Policy proposals to solve environmental problems flow from a myriad of sources, particularly activist groups and legislators. But business schools are sharpening their focus on environmental economics, and they may be poised to emerge as much more vocal proponents for environmental solutions.
One such voice was raised in April, when a Northwestern University economist proposed an unusual – some would say radical – approach to reducing greenhouse gas emissions.
Asserting that demand-side GHG policies won’t work over the long haul, Bard Harstad, an associate professor of managerial economics and decision sciences at Northwestern’s Kellogg School of Management, published in the Journal of Political Economy a paper arguing that climate-change coalitions should join forces to plug “carbon leakage.”
Carbon leakage is a net increase in GHG emissions which occurs when countries with climate change mandates reduce their consumption of fossil fuels, driving down their prices and spurring countries lacking such commitments to import more of the fuels.
Harstad believes the best way to plug the ensuing leakage would be buying or leasing extraction rights to “marginal” fossil fuel deposits – meaning those that cost the most to access and exploit – by multinational coalitions. In his paper, “Buy Coal! A Case for Supply-Side Environmental Policy,” he argues that keeping marginal deposits off the market would help support fuel prices that would likely decline if the deposits were added to the global inventories.
Harstad agreed that an example of such leakage is the response of domestic coal mining companies to the decline in U.S. coal consumption; namely, their widely reported plans to increase exports to China and India.
Read more about the state of the US coal industry the prospects for exporting the fuel overseas here.
Harstad firmly believes that his supply-side approach to carbon emissions would be much more effective than the caps, tariffs, permits, and taxes mandated under demand-side policies.
In a phone interview from Oslo, the Norwegian native told Breaking Energy that his paper arose from “a different research project investigating why developed countries pay less-developed countries to reduce deforestation of tropical forests. I thought this kind of solution could work for other environmental problems, as well, and ended up exploring the issue for climate change.”
But there are other parallels. For example, farmers who enter cropland into the Conservation Reserve Program are paid to keep those fields fallow, thereby preserving soil and effectively supporting crop prices by reducing the harvests of the associated crops.
Paying farmers not to farm has always been a controversial policy, but Harstad said his proposal should be less contentious because “supply-side policies wouldn’t target consumers with [carbon] taxes, and consumers wouldn’t feel as ‘picked on’ as they would if Americans had to pay a carbon tax while people in other countries didn’t.”
As Investors Value Sustainable Business, Corporations and Business Schools Adapt
Asked if business schools might start incubating environmental policy proposals more often in the future, Harstad said the schools “have a growing interest in these topics and the drivers for their interest have several sources. One of them is that more and more businesses are self-regulating in response to consumer and activist demands, and businesses would like to know how best to respond to those demands. We see an increased interest from business leaders in that question.”
Dan LeClair, executive vice president and COO of the Association to Advance Collegiate Schools of Business, told Breaking Energy that “we do see more business school faculty interested in studying subjects directly related to sustainability, and we also see a stronger overlap of environmental topics with other research agendas.”
The AACSB has over 1,300 member schools in 83 countries. According to an association staffer, its standards are such that only 5% of the world’s 13,000 business programs have gained its accreditation.
AACSB survey data provided to Breaking Energy show that during the 2011-12 school year many of the 700 business-school respondents offered programs with a “major emphasis” in such areas as “environmental management” and “sustainable enterprise,” while areas of “sub-emphasis” included “sustainable supply chain management” and “corporate social responsibility.”
“Business school faculty and administration,” said LeClair “recognize that this is a very good time to demonstrate leadership in the sustainability space. A lot of [environmentally related] drivers are coming into synch and informing research agendas.”
LeClair added that “a lot of business schools would agree that they can, should, and intend to provide leadership [in the environmental arena]. But it’s also fair to say that it’s not the sole role for business schools. Rather, it’s an opportunity for different campus units to work together.”
An example of a university where a variety of such units are working together is Yale, which offers a joint School of Management and School of Forestry and Environmental Studies degree. The joint program “has been around for 30 years,” Stuart Decew, program director of the Yale Center for Business and the Environment, told Breaking Energy. The center “works with students and faculty [at Yale and its various graduate schools] in multiple ways, from seeding research grants to promoting environmental entrepreneurship.”
Decew observed that there is an increasing overlap among research agendas at “the [Yale] schools of management, forestry, architecture and engineering, where the folks collaborate on projects together.”
Although he wasn’t familiar with Harstad’s paper, Decew said “most economic models indicate that it’s tough to have innovation-driven change when you’re not really dealing with wholesale policy changes.”
He also noted that the integration of environmental programs with B school curricula is annually ranked by the Aspen Institute’s “Beyond Gray Pinstripes” survey, which spotlights the MBA programs which, as the institute puts it, most fully “prepare students for the reality of tomorrow’s markets by equipping them with the social, environmental, ethical and economic perspectives required for business success … in a fast changing world”
The ranking, along with academic outreach by the Alliance for Research in Corporate Sustainability, provide more evidence that the environmental profile of B schools is on the rise, said Decew. He added that, “Even if we see less policy hope, surveys of corporations indicate that the value businesses assign to sustainability is increasing year after year.”
Read about the growing trend toward using sustainability metrics to evaluate company performance and outlooks here.