Profits_and_PollutionThesis

Profits and Pollution:
Ethical Dilemmas for Competitive Businesses
By Alex Cuclis

Profits and Pollution:
Ethical Dilemmas for Competitive Businesses
By Alex E. Cuclis, B.S., M.S.
THESIS
Presented to the Faculty of
The University of Houston Clear Lake
In Partial Fulfillment
of the Requirements
for the Degree of
MASTER OF SCIENCE
Approved by: Craig Oettinger, Ph.D., Chair, Michael McMullen, Ph.D., Committee
Member, Peter Bishop, Ph.D., Committee Member, Howard Eisner, Ph.D., Associate
Dean and Spencer McWilliams, Ph.D., Dean
THE UNIVERSITY OF HOUSTON CLEAR LAKE
August, 2001
Call Number: HC79.P55 C8 2001
Copyright 2001, Alex E. Cuclis
Registration Number: TX0005381760
Registration Date: 10/8/01
All Rights Reserved

ii
Acknowledgements
This thesis has a very broad scope that required assistance from many people over
the past two years. There are several people who I would like to thank for their work in
reviewing and commenting on this thesis; however, it should be noted that even though
they have provided comments, the people I have listed may not agree with the statements
or conclusions of this thesis. That being said, I must thank my thesis chair, Dr. Craig
Oettinger and committee members Dr. Michael McMullen and Dr. Peter Bishop for their
helpful guidance in developing the body of this thesis. Two additional professors at The
University of Houston Clear Lake, Dr. James Lester and Dr. Priscilla Weeks, provided
commentary from the fields of environmental science and environmental anthropology
respectively. Dr. Heather Gert, Philosophy professor who teaches ethics at Texas A&M
in College Station, also gave her perspective. In addition, Marilu Hastings, the
Sustainability focal point at the Houston Advanced Research Center, provided valuable
comments from a public policy viewpoint. Finally, Susan Smith, an environmental
manager at a refinery, provided comments on Part II of this thesis, Systems Theory and
Sustainability.
In the appendix of this thesis is a description of a comprehensive environmental
audit of crude oil refineries. The “Green Refineries Annual Environmental Performance
Test” and “The Rules of the Game” were developed during the 1999-2000 academic year
to fulfill the requirements of graduate level statistics course at the University of Houston
Clear Lake. I would like to thank the following people for their careful review and
helpful comments on this work:
Craig Oettinger Sociology University of Houston-
Clear Lake
Mike McMullen Sociology University of Houston-
Clear Lake
Jim Lester Environmental Sciences, Director of the University of Houston-
Environmental Institute of Houston Clear Lake
Priscilla Weeks Anthropology University of Houston-
Clear Lake
Kyna Shelley Psychology University of Houston-
Clear Lake
Larry Bredeson Refinery Consultant Equilon
Loren Hopkins Statistics, President of the Rice University
Houston Chapter of Mothers
for Clean Air

iii
Preface
I have struggled to find common ground between the two vocations of my life as a
former Peace Corps Volunteer and a refinery engineer for a major oil company. I have
often wondered if there were some way that we could encourage businesses to operate
more like the Peace Corps, looking out for society and the environment all over the
world, and still make a profit. This thesis, written to complete my Master’s degree
requirements in Behavioral Sciences, has given me the opportunity to pull together my
previous education and vocational experience to build the framework I think is necessary
to create a sustainable world. This is not the culmination of my work, but merely the
beginning.
There are many topics that I have tried to cover in these pages. It has been a
challenge to keep my discussions both concise and complete without losing some
accuracy. For example, I have frequently referred to actions taken by the EPA within
these pages, but do not describe the role of Congress in making environmental laws.
There are many other items that I would like to explain in more detail, but I do not want
to lose sight of the forest by describing the details of each animal and eco-system that can
be found inside.
The environmental problems that the world faces are not going to be solved by
business alone. Each one of us profits from pollution in many different ways. I have
focused on how business might respond to environmental challenges, in part to limit the
scope of this thesis, but also because the market forces that exist in the world today are
perhaps the strongest force this world has ever seen. The challenge is to harness the
energy of the marketplace in a way that complements the needs of society. This is not an
attempt to deny the responsibilities that are required by individuals.
In the past few years engineering students at Texas A&M have been required to
take a course in engineering ethics as part of their degree program. They spend time
deliberating over cases like the following:
“Mary discovers that her plant is discharging a substance into the river that is not
regulated by the government. She decides to do some reading about the substance and
finds that some of the studies suggest that it is a carcinogen. As an engineer, she believes
she has an obligation to protect the public, but she also wants to be a loyal employee. The
substance will probably be very expensive to remove, and her boss advises, ‘Forget about
it until the government makes us do something. Then all the other plants will have to
spend money too, and we will not be at a competitive disadvantage.’ What should Mary
do?” (Harris, Prichard, and Rabins 1999: 7)
My hope is that this thesis will one day help develop a system that will reduce and
eliminate these kinds of dilemmas by encouraging businesses and individuals to compete
for the best environmental and social performance possible.

iv
Table of Contents
Page
Abstract vii
Part I Introduction
1. In a Perfect World 1
2. The Most Profitable Companies Pollute 4
3. The Problem with Doomsday Scenarios 6
Part II Systems Theory and Sustainability
4. Defining Systems 10
5. The Beer Game – An Example of Systems Thinking 11
6. The Triple Bottom Line 16
7. Green Refineries 19
Part III Systems Successes and Failures
8. Evaluating Systems 22
9. Capitalism: A Competitive System Success 23
10. Communism: A Cooperative System Failure 25
11. Two Systems Race for the Moon: The Cold War 27
12. The Race for the Earth: The Hot War 29
Part IV Ethical Dilemmas: Problems with the System
13. Ethical Systems 31
14. Responsibilities and Legal Requirements 33
15. Responsibilities to the Community 35
16. Responsibilities to Ecosystems 37
17. Responsibilities to Socially and Environmentally Concerned Investors 39
18. Ethical Dilemmas and Personal Ambition 41

v
Table of Contents
(continued)
Page
Part V Changing Worlds: Implementing New Systems
19. Changing Systems 43
20. Changes Within Systems 44
21. Replacing Systems 46
22. Aspects of a New System 48
23. Practical Solutions for Leveraging Change 49
Part VI Epilogue
24. Dreams of a Better World 51
References 54
Appendix
A. Green Refineries - The Rules of the Game. A-1
B. Green Refineries - The Annual Environmental Performance Test B-1

vi
List of Figures
Page
Figure 1 The Beer Game 12
Figure 2 Forces Acting on the Environment 14
Figure 3 Environmental Systems Analysis 15
Figure 4 The Triple Bottom Line 17

