the following questions: Using the classification system presented in this chapter, what type(s) of pollution is

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C H A P T E R T E N

Managing for Sustainability

Growing public concern about sustainability has prompted political, corporate, and civil society leaders to become increasingly responsive to environmental issues. In the United States and other nations, government policymakers have moved toward greater reliance on economic incentives, rather than command and control regulations, to achieve environmental goals. At the same time, many businesses have become increasingly proactive and have pioneered new approaches to effective sustainability management, sometimes in partnership with advocacy organizations. These actions have often given firms a competitive advantage by cutting costs, gaining public support, and spurring innovation.

This Chapter Focuses on These Key Learning Objectives:

LO 10-1 Knowing the main features of environmental laws in the United States and other nations.

LO 10-2 Understanding the advantages and disadvantages of different regulatory approaches.

LO 10-3 Assessing the costs and benefits of environmental regulation.

LO 10-4 Defining an ecologically sustainable organization and the stages through which firms progress as they become more sustainable.

LO 10-5 Understanding how businesses can best manage for sustainability.

LO 10-6 Analyzing how effective sustainability management makes firms more competitive and improves their financial performance.

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Levi Strauss & Company was widely recognized as a sustainability leader in the apparel industry. The maker of the iconic Levi’s jeans had worked with cotton farmers to reduce their use of water and pesticides, integrated recycled plastic from soda bottles into their fabric, and worked with the World Bank to provide low-cost loans to suppliers that met sustainability goals. The company encouraged its customers to wash their jeans less often and to keep them longer and provided grants to early career designers to help them adopt eco-friendly practices. The company aimed for a day when all Levi’s apparel would be recycled in a closed loop, worn for many years and then returned to be made into new gar- ments. “What would happen if we could change culture in such a way that consumers imagined the end of life of the product they bought?” asked the company’s head of global product innovation.1

Even as the Trump administration in 2017 announced its intention to pull the United States out of the international climate change agreement negotiated in Paris, several Cana- dian provinces and U.S. states were joining forces in their efforts to reduce carbon emis- sions. The Western Climate Initiative (WCI) was a nonprofit corporation that managed a common cap-and-trade market for Quebec, Ontario, British Columbia, and California. These subnational governments had established limits on greenhouse gas emissions and set up a system that allowed companies that had cut their emissions to sell permits to others that had exceeded their quota. This provided these companies with a financial incentive to reduce pollution below their quota. “Having a larger number of emitters, power plants, factories, [and] fuel increases the diversity of opportunities to reduce emissions at a lower cost than [a single province or state] would be able to do on [its] own,” explained a former WCI board member.2

The Environmental Defense Fund (EDF), a leading environmental advocacy organi- zation, has formed partnerships with several companies, including McDonald’s, DuPont, Starbucks, and FedEx, to improve environmental performance and gather information. In its most recent effort, EDF partnered with Google Earth Outreach to find, measure, and map natural gas leaks in selected cities across the United States. Specially equipped Street View cars, which Google uses to photograph streetscapes for its map application, gathered data on even small gas leaks. Escaping gas—mostly from aging pipes—was a problem because it cost customers money, heightened the risks of explosion, and worsened climate change. This information enabled utilities, such as PSE&G of New Jersey and New York, to prioritize the replacement of leaking gas mains, focusing on the worst offenders. The partnership later expanded its scope to create detailed maps of health-damaging pol- lutants such as nitrous oxides and particulates. “Seeing pollution mapped this way makes us better advocates for cleaner air and smart development choices,” said a representative of EDF.3

In the early years of the 21st century, many businesses, governments, and environ- mental advocacy organizations became increasingly concerned that old strategies for promoting environmental protection were failing and new approaches were necessary. Government policymakers moved toward greater reliance on economic incentives to

