11.3 Business Operations and Environmental Effects

Before moving on, it will be helpful to have a clearer picture of how business operations can affect the environment. We sometimes have a tendency to see this issue only in terms of climate change, and while rising global temperatures are a major ethical issue, they are far from the only one.

Let’s consider first the issue of resource extraction and depletion. In many cases, extracting natural resources from the environment is a difficult and expensive process, requiring lots of time and sophisticated equipment. And many of the resources are not located within the countries that carry out the extraction processes. For example, removing rare earth elements and metals, such as lanthanum, erbium, and ytterbium, from the earth’s outer surface is an arduous process. Despite the name, these elements and minerals are not actually “rare”; they are in fact abundant, but because they are almost always found mixed with other materials, they must be separated from those materials first before they can be used. The two primary methods for mining and purifying these elements are: removing topsoil by pit mining, or drill mining and then adding chemicals to the drilled holes. Both methods produce a great deal of waste: according to some estimates, to obtain one ton of rare earth elements, the extraction processes produces more than ten kilograms of dust, around 10,000 cubic meters of waste gas, almost 100 cubic meters of wastewater, and one ton of radioactive residue.1 In addition, these processes usually leave behind “leaching ponds,” or small bodies of poisoned water and chemicals involved in extracting and isolating the elements.

Many industries, including and most of all the technology industry, use rare earth elements in their products. But how much environmental damage is too much? How much harmful byproduct can we tolerate before what we extract is no longer worth the extraction process? This is one of the most pressing ethical questions in some industries.

Another important ethical issue concerns who owns the rare earth elements in the first place. China is the world’s most prolific extractor of these elements, accounting for the production of around 90% of the world’s supply starting in the late 1980s.2 But China is only home to about 35% of the world’s reserves of these elements, meaning that the greater part of their extraction occurs outside Chinese borders. The country has negotiated aggressively to establish itself as the sole producer of these elements in many places across the globe: in 2007, in a deal with the Democratic Republic of Congo (DRC), China would receive exclusive mining rights for cobalt and copper and in exchange it would contribute to infrastructure projects across the DRC.3 In 2019 it signed a similar deal for mining rights in Kenya.4

Now if anyone can be said to own the rare earth elements in the DRC and Kenya, it is the citizens of those two countries. But those citizens often benefit the least from these sorts of international agreements, and the same citizens often experience the worst of the environmental costs as well, as poorer peoples are more likely to live close to the mines and have fewer options for living elsewhere.

Stories similar to this one play themselves out daily, across the world, in many different industries. We find some of them in considering the more general topic of pollution, where energy companies almost always find themselves among the worst culprits. According to a recent report based on data from 2021, the three greatest CO₂ emissions polluters among US energy companies are Vistra Energy, Southern Company, and Duke Energy.5 By themselves, these companies were responsible for almost 5% of all CO₂ emissions in the United States in 2021. In another report based on data from that same year, Duke Energy also showed up as the seventh-greatest water polluter in the United States, with companies such as Dow Inc., Celanese, and Huntsman Corporation ranking even worse.

It would be foolish to suggest that companies such as these don’t provide benefits to the communities they operate in. They employ many people and offer essential services, sometimes to entire regions. But it would be equally foolish to pretend that their emissions and pollutants are not serious environmental problems—and because they’re serious environmental problems, they become serious ethical problems as well, as we’re left to balance competing values in order to determine how best to care for the environment moving forward. Who gets to benefit? Who has to pay the actual environmental price? What responsibility do these companies have toward the environment, toward people, and toward the regions they operate in?

There are many other environmental consequences of business we could talk about as well. We’ve said nothing so far about the destruction of rain forests, which are disappearing at a rate of more than ten soccer fields per minute ;6 between 2009 and 2018, the world lost approximately 14% of all its coral reefs.7 These two habitats support immense amounts of earth’s biodiversity and contribute, directly or indirectly, to the habitability of many regions for both human beings and animals. The same decline is happening to many other parts of the natural world, and there is no reason to think that the rate of destruction will slow down; rather, it is far more likely that it will continue to accelerate.

But there’s a further element to problems of environmental ethics that we do not necessarily see in other fields: the fact that, at some point, it will be too late to fix everything. It is not exactly clear when the “too late” moment will come; by 2050, some experts predict that sea levels will have risen roughly a foot compared to their 2020 levels, which would be as much as the rise measured in the hundred years from 1920 to 2020. But what will such a rise do to living conditions? It’s impossible to say; while there will probably be more precipitation and flooding, we cannot forecast how humans or regions will react to these changes, and so can’t say for sure what the long-term effects will be on human life.

But there’s a further element to problems of environmental ethics that we do not necessarily see in other fields: the fact that, at some point, it will be too late to fix everything. It is not exactly clear when the “too late” moment will come; by 2050, some experts predict that sea levels will have risen roughly a foot compared to their 2020 levels, which would be as much as the rise measured in the hundred years from 1920 to 2020. But what will such a rise do to living conditions? It’s impossible to say; while there will probably be more precipitation and flooding, we cannot forecast how humans or regions will react to these changes, and so can’t say for sure what the long-term effects will be on human life.