vii
Abstract
Competitive businesses face difficult dilemmas when considering their approach
to environmental protection. Environmental control equipment can be expensive, and as
a result many companies avoid installing any items that are not required by law. In some
cases there are concerns that a competitive advantage may be lost or gained depending on
how much a company must spend to comply with environmental legislation.
Sustainability theory attempts to address these issues by focusing on protecting the
environment and saving money. However in many instances the cost to reduce or
eliminate pollutants can be high, with virtually no return on the investment. As
businesspeople deliberate over serious environmental problems such as global warming,
they must work through the ethical dilemmas that arise as they attempt to create a
profitable economy without threatening public safety or the environment.
By developing a new system that encourages competition for the best
environmental performance, those who work in industry may develop the motivation to
implement environmental protection in cost effective ways. Employees may gain
personal satisfaction by finding ways to protect the environment at work, bragging to
peers that they have done better in environmental protection than their competitors, and
gaining positive public relations for their firm and for themselves when they describe
their work to friends and family. Finally, if financial incentives are provided for the best
performers, employees may actually help their business become more profitable while
protecting the environment.
One barrier to creating a competitive environmental system is the relationship
between regulatory agencies and industry. Industries in capitalist societies seek to gain a
competitive advantage in every arena, including environmental protection. Because the
cost of environmental controls can be expensive and the legislation passed is often very
proscriptive and not very efficient, companies may find themselves in the position of
lobbying or negotiating with regulators for the “best deal”, so they will not have to spend
as much on environmental controls. If a company spends more than is required by law,
they may be the “greenest” business in their industry, but in some cases they may become
bankrupt. Alternatively, if companies are successful at reducing their budgets for
environmental controls, the existing system can potentially reward those who pollute the
most by allowing them to provide products at the lowest cost.
Regulators have often responded in frustration by developing a command and
control approach, insisting that industry install pollution preventing equipment in specific
ways. Regulators contend that they are not responsible for the costs to industry;
regulators are only responsible for protecting society. However, as the cost of legislation
increases, businesses respond with more vigor. Neither side can agree on what kind of
environmental controls provide the safety the public needs at a cost the public can afford.

viii
Some have suggested trying more cooperative approaches to solve this problem,
however the communist experience in the twentieth century demonstrated that
cooperative systems are often very inefficient. Since the competitive nature of capitalism
was successful in generating revenue, can that competitive approach be applied to
protecting the environment and society? By creating a system where businesses compete
for what is best for the environment and society, and rewarding businesses when they are
successful, the ethical dilemma between having a clean environment or a profitable
business may be reduced and perhaps eliminated.

Part I Introduction
Chapter 1
In a Perfect World
In a perfect world there are no wars, no hunger or poverty, no discrimination, no
pollution, no extinction of species and no degradation of ecosystems. Ideally there would
be resources for everyone to achieve their dreams now and in the foreseeable future, and
humans would constantly increase their capacity to demonstrate kindness to each other
and to all future generations by protecting the environment. Today an odd mix of
business management consultants and behavioral scientists is attempting to create a more
perfect world by applying the theories of systems thinking and sustainability to social and
environmental problems.
Systems thinkers look at the overall structure of an organization or society and try
to find the underlying forces that are dominant. Once those forces have been identified,
they initiate leverage in specific places to cause dramatic changes, creating efficiency out
of chaos (Senge 1990: 114-126). In recent years consultants have successfully applied
systems theory to eliminate or repair inefficient work processes and improve the financial
performance of companies. Now some consultants are using systems theory to improve
the social and environmental performance of businesses (Senge 1990: 114-126).
Sustainability goes one step further than systems thinking by assigning a social
and environmental accountability to business. The main objective of sustainability is to
find ways to develop the world to meet today's needs without jeopardizing our ability to
meet future needs (Business Charter 1991). Sustainability theory claims that businesses
must consider not just shareholders, but all stakeholders including employees, customers
and the community if they expect to survive in a global economy (Elkington 1998: 298-
299). Since every person in the world is in some way a customer, and since the
information age can potentially make the actions of companies more transparent than
ever before, sustainability theorists argue all businesses must become more aware of the
ethical implications of everything they do.
There are three ways in which I intend to advance the theories of systems thinking
and sustainability:
1. Demonstrate how systems thinking and sustainability can be applied to improve
the environmental performance of oil refineries.
2. Demonstrate how specific constraints within the existing business and
environmental regulatory system create ethical conflicts of interest that hinder the
sustainability goal of improving the environmental performance of businesses.
3. Propose alternative systems that reduce or eliminate the ethical constraints or
conflicts of interest of the current system and encourage businesses to compete for the
best environmental performance in their industry.

Profits and Pollution Cuclis
2
In the current economic and regulatory systems, businesses have strong
disincentives toward implementing environmental monitoring and control devices due to
costs. Business leaders claim that their duty of protecting the environment must be
balanced with their ethical responsibility to their shareholders. Milton Friedman argued
that no company should ever spend more money than was “required by law in order to
contribute to the social objective of improving the environment” (Friedman 1970: 23). I
plan to examine specific cases that will show why Friedman’s conservative attitudes will
prevail in the current legal system, despite the arguments of some sustainability theorists
that greater transparency of businesses will create a significant decline in the success of
businesses that use profit as their only goal.
Finally, I will describe new systems with new laws that encourage businesses to
work with environmental regulators, instead of fighting against them. These new systems
should create financial incentives for companies to continuously improve their
environmental performance, instead of relying only on fines and prison terms to punish
companies and individuals when they break the law. In order to control costs, businesses
currently seek ways to negotiate with regulators on environmental permits that will allow
the business to spend the least amount on environmental controls. When businesses have
fewer environmental controls, they produce more pollution. New systems should
persuade businesses to encourage all of their employees to identify environmental
problems and empower employees to resolve the problems in an efficient and cost
effective manner. Ultimately businesses must have a financial basis to change. If the
“greenest” business in any industry fails then no other company will attempt to duplicate
it.
One concern of businesses is that they have invested billions of dollars based on
rules of the existing system. For example, a company may have made decisions based on
a regulation that allow certain plants to operate without an environmental permit for 10
years. If the company knew the law would be changed so that they are required to install
pollution control equipment and meet the requirements of a permit much sooner, the
company may have chosen to delay other investments.
The intent of this thesis is to evaluate and apply sustainability and systems
theories. However, it will not be possible to discuss all the details of sustainability and
systems theories. Instead I will address the relevant issues from two perspectives, at times
standing back and looking at sustainability and systems theories, at other times looking at
the details of ethical issues. This approach is needed when addressing complex
environmental and ethical issues, because as Holmes Rolston III notes:
"Stand too close and we see some details but lose the overall pattern. Stand too
far away and we see the shape but lose the substance. The challenge is to command a
clear view." (Rolston 1988: 292).
Some critics of systems thinking and sustainability see these theories as critiques
of capitalism, based on an agenda to endorse communism or socialism (Elkington 1998).
In contrast, my work will apply the ideas that have worked well in capitalism, namely
competitive forces that drive out inefficiencies, generate innovative ideas and boost
revenues, and apply them to the arena of environmental protection. Ultimately the
question that I intend to answer is:

