Externalities hit the Balance Sheet

With in next 24 months, most of the industrialised world will be costing their enviromental business impacts into their statements of financial position. This will happen because governments that are signatories to the Bali Environmental Framework and subsequent green house gas emission reduction agreements, will impose either a carbon tax  or a carbon offset credit impost on emmision generating activities within their economies. This will, for the first time and en masse, make the enviromental cost impact transparent and shift the burden of environmetal cost from the community back to the cost base of the pollution generating business.  It is reasonable to expect the manufacturers will seek to then pass these costs back to the market via their pricing mechanims. This will have the enormous and far reaching effect of making many products that were previously attractive, uncompetitive and vis versa. Steel roof cladding vs concrete roof tiles is one simple example. Steel prices will rise faster that concrete as there are more greenhouse nasties generated during steel production than during concrete production. Steel production is centalised and relies largely on road transport as the back bone of its distribution system (high fuel use = greenhouse gas = tax or offset credit cost = more cost), where as concrete tile plants are small and decentalised and are closer to their markets with lower transport costs (less fuel = less geenhouse gas = etc etc). Steel price goes up more than concrete and market dynamics change. Now consider this, by 2015 the actors in each economy will have become accustomed to the notion of shifting external costs back into the business. This does happen to at the moment articularly in the area of Occpational Health and Safety legislation and at times through costly and tortuous processes of litigation – ask any tobacco industry player. But if communities demand that manufactucters become more accountable for the social impacts of their products and become very use to, and capable of influencing governments (think about the election of the Australian Rudd Labor government and the immedate change in stance on enviromental policy – who will replace Bush in US and what will be their stance?)  so that they apply social/environmental inputs cost on businesses, then the business world and the product and services currently on offer will radically change. Think of the opportunities and threats, potential winners and losers and how this can be leveraged from a business perspective…….makes you think….makes you reposition……gallp13


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