We can say for sure, though, that the effects probably won’t be good, and that the “too late” moment is coming, even if we can’t predict it exactly and even if we don’t know how it will strike. The earth and life on it are resilient, but cannot be infinitely so, and things can only bend so far before they’ll break.

These environmental issues make up a special kind of collective action problem called a tragedy of the commons. The “commons” here refers to natural resources held in common by all people, such as water, air, and food supplies. We all benefit from using these commonly held resources, and some benefit a great deal by profiting from them. The “tragedy” is that we can overuse the common resources, and so deplete them entirely or make them otherwise unusable. The overuse then hurts everyone, including those who initially profited from the resources. The script of this tragedy of the commons plays itself out in many different ways as businesses interact with the environment.

We’ve seen many of the questions that arise about this situation from the perspective of business ethics, but there is an additional question worth considering here before closing this section. This is the question of whether market solutions are or will be sufficient to address these environmental problems, or whether other mechanisms will be necessary to help.

Another way to put this question is whether the “invisible hand” that we talked about in connection with capitalism can actually fix the problem, or whether it will just end up discovering new methods for destroying the environment ever more efficiently. The idea of the invisible hand is that markets tend to self-regulate by means of market forces, and so require little oversight, government or otherwise, for their continued functioning. And in many respects the invisible hand does manage matters very well: market forces such as supply, demand, technological development, and others tend, at least in the long run and for certain industries, to allocate resources well.

It is not clear, though, whether market forces are sufficient to address environmental problems that have the features of collective action problems and tragedies of the commons. The reason is simply that the incentives are misaligned. Market forces are best at solving inefficiencies in resource allocation, but those inefficiencies are themselves responsive to economic incentives: there’s greater profit to be had by doing things better. But the incentive for environmental change is not greater profit—not in the near term, at least, and perhaps not even in the long term, for the pressures of collective action promise that other companies will happily step up to make a lower bid in the race to the bottom.

In other words, the problems of business operation and the environment just may be the sorts of problems that businesses and markets are poorly equipped to fix. Ideally, we would hope that a sort of rational and enlightened self-interest would govern business decision-makers regarding these matters, so that they would more critically assess the environmental damage they produce and the associated long-term effects. But this is not what we actually observe happening. Rather, it seems that most companies take a YOLO strategy, “you only live once,” meaning that they’re happy to exploit what they can while they can in order to stay profitable and grow, long-term consequences be damned.

Partly in recognition of these facts, and partly in response to certain specific environmental problems, governments have intervened with specific legislation aimed at combatting the effects of business operations on the environment. One example is the Oil Pollution Act of 1990, which we discussed in the previous section. Another is the creation of the EPA, or Environmental Protection Agency, in 1970. The EPA is the primary government agency in the United States tasked with taking care of the environment. Earlier that same year, people across the US celebrated the first Earth Day, the original purpose for which was an explicit call for greater government regulation of how businesses affected the environment.

Further legislation followed. The Clean Water Act (CWA) of 1977 amended the 1972 Federal Water Pollution Control Act in order to establish quality standards for water quality and wastewater in industry. Parts of the CWA responded to public outcry over the state of certain rivers, such as the Cuyahoga near Cleveland in Ohio; historically, the Cuyahoga has been so polluted that the river itself has caught fire at least a dozen times.

CERCLA, sometimes known as “Superfund,” is another piece of congressional legislation on the environment. CERCLA became law in 1980 and gave rise to a government program for cleaning hazardous waste and other environmental emissions. CERCLA came in answer to incidents such as the Love Canal chemical site. In the 1940s, Love Canal near Niagara Falls was used by chemical companies as a place to dump used materials, many of them toxic. In 1953 the Hooker Chemical Company covered the site with earth and sold it to the city for a single dollar; the city then used the land for homes and a school. A couple decades later, the chemicals had reached the surface and infected water sources and yards, burned children as they played, and were linked with unusual birth defects. CERCLA was meant to stop these sorts of events from happening.

The point of these legislative moves, as well as others such as the Clean Air Act of 1990, is to shift the burden of responsibility from those that suffer from the environmental damage to those that cause it. The laws establish penalties for businesses that contaminate the environment, and open the possibility of legal recourse for those most affected.

And yet the issue remains whether these and other pieces of more recent legislation are enough. And here we’ve only spoken of the United States; the situation is far worse in other countries, which have experienced none of the historical benefits of western capitalism and yet still bear more than their share of the environmental risks. In addition, countries outside the US are far less likely to have regulatory standards, and if they do, they are not likely to be very stringent.. Events such as the Bhopal chemical disaster of 1984, when 40 tons of poisonous methyl isocyanate gas escaped a pesticide factory in Bhopal, India, killing thousands of people in less than two days, are much more likely to happen outside the United States than inside.

What responsibilities do businesses have towards the environment? How can those responsibilities be reconciled with businesses’ imperatives to generate profit? Is it possible to run businesses in a safe, environmentally sustainable way, using modern methods?

We, all of us, await answers to these ethical questions.