3
“How can we build a sound economic system where businesses compete for the
best environmental performance?”
The following two chapters provide more details about the ethical dilemmas that
businesses face with regards to environmental protection. Chapter 2 contains a case study
using an investor looking to invest in oil refining, an industry that has had a hard time
making a profit for many years. In chapter 3 a discussion is presented of worst-case
scenarios and some signs that the major oil companies are considering the impact of
global warming on their business.

4
Chapter 2
The Most Profitable Companies Pollute
If you were a businessperson, what would you do if the most profitable companies
in your industry were also the worst polluters? What would you do if you believed that
the pollution created by the companies in your industry might one day destroy the earth?
These situations create ethical dilemmas without easy answers. The following fictitious
story illustrates the problem.
Joe, Terry and Karen are each managers of different oil refineries. Sam is looking
for a financial investment and decides to choose one of the three refineries. Joe’s refinery
seems to be the most profitable. However Sam has heard that Joe’s company has some
questionable business ethics. Terry’s company has the best reputation. However Terry
has a reputation for not being very practical. Karen’s refinery seems to have a good
balance between business sense and ethical values. Besides, Karen is Sam’s friend. Sam
told Karen, “I’m investing this money for my children’s college fund, so I want you to be
financially responsible, but also want you to be environmentally responsible. After all,
my children need to live in a clean environment too.”
One day Karen reads a report that indicates there is a significant risk to public
health due to a specific chemical. Karen is familiar with the chemical because it is one of
a list that is emitted by her refinery that they report to the agency each year. The fix for
eliminating or even reducing the amount of the chemical released is very expensive.
Karen agonizes over doing anything, because she feels caught between being
environmentally responsible and financially responsible. Eventually she decides to install
new pollution control equipment to eliminate the problem this year even though the
legislation that requires the equipment will not be passed until next year.
After all Karen’s financial commitments have been made, construction of all the
new pollution monitoring and prevention is nearly completed, she hears that the
legislation has been delayed. Apparently the industry lobby group was successful at
convincing the legislators that the laws need to be reviewed, perhaps changed, but at least
delayed for some time. Meanwhile, Karen has spent millions of dollars, and her
competitors have spent nothing.
Five years later the legislation finally passes. Finally Karen’s competitors are
forced to install the new pollution control equipment. However, because the laws were
slightly changed to make the implementation easier and because the technology has
advanced, Joe and Terry are able to install the same pollution control equipment for a
fraction of the cost.
Refineries in the past 20 years have been under extreme financial pressures. Since
1980, over 40% of U.S. refineries have shutdown (Auldridge 1980: 78 and Stell 2000:
68). When the price of oil goes up, it is good news for much of the oil business, but that
means a refinery’s raw material costs, the largest cost the refineries have to pay, has

5
skyrocketed. Suddenly Karen has become in charge of the “greenest refinery” in the area,
but she is not able to compete, and will have to shutdown.
Then Sam, Karen’s friend and investor asks, “What happened?” Karen
apologizes. Karen tried to protect the environment, and was penalized in the worst way.
In this situation everyone lost. Sam, the investor, wishes he had invested in a
different refinery or a completely different business. The refinery manager lost money for
her company, jobs for her employees and tax revenues for the surrounding community.
The environment was cleaner, but not for long. Now that the “green” refinery has
shutdown, another refinery, one that has never been concerned about the environment,
will expand and refine the oil to meet the demands of the market.
Even the industry is hurt. Other refiners look at Karen’s “green” example, and
say, “Let’s be sure that we don’t make that mistake.” They quietly pursue the common
path of most companies and only do what the law requires as far as the environment is
concerned.
A more pessimistic view paints a much worse picture. One might say that the
refineries with the best “competitive advantage” have negotiated the best deals with the
environmental agencies. The system encourages refiners to in effect lobby hard, with the
best lawyers and the best environmental specialists, to limit the legislation that is passed
in their industry; and when the legislation is passed, individual refineries seek to get the
most lenient environmental permits.
A question that many people often ask is, “Why don’t oil companies use their
profits to reduce pollution from refineries?” There are two answers to this question.
First, since many refineries have shutdown in the past 20 years (Auldridge 1980: 78 and
Stell 2000: 68), it is difficult to find anyone inside or outside of refining companies to
invest any money in them at all. It is even more difficult to convince someone to invest
money in environmental projects that do not generate any return. Second, while
integrated oil companies may be profitable, independent refiners own many refineries,
and they cannot afford to spend money on environmental control equipment that is not
required by law. The problem is particularly difficult when the pollution control
equipment is expensive to purchase and maintain. Many refiners are just trying to keep
from going bankrupt.
Today most business consultants will advise companies to do no more than the
laws require with regard to environmental regulation; and when there are laws they
should be challenged. Under these conditions when would a company ever do more than
the law requires? When would a company ever suggest new laws be implemented? Their
interests are in spending the least amount on pollution and often, although not always,
that translates into polluting the most.
What are the right actions for a businessperson who has ethical responsibilities to
the shareholder and to public safety? How can they be competitive in the market and
protect the environment? What if the standard business practices that we have used for
over a hundred years contribute to catastrophic events like global warming? How much
longer will business be able to profit from pollution?