1 “Levi’s Is Radically Redefining Sustainability,” Fast Company, February 9, 2017. The company’s sustainability initiatives are described at www.levistrauss.com/sustainability. www.levistrauss.com/unzipped-blog. 2 “Will Other States Join California’s International Climate Pact?” The Atlantic, August 10, 2017. The website of the Western Climate Initiative is at www.wci-inc.org. 3 “Methane to Its Madness,” Fast Company, October 27, 2017. “Google Uses Street View Cars to Collect Pollution Data,” June 5, 2017, at www.money.cnn.com, and “Mapping Pollution with Mobile Sensors.” Google’s efforts are described at www.google.com/earth. The methane maps are available at http://edf.org/methanemaps. More information about EDF’s corporate partnerships is available at www.edf.org/approach/partnerships/corporate.

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achieve environmental goals. Environmentalists engaged in greater dialogue and cooper- ation with industry leaders. Many businesses pioneered new approaches to sustainability, such as developing products with fewer adverse environmental impacts.

The challenge facing government, industry, and environmental advocates alike, as they tried out new approaches and improved on old ones, was how to promote ecologically sound business practices in an increasingly integrated world economy.

Role of Government

In many nations, government is actively involved in regulating business activities to pro- tect the environment. Business firms have few incentives to minimize pollution if their competitors do not. A single firm acting on its own to reduce discharges into a river, for example, would incur extra costs. If its competitors did not do the same, the firm might not be able to compete effectively and could go out of business. Government, by setting a common standard for all firms, can take the cost of pollution control out of competition. It can also provide economic incentives to encourage businesses, communities, and regions to reduce pollution, and offer legal and administrative systems for resolving disputes. Gov- ernment cannot accomplish environmental goals by itself; its role, rather, is to make a critical contribution to a collective effort, together with business and civil society, to move toward sustainability.

In the United States, government has been involved in environmental regulation since the late 19th century, when the first federal laws were passed protecting navigable water- ways. The government’s role began to increase dramatically, however, in 1970, when Congress passed the National Environmental Policy Act (NEPA). The Environmental Protection Agency (EPA), the nation’s main environmental regulatory agency, was created shortly afterwards. Figure 10.1 summarizes the major federal environmental laws enacted by the U.S. Congress since then. It is organized into four categories: air; water; solid and hazardous waste; and cross-media (referring to the regulation of forms of pollution that have multiple impacts on air, water, and land). Various regional, state, and local agencies also have jurisdiction over some environmental issues in their respective areas, as one of the opening examples shows.

Major Areas of Environmental Regulation In the United States, the federal government regulates in three major areas of environmen- tal protection: air pollution, water pollution, and solid and hazardous waste (land pollu- tion). This section will review the major environmental issues and the U.S. laws pertaining to each, with comparative references to similar initiatives in other nations and examples of how businesses have responded.

Air Pollution

Air pollution occurs when more pollutants are emitted into the atmosphere than can be safely absorbed and diluted by natural processes. Some pollution occurs naturally, such as smoke and ash from volcanoes and forest fires. But most air pollution today results from human activity, especially industrial processes and motor vehicle emissions. Air pollution degrades buildings, reduces crop yields, mars the beauty of natural landscapes, and harms people’s health. The American Lung Association (ALA) estimated in 2017 that 125 million Americans, nearly four in ten people, were breathing unsafe air for at least part of each year. Fully 70 percent of the cancer risk from air pollution is due to diesel exhaust from trucks, farm and construction equipment, marine vessels, and electric generators. People

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living near busy highways and workers in occupations that use diesel equipment are partic- ularly at risk.4

One approach to reducing diesel pollution is a service called IdleAir, operated by Convoy Solutions of Knoxville, Tennessee. IdleAir provides an alternative for long- haul truck drivers who idle their engines at truck stops in order to provide power to the cab during rest breaks. An inexpensive window-mounted adapter allows drivers to hook up to a service module, so they can continue to enjoy heating, cooling, cable TV, and Internet access with their engines off. The solution is less expensive

4 American Lung Association, “State of the Air: 2017,” www.lung.org; and “Health Effects of Diesel Exhaust,” http://oehha.ca.gov.

