The lecture was interesting, though I think I have heard a lot of it before. He focussed on why some companies go to great lengths to reduce their ecological footprint while others are very destructive. Basically it comes down to the nature of the industry and the incentives. I think that this is a very valuable message for environmentalists.

He started with an interesting example of the Kikori oilfield in PNG. In contrast to Bouganville, which is currently a $4billion asset sitting idle, responsible for perhaps 100000 deaths, Kikori is profitable and earning a good reputation for the companies involved. It was started by Chevron Texaco and has been taken over by a local company called Oilsearch. They provide funding for independent ecological auditors (WWF) to monitor wildlife. What they found is that birds and mammals were far more abundant and diverse within the oil company property than elsewhere. The immediate reasons for this are:

• strictly enforced protection from hunters – any employee caught hunting or in possession is fired
• the oil wells are winched in rather than driven in over roads – minimal pollution and destruction

What they had effectively created was the largest national park in PNG.

These expenses and strict rules had a number of payoffs for the company:

• PNG is an extremely litigous society. You have to compensate locals for every tree you chop down, depending on it’s value or what birds of paradise are in it. The locals will even plant coffee trees along planned roads to get compensation. The measures taken minimised these expenses.
• PNG is a functioning democracy with privately owned land. As Bouganville demonstrated, the locals will shut down a plant if they don’t think it is in their best interest to let it operate. They will vent their anger over any environmental destruction. The policies minimised this risk.
• It is cheaper to avoid than clean up messes. For example, an oil spill about ten metres long can cost $100000 to clean up.
• Environmental standards are increasing globally. It is cheaper to build a state of the art plant that exceeds local standards than to build a compliant one that must be retrofitted later.
• It improves employee moral. This is especially valuable for well educated, fly in fly out employees, who get hassled back at home about working for an oil company. Good employees are increasingly hard to come by.
• The areas recieves 18m of rain each year (highest in the world). The absence of roads greatly reduced the incidence of landslides.
• A large, unanticipated payoff – Chevron wne ton to win a bid for a contract with the Norwegian government, even though their price was higher. This contract was far more valuable than the Kikori oilfield. Oilsearch has also been shortlisted for a project in an overpopulated, 3rd world country, even though their bid was also more expensive.

What causes the variation around the world in how environmentally responsible companies are? Diamond gave tow factors:

• variation between the inherent nature of a business
• variation in incentives

Some industries are inherently dirtier, so for those companies to clean up their act costs a lot more and is harder to justify. The oil industry for example has far less waste (tailings) to dispose of than most mining industries. Gold and platinum mines typically get about 1 part in 5 million as metal, the rest is waste. However it is still possible to get huge variation in how cleanly companies dispose of the tailings.

Incentives includes laws, fines, bonds (insurance against damage), tax credits, direct public action (boycotts, embarrassment of companies etc. These act to ‘level the playing field, so that companies do not find themselves at a competitive disadvantage from protecting the environment. Without a social requirement, dirty practices become more profitable and will proliferate. In the Kikori project, protection of the pipeline -  a huge investment – was a strong incentive to protect the environment. Loggers do not leave fixed assets so they do not have the same incentive.

Companies always complain about new regulation and predict the death of the industry etc. For example, American coal companies complained that rehabilitation work would make coal mines unprofitable. They convinced the government, up until the Buffalo creek disaster of 1972 (http://en.wikipedia.org/wiki/Buffalo_Creek_Flood - 125 dead, 1121 injuries, 4000 left homeless etc). Then the government took action and required coal mines to rehabilitate land after they have finished. The dire predictions of the coal industry did not eventuate.

What about moral responsibility?

[my view – expecting companies to go beyond the law and act morally is simply naive and also ignores the fact that people have varying moral standards]

Jared had some good points about demanding companies act morally. They are unworkable. Societies and governments have a moral responsibility to set up the necessary incentives for companies to act responsibly. Why should a comapny do something if the public doesn’t care?