6
Chapter 3
The Problem with Doomsday Scenarios
“The end of the world is coming soon” according to many environmentalists. The
future destruction of our planet has been forecast by Rachel Carson (1962) in Silent
Spring, Al Gore (1992) in Earth in the Balance, Paul Hawken (1999) in Natural
Capitalism and by dozens (if not hundreds) of others. I too am concerned about the
degradation of our environment, the hole in the upper atmospheric ozone layer and the
growing number of signs that indicate global warming is already affecting our climate.
However, as soon as I begin reading the litanies about the impending death of our planet,
my mind shuts down due to a combination of information overload and a deep sense that
I am inadequate to solve this difficult problem. For these reasons I have avoided worst-
case scenarios in this thesis.
However there are scenarios recently developed by the oil companies indicating
that they are wrestling with very serious ethical dilemmas. They know that many people
all over the world are concerned about fossil fuels and global warming and the oil
companies do not want to be accused of ignoring the problem. The quotes listed below
were taken from the web sites of BP, Royal Dutch Shell, Chevron and ExxonMobil in
May 2000.
"…the balance of informed opinion is that mankind is having a
discernible effect on the climate and scientists believe there is a link
between the amount of CO2 in the atmosphere and increased temperature.
Faced with this uncertainty, we believe that adopting a precautionary
approach to climate change is the only sensible way forward in these
circumstances. What we propose to do is sustainable, real and
measurable...” (BP, 2000).
“...At the very least, mankind is carrying out a risky experiment
with the planet by raising the levels of greenhouse gases in the atmosphere
to levels far above any seen in the last 150,000 years or more. We do not
know whether this will be catastrophic, or whether it might on balance be
slightly beneficial. But we do know that it is, in effect, irreversible. It
makes sense, therefore, to take prudent precautionary measures now. The
emission limits for greenhouse gases set in Kyoto provide the necessary
signals to encourage such measures.” (Royal Dutch Shell, 2000)
"... the use of fossil fuels to meet the world’s energy needs has
contributed to an increase in "greenhouse" gases... ...Concern that this
increase will lead to climate change with adverse effects on the
environment is causing some scientists and policy makers to call for

7
mandates to cut fossil fuel use. We understand this concern and the desire
to address this issue, and respect the varying views of our host
governments and business partners. At the same time, we share the view of
many scientists that the link between the increase in greenhouse gases and
potential climate change is uncertain...“ (Chevron, 2000). A few months
later Chevron removed the statement “we share the view of many
scientists that the link between the increase in greenhouse gases and
potential climate change is uncertain” and replaced it with “concerns are
growing about global warming”. (Chevron, 2001).
“ExxonMobil has studied climate change for nearly two decades,
since well before it became as broadly discussed as it is today. We
recognize the potential for climate change caused by elevated levels of
CO2 in the atmosphere is a legitimate concern, and reducing the scientific
uncertainties is important. We also understand how the public has become
concerned about the wide range of views on the issue and by some upper-
end projections that show serious future effects from changing climate.
However, such projections are based on completely unproven climate
models or more often on sheer speculation, without a reliable scientific
basis. We do not believe that the current scientific understanding justifies
mandatory restrictions on the use of fossil fuels, and we are certain that
large economic harm would result from reducing fuel availability to
consumers by the adoption of the Kyoto protocol or other mandatory
measures…” (ExxonMobil, 2000).
By January 2001 ExxonMobil had removed this and all other statements about
global warming and climate change off of their website. In May 2001 ExxonMobil
presented articles with quotes from many sources that indicated there was not a consensus
in the scientific community on the link between the production of fossil fuels and global
warming. Their conclusion was as follows:
“Enough is known about climate change to recognize that it may
pose a long-term risk and that more needs to be learned about it. We
believe that research to reduce the scientific uncertainties is essential. In
the meantime, we support a wide range of research and other activities
designed to help people and industries use energy more wisely and
efficiently now and in the future. By applying sound science, solid
economics and high ethical standards to this issue, we are optimistic that
the world can discover solutions that both protect the environment and
keep economies healthy and growing” (ExxonMobil, 2001).
Environmentalists have developed worst-case scenarios for many years, but
perhaps the most troubling scenario is what is happening right now with the relationship
between our environmental regulatory agencies and industry. There is a war going on and
the environment is the loser. Over 80% of the laws that are developed by the EPA get
challenged in court (Singer 1994: 146). Dupont estimates that the cost of protecting the

8
environment through legislation is three times the cost that it would take if Dupont tried
to achieve the same amount of pollution reduction voluntarily (Schmidheiny and
Zorraquin 1996: 71). The message that Dupont brings is that engineers, operators,
technicians and managers inside industrial plants who are properly educated and
motivated can eliminate pollution more quickly and at lower costs than legislation that
comes from a regulatory agency.
However, there are valid reasons why the regulatory agencies do not trust industry
to perform actions to protect the environment on their own. The competition in business
for survival in business is often intense. Companies are most concerned about
profitability and cannot afford to ignore opportunities to gain a competitive advantage.
Environmental legislation, which often requires expensive pollution control equipment, is
one area that is targeted. If a company is successful at negotiating the best deal on an
environmental permit to meet the requirements of specific legislation they may, by
installing less pollution control equipment, become more profitable than others in the
same industry. Sometimes organizations that represent an industry will negotiate with
regulators to achieve a competitive advantage over others in other industries. Many
business consultants advise companies to get the best lawyers and environmental
specialists they can to argue their case. There is money to be made by limiting the
amount of environmental controls that are required by your industry. There is money to
be lost if a company or the industry does not get actively involved.
The problem is that our current system often punishes companies when they
voluntarily implement environmental controls and rewards the companies that only do
what the law requires. Some typical examples follow. Note in some cases the examples
on the next few pages of this chapter are composites of incidents that occurred at different
companies and do not reflect the actual events. They were taken from informal
conversations at environmental seminars and symposiums held during 2000 and 2001,
and are presented here to demonstrate the difficulties that companies can encounter.
1. One company in the 1970s saw the data on extremely high concentrations of
lead in the U.S. environment and decided to remove lead from their gasoline
five years before legislation was passed that made leaded gasoline illegal.
This action cost the company millions of dollars. The PR generated from the
move made no significant improvement in sales. In fact, due to other
circumstances, some groups called for a boycott on the company.
2. One company was required to install expensive pollution monitoring and
control devices to reduce the amount of toxic substances from a specific
source. The company knew of other possible installations that could reduce
toxic releases much more efficiently. The company spent a significant amount
of money on sampling and lab tests to demonstrate to the regulating agency
that they had a better idea. The regulating agency, with a distrustful command
and control attitude, refused to listen to the advice of the company and
demanded that they implement the technology at the original location that was
specified.
3. One company told the regulatory agency about an action it was doing to
control pollution voluntarily, something that went far beyond what was
required by law. The regulatory agency investigated and later issued a permit

9
that required the company to perform the act every year. In addition, the
regulatory agency insisted that the company complete substantial
documentation to ensure that the items were being done, adding more costs to
the project.
In each of these cases the companies became reluctant to repeat any of these good
behaviors. There are many times when “bad behaviors” (behaviors that damage the
environment) that are legal, get rewarded. Some examples include:
1. An engineer identified a way to reduce pollution and save the company money
at the same time. When the engineer presented the idea to her manager the
request was denied because the law did not require it and it did not make as
much money as other items the engineer could be working on. Also, the
manager thought the pollution source might be useful as a pollution credit for
future legislation or as a negotiating tool if an agency demands that the
company reduce pollution levels in the future due to a new installation or
upgrade.
2. One company hired expensive lawyers and environmental specialists to
negotiate for the “best deal” for a permit that allowed them to comply with
new legislation while implementing pollution control equipment at the lowest
cost. The permit gave them a significant competitive advantage over other
companies in the industry.
These are “bad behaviors” because they are bad for the environment. However, a
business consultant may argue that they are “good behaviors” because they make the
company more economically sound and provide a higher return on investment to the
shareholders. After all who wins if you have the “greenest” company in your industry,
but your company goes bankrupt?