FIGURE 10.1 Leading U.S. Environmental Protection Laws • CLEAN AIR ACT (1970) Established national air quality standards and timetables.

• CLEAN AIR ACT AMENDMENTS (1977) Revised air standards.

• CLEAN AIR ACT AMENDMENTS (1990) Required cuts in urban smog, acid rain, and greenhouse gas emissions; promoted alternative fuels.

• WATER POLLUTION CONTROL ACT (1972) Established national goals and timetables for clean waterways.

• SAFE DRINKING WATER ACT (1974 and 1996) Authorized national standards for drinking water.

• CLEAN WATER ACT AMENDMENTS (1987) Authorized funds for sewage treatment plants and waterways cleanup.

• HAZARDOUS MATERIALS TRANSPORT ACT (1974) Regulated shipment of hazardous materials.

• RESOURCE CONSERVATION AND RECOVERY ACT (1976) Regulated hazardous materials from production to disposal.

• TOXIC SUBSTANCES CONTROL ACT (1976) Established national policy to regulate, restrict, and, if necessary, ban toxic chemicals.

• COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT (SUPERFUND) (1980) Established Superfund and procedures to clean up hazardous waste sites.

• SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT (SARA) (1986) Established toxics release inventory.

• PESTICIDE CONTROL ACT (1972) Required registration of and restrictions on pesticide use.

• POLLUTION PREVENTION ACT (1990) Provided guidelines, training, and incentives to prevent or reduce pollution at the source.

• OIL POLLUTION ACT (1990) Strengthened EPA’s ability to prevent and respond to catastrophic oil spills.

• CHEMICAL SAFETY INFORMATION, SITE SECURITY, AND FUELS REGULATORY RELIEF ACT (1999) Set standards for the storage of flammable chemicals and fuels.

AIR

WATER

SOLID AND HAZARDOUS WASTE

CROSS-MEDIA POLLUTION

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for truckers because it uses one-tenth the energy of idling, and reduces pollution by completely eliminating diesel emissions during rest breaks.5

The major law governing air pollution is the Clean Air Act, passed in 1970 and amended in 1990. The 1990 amendments toughened standards in several areas, including stricter restrictions on emissions of acid rain–causing chemicals.

The EPA has identified six criteria pollutants, relatively common harmful substances that serve as indicators of overall levels of air pollution. These are lead, carbon monoxide, particulate matter, sulfur dioxide, nitrogen dioxide, and ozone. (Ozone at ground level is a particularly unhealthy component of smog.) In addition, the agency also has identified a list of toxic air pollutants that are considered hazardous even in relatively small concen- trations. These include asbestos, benzene (found in gasoline), dioxin, perchloroethylene (used in some dry-cleaning processes), methylene chloride (used in some paint strippers), and radioactive materials. Emissions of toxic pollutants are strictly controlled. In 2014, the Supreme Court ruled that the EPA could regulate emissions of carbon dioxide (one of the main contributors to climate change) at facilities it already regulated for other pollutants.6

In 2017, Volkswagen, the German carmaker, pleaded guilty to charges of violat- ing the Clean Air Act and agreed to pay $4.3 billion in fines. The company had programmed its diesel cars to switch on emissions controls when the vehicle was undergoing smog testing and then switch them off when the vehicle was on the road, to boost performance and gas mileage. The result was that the cars emitted up to 40 times the allowed levels of nitrogen oxides, a toxic mixture including nitrogen dioxide, which causes health problems and contributes to smog.7 (This situation is further discussed in the discussion case at the end of Chapter 14.)

A special problem of air pollution is acid rain. Acid rain is formed when emissions of sulfur dioxide and nitrogen oxides, by-products of the burning of fossil fuels by utilities, manufac- turers, and motor vehicles, combine with natural water vapor in the air and fall to earth as rain or snow that is more acidic than normal. Acid rain can damage the ecosystems of lakes and rivers, reduce crop yields, and degrade forests. Structures, such as buildings and monuments, are also harmed. Within North America, acid rain is most prevalent in New England and eastern Canada, regions that are downwind of coal-burning utilities in the Midwestern states.8

Water Pollution

Water pollution, like air pollution, occurs when more wastes are dumped into waterways, lakes, or oceans than can be naturally diluted and carried away. Water can be polluted by organic wastes (untreated sewage or manure), by chemicals from industrial processes, and by the disposal of nonbiodegradable products (which do not naturally decay). Heavy metals and toxic chemicals, including some used as pesticides and herbicides, can be par- ticularly persistent. Like poor air, poor water quality can harm ecosystems, decrease crop yields, threaten human health, and degrade the quality of life. Failure to comply with clean water laws can be very expensive for business, as the following example shows.

In 2010, a wellhead blowout at a deepwater drilling platform operated on behalf of BP (formerly British Petroleum) in the Gulf of Mexico caused the largest marine

5 The company’s website is www.idleair.com. 6 PBS Newshour, “Supreme Court Limits EPS’s Authority to Regulate Carbon Dioxide Emissions,” June 23, 2014, www.pbs. org/newshour. 7 “Volkswagen Set to Plead Guilty and to Pay U.S. $4.3 Billion in Deal,” The New York Times, January 10, 2017. 8 More information about acid rain may be found at www.epa.gov/acidrain.

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oil discharge in U.S. history. For three months, as crews struggled to cap the well, more than three 3 million barrels of oil gushed into the waters of the Gulf of Mexico, causing extensive damage to marine life and devastating the coastal economies of adjacent states. Subsequent government investigations found that BP’s relentless cost cutting and inadequate safety systems had contributed to the disaster. In 2015, BP agreed to pay more than $20 billion to settle claims by federal, state, and local governments arising from the spill, the largest environmental settlement in U.S. his- tory. BP estimated that the total cost of the spill—including the actual cleanup, pay- ments to individuals and shareholders, criminal fines, and other costs not included in the settlement—would be more than $66 billion.

The impacts of the BP disaster on business, society, and the environment are profiled in a case at the end of this book.

In the United States, regulations address both the pollution of rivers, lakes, and other surface bodies of water and the quality of the drinking water. The main U.S. law governing water pollution is the Water Pollution Control Act, also known as the Clean Water Act. This law aims to restore or maintain the integrity of all surface water in the United States. It requires permits for most point sources of pollution, such as industrial emissions, and mandates that local and state governments develop plans for nonpoint sources, such as agricultural runoff or urban storm water. The Pesticide Control Act specifically restricts the use of dangerous pesticides, which can pollute groundwater. The quality of drinking water is regulated by another law, the Safe Drinking Water Act of 1974, amended in 1996. This law sets minimum standards for various contaminants in both public water systems and aquifers that supply drinking water wells.

The impacts of hydraulic fracturing, a method for extracting natural gas from under- ground shale formations, on the quality of drinking water—and how these impacts should be regulated—is explored in the discussion case at the end of this chapter.

Solid and Hazardous Waste

The third major focus of environmental regulation is the contamination of land by both solid and hazardous waste. The United States produces an astonishing amount of solid waste, adding up to more than four pounds per person per day. Of this, 47 percent is recy- cled, composted, or incinerated, and the rest ends up in municipal landfills.9 Many busi- nesses and communities have tried to reduce the solid waste stream by establishing recycling programs.