10
Part II System’s Theory and Sustainability
Chapter 4
Defining Systems
What is “Systems Thinking”, how does it relate to “Sustainability Theory”, and
how can it be applied in the real world? The chapters in this section briefly summarize
responses to this three-part question. The intent is to describe systems thinking and
sustainability well enough so that the reader can understand how it might apply to the
specific case of crude oil refining. By the end of this section it should be clear that there
are ethical dilemmas that must be resolved before systems thinking and sustainability can
be successful in the real world.
Chapter 5 begins defining systems thinking by using examples from Peter Senge’s
(1994) book, The Fifth Discipline: The Art and Practice of the Learning Organization.
Many companies do not look outside the boundaries of their manufacturing plant, their
distribution center, or their retail stores. They often focus on their small part of the total
organization. By seeing how all the parts of the business fit together people can begin
solving real problems, instead of working on symptoms of problems that were created
outside of their domain.
Chapter 6 describes one theory about how capitalism might be transformed
according to John Elkington (1998) in his book, Cannibals with Forks: The Triple
Bottom Line of 21st Century Business. Many people see business as one of the strongest
forces in the world today and therefore business may assume the responsibility of fixing
the world’s hardest problems. Elkington argues that successful companies in the future
will have to become competitive in their environmental and social performance, not just
their financial performance.
Chapter 7 argues that systems theory and sustainability should be applied to crude
oil refineries. If crude oil refineries were encouraged to compete for the best
environmental performance, they could impact the world in ways that go far beyond the
refinery fence lines. Refiners could produce environmentally friendly fuels. They could
select environmentally friendly crude oil producers. Finally, they could give chemical
plants and other customers’ price breaks if they handle refinery products in an
environmentally friendly way. However, there are many reasons why refiners are not
interested in this kind of competition.

11
Chapter 5
The Beer Game – An Example of Systems Thinking
In 1990 Peter Senge, one of the best known business consultants, described
systems thinking in easy to understand terms in his book, The Fifth Discipline: The Art
and Practice of The Learning Organization. Senge was the founder of the Center for
Organizational Learning at MIT's Sloan School of Management and has been the Center’s
director for many years. He was also a founding partner of Innovation Associates, one of
the most successful business consultancies of the 1990s. Some who have benefited from
his work include Ford, Proctor and Gamble, AT&T, Royal Dutch/Shell and many others.
Senge performed many seminars prior to writing his book that included an
exercise that he called “The Beer Game”. The game involved a fictional brewery along
with wholesale and retail distributors of beer. Typically the game was played twice. In
the first round Senge merely explained the rules. In the second round he provided hints
on how the players could improve their performance.
The Beer Game starts by assigning individuals one of three different jobs as
brewery manager, beer wholesaler or beer retailer. Everyone is told about the process of
how the business operates and how each part of the business makes money. The goal of
the game is to make as much money as possible. The players make money by selling
beer, however, they lose money whenever they are either over-stocked or under-stocked
with beer. Senge sets the various groups in action and then makes a series of disturbances
in the production and distribution of the beer to see who handles the problems best.
After the first round of the game is over Senge determines who made the most
money. Senge has tried this game with people in many different businesses throughout
the world, and despite the differences between people, he sees the same problem come
up. The retailers and wholesalers wind up ordering too much beer; the brewery produces
more beer than is needed, and there winds up being too much beer in stock. In all cases
they miss out on potential profits. According to Senge, "When placed in the same
system, people, however different, tend to produce similar results." (Senge, 1990: 42).
Prior to the second round of the game Senge encourages the brewery manager,
wholesalers and retailers to talk to each other about the "disturbances" that they each
experience. As a result, instead of everyone fighting to get the same cases of beer, "the
system" works more efficiently, supply more closely matches demand and in almost all
cases everyone makes more money. Customers are happier because they can depend on
the retailers having the beer when they want it and never have to pay premiums because
beer is in short supply.
The difference in experiences between the first and second rounds of the game is
illustrated in Figure 1. During the first round people tend to think of the system in terms
of the small world of their wholesale shop or retail store (System 1). During the second
round people begin looking at the bigger picture and understand that to solve their

12
problems they must work outside of their immediate location. They have to see the
whole process, from the brewery to the wholesaler to the retail store and finally to the
customer, as the system (System 2).

13
The players are told that they cannot discuss problems in production or
distribution with anyone outside of their group in the first round of the game. In Senge's
terms their "mental model" or mental picture of the system is confined so they do not
consider other options. It is only when the system is considered as much bigger than just
the individual brewery or retail shop that they are able to devise strategies that allow them
to succeed.
Business focuses on a smaller picture, like System 1 of Figure 2, when it only
considers what profits it can garnish as it transforms raw materials into products. Society
does not see the big picture when people think only of jobs or cheap energy without
considering the potential impact on their environment. One way to depict changes in
interest in the environment over time is depicted in the three systems shown on Figure 2.
Businesses move from System 1 to System 2 and begin to protect the environment when
pressured by environmental activists or government legislation. Similarly, society
becomes more concerned when they become aware of pollution problems in the land, air
and water (System 2). System 3 implies that businesses and society will take the greatest
action to protect the environment when they become concerned that their survival is at
stake.
Systems thinking helps people to see problems with a new perspective. Business
consultants use this ability to see the real problems instead of the symptoms of problems,
to eliminate inefficiencies and identify innovative solutions. Systems analysis has been
used to understand environmental systems in the general terms of inputs, outputs and
waste products, as shown in Figure 3 (Cliff, Burningham and Lofstedt 1995: 21). More
detailed systems applications to environment issues are provided in the next chapter.