Sweden is one of the world’s leaders in reducing solid waste. Astonishingly, less than 1 percent of the country’s household waste ends up in landfills. Swedes sort their trash, separating paper, plastics, metal, glass, food waste, light bulbs, and bat- teries. All residential areas have convenient recycling stations, and special trucks pick up electronics and other hazardous waste. About half of these materials are recycled and reused in some way, and the other half are burned to generate energy. Sweden’s waste incineration plants have become so efficient that the country routinely imports waste from its neighbors. Swedish companies have joined the effort, too; the retailer H&M, for example, accepts used clothing from customers in exchange for coupons. “Zero waste, that’s our slogan,” said the CEO of the Swedish Waste Management and Recycling Association.10

9 Environmental Protection Agency, “Advancing Sustainable Materials Management: 2014 Fact Sheet,” www.epa.gov. 10 “The Swedish Recycling Revolution,” March 29, 2017, https://sweden.se/nature/the-swedish-recycling-revolution/.

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The safe disposal of hazardous waste is a special concern. Several U.S. laws address the problem of land contamination by hazardous waste. The Resource Conservation and Recovery Act of 1976 (amended in 1984) regulates hazardous materials from “cradle to grave.” The Toxic Substances Control Act (TSCA) of 1976 (amended in 2016) requires the EPA to inventory the thousands of chemicals in commercial use, identify which are most dangerous, and, if necessary, ban them or restrict their use.

In 2014, an aging and rusty storage tank holding toxic chemicals used to wash coal leaked, spilling 7,500 gallons into the nearby Elk River near Charleston, West Vir- ginia. Three hundred thousand people who relied on the river for their water supply were told not to drink or bathe with it for several weeks afterwards. (The owner of the tank, Freedom Industries, shortly afterwards declared bankruptcy and shut down.) This frightening incident led Congress to strengthen the almost 40-year-old TSCA, and several states, including West Virginia, passed new laws requiring the inspection of chemical storage tanks.11

As this example illustrates, states can pass regulations that are stricter than federal rules. (They can also regulate industries that do not engage in interstate commerce.)

Some studies have suggested that hazardous waste sites are most often located near eco- nomically disadvantaged African American, Hispanic, and Native American communities. Since 1994, the EPA has investigated whether state permits for hazardous waste sites vio- late civil rights laws and has blocked permits that appear to discriminate against minori- ties. The effort to prevent inequitable exposure to risk, such as from hazardous waste, is sometimes referred to as the movement for environmental justice.12 For example, Native American tribes in Utah, Nevada, and New Mexico have organized to block the construc- tion of nuclear waste disposal facilities on their land, saying the facilities would threaten their health, culture, and economic viability.13

The major U.S. law governing the cleanup of existing hazardous waste sites is the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, popularly known as Superfund, passed in 1980. This law established a fund, supported primarily by a tax on petroleum and chemical companies that were presumed to have cre- ated a disproportionate share of toxic wastes. The EPA was charged with establishing a National Priority List of the most dangerous toxic sites; around 1,700 sites were eventually designated as Superfund sites. Where the original polluters could be identified, they would be required to pay for the cleanup; where they could not be identified or had gone out of business, the federal government would pay. One of the largest hazardous waste sites on the Superfund list was an almost 200-mile long stretch of the Hudson River, which GE factories had contaminated with cancer-causing chemicals called PCBs. In 2018, GE said it had completed its cleanup of the site, at a total cost of around $2 billion, but was still awaiting final EPA approval.

The Houston metropolitan area has one of the largest concentrations of Superfund sites in the nation. When Hurricane Harvey devastated the city in 2017, many of these sites flooded, and some were damaged. At the San Jacinto River Waste Pits, for example, toxic waste from a long-since closed paper mill was released when

11 “Obama Set to Sign Bipartisan Update of 1976 Toxic Substance Law,” The New York Times, June 22, 2016; and “A Year after West Virginia Chemical Spill, Some Signs of Safer Water,” National Geographic, January 10, 2015. 12 Robert D. Bullard, “Environmental Justice in the 21st Century,” Environmental Justice Resource Center, available at www.ejrc.cau.edu/ejinthe21century.htm; and Christopher H. Foreman, Jr., The Promise and Perils of Environmental Justice (Washington, DC: Brookings Institution, 2000). 13 Nuclear Information and Resource Service, “Environmental Racism, Tribal Sovereignty, and Nuclear Waste,” at www.nirs.org.