14

15

16
Chapter 6
The Triple Bottom Line
In 1998 John Elkington in his book, Cannibals with Forks: The Triple Bottom
Line of 21st Century Business, claims that businesses must clearly demonstrate their
concern for society and the environment if they are to survive in the next century. He
notes that transnational companies like Nike, Wal-Mart, Volkswagen and others have had
significant public relations problems due to some of their questionable international
activities (Elkington 1998: 125). World markets are the dominant force on the planet
today and if a system is created where companies compete for the best social and
environmental performance, then this new system may provide the greatest opportunities
for solving the world’s toughest problems. Although capitalism is the clear winner of the
cold war, Elkington suggests that the current form of capitalism will change in the
twenty-first century (Elkington 1998: 25).
Will capitalism manifest the atrocities described by Marx, where only a small elite
control all the wealth and resources? Or will capitalism evolve into a system that begins
to distribute wealth more equitably and reduces the impact of industrialization on the
environment? Elkington suggests despite what has happened in the past, in the future
more businesses will be pressured to protect society and the environment due to pressures
caused by several revolutions in the global arena. He claims that individuals are shifting
values “as a natural outgrowth of people’s evolving awareness and concern” (Elkington
1998: 124) to a greater focus on being citizens of the world and a new level of
transparency of the corporate mindset brought on by the information age. These changes,
according to Elkington, will create a new business ethic that requires a closer examination
of their environmental and social performance, instead of merely focusing on financial
performance. In order to show how well businesses perform in all three areas
comprehensive audits on social and environmental impact need to be incorporated with
existing financial statements (Elkington 1998: 70).
Elkington describes this new business ethic as “The Triple Bottom Line" (Figure
4), but the basic ideas originally came from the sustainability movement. The concept of
sustainability has been around since 1980, but it crystallized in a report produced by the
World Commission on Environment and Development, chaired by Norwegian Prime
Minister Gro Harlem Brundtland. The Brundtland report defines sustainability as
"development that meets the needs of the present world without compromising the ability
of future generations to meet their own needs" (The Business Charter for Sustainability
1991). Paul Hawken, one of the leading authors in sustainability theory, advocates
moving towards “natural capitalism,” a form of capitalism that assigns values to natural
resources, emphasizing more efficient use of those resources, reduction in pollution and
putting people in more useful and meaningful occupations (Hawken, 1999, p. 10).

17
According to Hawken, “Humankind has inherited a 3.8-billion-year store of natural
capital. At present rates of use and degradation, there will be little left by the end of the
next century. This is not only a matter of aesthetics and morality, it is of the utmost
practical concern to society and all people” (Hawken, 1999: 3).

18
There are some signs that businesses are responding to these ideals. According to
the Oil and Gas Journal, "about 2000 companies have signed the International Chamber
of Commerce's business charter for sustainability. More than 120 of these firms have
become active participants at the World Business Council for Sustainability in Geneva"
(Whitaker 1999: 24). Whitaker notes that there are many applications of the triple
bottom line to the petrochemical industry; however, industry knowledge of these ideas is
extremely limited. Still, according to Whitaker, sustainability is being discussed in the
boardrooms of many Fortune 500 companies.
Although there are a growing number of sustainability measures (see
www.sustainablemeasures.com), there are several issues to overcome before these
measures are widely implemented. Even if the leaders of an industry develop a plan
based on sustainability theory, achieving consensus on the measurements of overall
environmental and social performance will be very difficult. There will likely be many
disagreements due to complex differences between individual companies and the
subjective value assignments of environmental and social measures.
Elkington's consultancy group, SustainAbility, has been developing detailed
audits for environmental and social performance since 1987. When these audits become
more fully developed and widely accepted in many different industries, they will provide
the opportunity for companies to compete for the best social and environmental
performance. In the next chapter on Green Refineries I will show how I applied
Elkington’s ideas towards developing a comprehensive environmental assessment of oil
refineries and the problems I encountered when I requested comments on this assessment
from over 150 U.S. refineries.

19
Chapter 7
Green Refineries
Oil refining is a dirty business, perhaps the dirtiest business in the world. This is
not a commentary on morals or ethics, but simply on the environmental impact based on
the total pounds of pollutants released to the atmosphere, land and sea. There are other
businesses, such as coal-fired power plants, that release more nitrogen oxides and sulfur
oxides into the atmosphere. There are chemical plants that release more individual
chemicals than refineries. However, refineries have large volumes of various pollutants:
nitrogen oxides, sulfur oxides, volatile organic carbon, benzene, butadiene and many
other cancer-causing chemicals, heavy metals and a significant share of industrial
greenhouse gases. In this “dirty business,” which refineries do the least harm to the
environment? There is no easy way to answer that question because there is no accepted
comprehensive method to compare the environmental performance of refineries.
In 1998 I developed a comprehensive environmental assessment of refineries
based on my education and experience (Bachelor’s in Chemical Engineering from the
University of Texas-Austin, Master’s in Analytical Chemistry from the University of
Illinois-Urbana and 12 years of refinery experience), as part of my work towards a
Master’s degree in Behavioral Sciences at the University of Houston-Clear Lake. Six
professors from different backgrounds (sociology, anthropology, psychology,
environmental science, and statistics - see Appendices A and B for the rules, performance
test and the list of the professors and refining specialist who provided comments) and a
senior-level refinery specialist from a major oil company reviewed the assessment rules
and performance test. The idea for this assessment was based on John Elkington’s work
that encourages the creation of auditing systems for environmental and social
performance (Elkington 1999: 86).
In January 1999 I placed the rules for completing the assessment and an
assessment scorecard on the web page of the Environmental Institute of Houston at the
University of Houston (http://elab05.enl.uh.edu/greenrefineries/). The rules of my Green
Refineries Project state that only the top quartile performers would be recognized as
“Green Refineries.” No scores would ever be published. No indication of refineries that
submitted applications but did not make the top 25% would be provided. The intent was
to clearly recognize those refiners who had the best environmental performance in an
industry that has many environmental challenges to overcome. The motivation for
participation was based on the idea that the positive public relations the “Green Refinery”
label generated would assist the refinery in selling its products.
In April 1999 I sent letters to the environmental representatives of over 150 U.S.
refineries asking if they would provide comments on the assessment rules and scorecard.
I did not request anyone to complete any part of the assessment or provide any
environmental performance data. I specifically encouraged all participants to respond