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floodwaters damaged a concrete cap that had covered the pits. An EPA dive team that visited the site soon afterwards found dioxin, a dangerous carcinogen, in high concentrations, and the agency fast-tracked a $115 million cleanup. But some criticized the agency for its past inaction. “Superfund sites are known to be the most dangerous places in the country,” and they should have been protected against flooding,” said one environmental activist.14

Remarkably, nearly one in six U.S. residents now lives within three miles of a Super- fund site. As of 2016, cleanup had been completed at around 380 of them.15

Since 2000, most changes in federal regulatory oversight have come through agency rulemaking and executive action rather than legislation. In the first year of the Trump administration, the EPA changed or proposed changes to dozens of rules, with the cumu- lative effect of weakening environmental regulations. Some of these changes are described in Exhibit 10.A.

Alternative Policy Approaches Governments can use a variety of policy approaches to control air, water, and land pollu- tion. The most widely used method of regulation historically has been to impose environ- mental standards. Increasingly, however, government policymakers have relied more on market-based and voluntary approaches, rather than command and control regulations, to achieve environmental goals. These different approaches are discussed next.

14 “Toxic Waste Sites Flooded in Houston Area,” September 3, 2017, at https://apnews.com; and “EPA Oks Plan to Rid Toxics from Waste Pits,” Houston Chronicle, October 11, 2017. 15 “Polluted Sites Linger Under U.S. Cleanup Program,” Chemical and Engineering News, April 3, 2017.

Rule-Making to Weaken Environmental Protections

During the year and a half of the Trump administration, regulators overturned or announced their intention to overturn more than 70 environmental rules. (Some rules were reversed, but then put back in effect after legal challenges.) Among other actions, regulators

• Proposed to open more than 90 percent of offshore areas to oil and gas drilling, giving energy companies access to lease areas off the coasts of California, the Arctic, and the Eastern Seaboard.

• Suspended clean water rules that required farmers, ranchers, and developers to limit pollution in streams running across land they owned that fed larger bodies of water. These bodies of water, such as the Ches- apeake Bay and Puget Sound, provided drinking water for one in three Americans.

• Revoked a rule that prevented coal companies from dumping mining waste into local streams. This rule had made a big impact in Central Appalachia, where debris from mountaintop surface mining often ended up in valleys, where it polluted running water.

• Reversed a ban on the use of lead ammunition and fishing tackle on public lands (lead is toxic to wildlife and humans).

• Proposed changes that would weaken fuel-efficiency standards for cars and trucks made between 2021 and 2025.

• Ended a requirement that oil and gas companies report their emissions of methane (a potent greenhouse gas).

Some welcomed these rollbacks as releasing businesses and individuals from burdensome regulations, but others thought they represented dangerous attacks on protections of the nation’s air, water, and land.

Sources: “Environmental Rules on the Way Out Under Trump,” The New York Times, July 6, 2018; “Trump Moves to Open Nearly All Offshore Waters to Drilling,” The New York Times, January 4, 2018; and “EPA Blocks Obama-Era Clean Water Rule,” The New York Times, January 31, 2018.

Exhibit 10.A

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Command and Control Regulation

The traditional method of pollution control is through environmental standards. Standard allowable levels of various pollutants are established by legislation or regulatory action and applied by administrative agencies and courts. This approach is called command and control regulation, because the government commands business firms to comply with cer- tain standards and often directly controls their choice of technology.

One type of command-and-control regulation is an environmental-quality standard. In this approach a given geographical area is allowed to have no more than a certain amount or proportion of a pollutant in the air. Polluters, such as utilities and factories, are required to control their emissions to maintain the area’s standard of air quality. For example, in 2014, the EPA issued new, more stringent standards for air concentrations of ground-level ozone, which the agency called the “most pervasive and widespread pollutant in the coun-

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