20
anonymously and not to identify the refinery for which they worked. Still, I did not
receive a single response.
Some refineries out-perform others in terms of environmental performance.
Perhaps they perform well because of more stringent legislation or other local pressures,
but the best performing refineries exist. Where are these refineries? Why are they not
calling for comparisons of environmental performance to boost their own public relations
and improve their ability to sell products? I have had several informal discussions with
people inside and outside the refining industry, and I have heard several reasons why
refiners do not want to spend time on this project.
Some are concerned about their past records. If a refinery has a poor
environmental record in the past due to oil spills or refinery accidents, they do not want to
draw any attention. Even if they are the “greenest refinery,” the general public and
certainly environmentalists will remember the bad incidents more than the good ones.
Others are concerned about future incidents. If a refinery is named as a “green
refinery,” and later they have a significant environmental problem, all their work towards
improving public relations (often at a high cost) to create their green refinery will quickly
evaporate. Instead of being viewed as a good corporate citizen, they will be mocked.
Still others are concerned about bad press from other facilities. If a refinery
proclaims that they are green, but the refinery owners are having problems in another part
of the country or another part of the world, they fear that environmentalists will demand
the refiner to take down their green refineries banner until the refinery owners clean up
problems everywhere else.
Many simply do not have the time to respond. There are many demands on the
technical support to refineries. There are tremendous pressures to keep costs down in
refinery operations, including personnel. Time spent reviewing and commenting on a
graduate student project is less time available to handle the crises of the day, to complete
reports which are required by the government or other sources, or to develop longer range
plans.
Some do not believe creating a fair environmental assessment is possible. Every
state has different environmental requirements. Even within states every refinery has a
separate set of environmental permits, dictating what they can and cannot do. Also,
refineries differ significantly in size and operational complexity. All of these issues can
be normalized, so that refiners could compete on a level playing field, but there is bound
to be significant disagreement on the actual scoring of individual items.
Others believe that creating a green refinery is too expensive and simply not part
of their business plan. Environmental controls are very costly and refineries must watch
their budgets closely. In the 1980s there were close to 300 refineries in the U.S., but
today there are just over 150 (Auldridge 1980: 78 and Stell 2000: 68). The U.S. refining
industry has been competitive for many years. Some refiners claim that they could not
install new pollution control equipment and remain competitive. If a refiner spends a lot
of money protecting the environment and becomes the greenest refinery in the world, but
as a result is forced to shutdown, who benefits?
All of these reasons lead to the same result: oil refineries are reluctant to compete
for the best environmental performance in their industry. It is unfortunate that there is not
a universally accepted environmental assessment of refineries when the world has been

21
refining crude oil for over 100 years. How many more years will the world refine crude
oil, a process that damages the environment, without a comprehensive environmental
audit to evaluate refinery performance? This problem of avoiding competition in the
environmental arena is bigger than just the refineries. Many companies have concerns
about being able to compete on a level playing field with others in their industry for the
best environmental performance.
In our current system industry is frequently at odds with environmental regulatory
agencies. Protecting the environment is often seen entirely as a cost to the business.
Businesses recognize that there is some benefit to projecting an environmental friendly
image; however, there is a limit to how much consumers will actually pay for green
products. In our current system those businesses that do the most to protect the
environment also may become the least profitable businesses. This system needs to be
changed.

22
Part III Systems Successes and Failures
Chapter 8
Evaluating Systems
If it is true that some systems are more efficient than others, how can we evaluate
which systems are most efficient? What happens if a system is very efficient, but it does
not achieve the desired results? This section compares capitalism and communism from
a very high-level systems perspective. The intent is to provide brief analyses, including
discussions on how capitalism and communism competed in the space race, and how that
competition might be used as a model in a race to save the world from a catastrophic
event like global warming.
Chapter 9 points out how capitalism has efficiently done what it was designed to
do: generate capital. Milton Friedman (1970) and others suggest that is all that should be
expected. According to this perspective, if capitalism is expected to solve all the world’s
environmental and social problems, it will become inefficient and lose its value.
Sustainability theorists suggest that another design of a system that is based on capitalism
is possible.
Chapter 10 discusses some of the problems of the communist system. The
concept that under certain conditions people will work together cooperatively has a great
appeal; however, communism has proven to be inefficient at generating capital (Lenski
1994: 58-59). If capital does not exist, then it is difficult to fund anything, whether it be
protecting the environment or solving social problems.
Chapter 11 presents some reasons why the U.S. was able to get a man on the
moon before the Soviets using capital generated from businesses. Even though
capitalism is a competitive system, there are many instances where cooperation is
required. In the case of the race to the moon, the public had to be convinced that it was
worth spending substantial tax dollars on the space program. Also, many different
engineers and specialists from different parts of the country and different companies had
to work cooperatively to achieve success. However, there was internal competition
among the companies that placed bids for the Apollo project as well as the external
competition with the Soviets. Competition can become so extreme that it loses its value,
as in the case of wars.
Chapter 12 discusses how a blend of competitive and cooperative systems might
be needed in the race to save the earth from a catastrophic problem like global warming.
A purely market-driven, competitive capitalist society may never agree to work together
for the common good. A purely cooperative-driven society may never generate the
capital needed to solve the problem. Perhaps some compromise between cooperation and
competition is the answer.

23
Chapter 9
Capitalism: A Competitive System Success
When the cold war ended, capitalism emerged as the clear winner. Competitive
markets forced companies to continuously improve their efficiency in generating capital.
The capital generated provided a tax base that paid for the most powerful and
technologically advanced military system. Communism floundered in its attempts to
keep up in the arms race. Capitalism won in part because good companies kept
reinventing themselves, finding ways to make more money. If good companies can find
room for improvement, is it possible that the entire system of capitalism can be improved
as well? If so, how?
Many capitalists like Milton Friedman (1970) argue that capitalism is a system
designed for generating capital in the free market system where everyone should have an
opportunity to compete fairly. It does not address the issues of social equity or
environmental protection. There are other systems in place to protect the environment
and resolve social problems. The argument is that if capitalism were integrated with
social or environmental objectives, it will become less efficient and that would have bad
consequences for everyone (Friedman 1970: 23).
According to David C. Korten (1996), author of When Corporations Rule the
World, “It is well established in economic theory and practice that markets allocate
resources efficiently only when markets are competitive and when firms pay for the social
and environmental impact of their activity – that is, when they internalize the costs of
their production. This requires that governments set and enforce the rules that make cost
internalization happen, and, since successful firms invariably grow larger and more
monopolistic, governments regularly step in to break them up and restore competition.”
(Korten 1996: 25).
Korten places the burden on the government to “set and enforce the rules” in the
system that allow businesses to obtain profits but also to protect the public from
economic or environmental harm. When applied to environmental legislation it means
that government agencies must become familiar with industrial processes, the pollution
they produce and the means by which the pollution can be monitored, reduced and
eliminated. The problem is that frequently those who know the most about industrial
processes through training and experience are people who are in industry. When an
agency enforces proscriptive and costly legislation, industry is at best motivated to only
do what the law requires.
The end result can be environmental legislation that is both costly and inefficient
at eliminating pollution. Since business often views environmental controls as a pure
cost, they are motivated to do as little as is required and often have no motivation to

24
improve the efficiency of the controls. Any change the business makes might be viewed
as a violation of the permit.
The alternative suggested in this thesis is to have industry create a comprehensive
environmental audit and provide financial incentives for improving environmental
performance. The measures must be simple, but easily audited. Some examples include:
fewest pounds of pollution per ton of feed, fewest pounds of pollution per ton of product,
fewest pounds of pollution per million dollars of revenue, etc.
Competition is good for improving efficiency that can be applied towards making
more money, or if applied correctly, can reduce more pollution at a lower cost. However,
competition cannot operate well without some checks and balances. In the most obvious
example, two nations competing against each other for land may decide war is the best
option. Clearly unbridled competition is not desirable. There must be some regard for
the rules, some room for compromise and cooperation. What happens when there is too
much cooperation and not any competition? This topic is discussed in the following
chapter.

25
Chapter 10
Communism: A Cooperative System Failure
The communist and socialist systems predicted that under certain conditions,
everyone in society would work for the good of the whole. This paradigm was ultimately
thwarted because the theories of Karl Marx include unrealistic assumptions about human
behavior. Marxism had two major failures:
1. political stratification was greater in socialist societies than any capitalist
society, and
2. socialism did not achieve the transformation in human nature predicted by
Marx that would move the society to communism.
In Marxist societies during the twentieth century, those who held positions of political
power were disproportionately more prosperous (Lenski 1994: 56).
Marx’s assumption was that once private property was abolished and everyone
owned the means of production then moral incentives would replace financial incentives.
Part of the problem was that workers were free from the fear of unemployment and lost
the incentive to work. Managers in Marxist regimes were often held to keep certain
production quotas, however there was never any limitation to how many workers
managers could have. This regulation led to a decrease in the work efficiency of
individual workers (Lenski 1994: 58-59).
When wage leveling was implemented in some areas, engineers and highly skilled
laborers were paid only slightly more than unskilled labor. The skilled workers lost
motivation and became apathetic at work. Those in school dropped out due to the lack of
motivation to finish. There is increasing evidence that the economic crisis of the Soviet
Union in the 1980’s was a result of economic leveling imposed by Brezhnev (Lenski
1994: 58).
Anyone who does not have food for their children regardless of their economic
system, whether it is capitalist, socialist or communist, often do not consider ethical
dilemmas. If personal needs are not met, it is difficult to have any desire to solve the
needs of the environment or society at large. It is unlikely that any system will
successfully influence individuals to work for the good of society when their own family
is in jeopardy.
There appear to be problems both with communism, where complete cooperation
is expected even at the expense of the individual, and with capitalism, where complete
competition is expected, even at the expense of society. Some argue that the survival of
the fittest, rugged individualism orientation of capitalism best mirrors evolutionary
principles and is the most efficient way for society to work. Others point out that many
species, such as bees and ants, have survived because they were best at working
cooperatively for the good of the whole. Is there some system that can provide a middle

26
ground that protects the entire society from problems like global warming but still allows
for the efficiencies that are gained when individuals compete for personal gains?

27
Chapter 11
Two Systems Race for the Moon: The Cold War
The greatest story about competition and cooperation of systems during the
twentieth century is that of capitalism and communism battling for supremacy in the
world. In the end the capitalist system won largely because it was more efficient at
generating wealth that could be used to fund a strong defense while the Soviet Union
progressively went bankrupt. Although we often associate capitalism with
competitiveness, it required quite a bit of cooperation as well. The story about the race
for the moon illustrates that point.
In October of 1957 the Soviet Union sent up Sputnik I, a spaceship that orbited
the earth, while the Western world watched. Two weeks later Sputnik II, a spaceship that
weighed six tons and carried a dog named Laika, made a successful voyage. Meanwhile
the U.S. was trying to send up a grapefruit sized satellite that weighed 3 ½ pounds. The
rocket that was to place it in space went 4 feet off the ground, fell back and exploded.
Several days afterwards a Soviet representative at the United Nations asked if the U.S.
was interested in receiving aid for underdeveloped nations (Murray and Cox 1989: 23-
24). By 1965 the USSR had 407 hours of manned spacecraft flying to only 54 hours for
the U.S. The USSR was first to put an animal, a man, a woman, a multi-manned crew,
and extra-vehicular activities in space. (Holman 1974: 29).
When John F. Kennedy became President, he was not interested in the space
program. Kennedy said that the U.S. would not challenge the Soviets in the space race,
but would work on “other areas where we can be first and which will bring more long-
range benefits to mankind.” (Murray and Cox 1989: 77). However, on April 12, 1961
when cosmonaut Yuri Alexeyevich Gagarin made one complete orbit in space, the U.S.
public became anxious. Suddenly the U.S. seemed very far behind. The Soviets could
place substantially more weight in space and would likely win the race to put several men
in a capsule that orbited the earth. The Kennedy administration believed that they would
have to jump a generation of technology to compete in the space race. They would have
to shoot for landing a man on the moon and bring him back to earth safely (Murray and
Cox 1989: 78).
The choice to race for the moon was expensive. Between 1958-1967 the U.S.
spent about 2% of the federal budget on space, hitting a peak of 4.5% of the budget in the
early 1960’s. During the years of research and development of the manned spacecraft
program between $15-20 billion was spent annually on the space program. (Holman
1974: 12). In comparison, the 2000 space budget was about 14 billion, or less than 1%
of the federal budget (Concord Coalition 2000).
While any analysis may find significant wastes associated with the space
program, there were significant efficiencies as well. As the U.S. competed against the
Soviets, internally Kennedy waged a campaign for Americans to work together to

28
accomplish the goal. Soon many different aerospace, defense and other related
engineering firms that had competed, joined forces to submit bids to NASA for various
parts of the endeavor. Many people worked long hours preparing the bids. They worked
together cooperatively, however they were also competing against others to win important
contracts for their firms. The firms that eventually won the contracts hired many people
who had been competing against them, to work cooperatively on the mission.
In 1969 the Americans triumphed and accomplished what many have called
the greatest achievement of the twentieth century, getting people to the moon and
returning them safely back to earth. The capitalist system beat the communist system by
using a combination of competitive and cooperative efforts. Many people are happy that
capitalism won this battle as well as the cold war against communism. However the
question that must always be asked in creating efficient systems remains, “Is there a way
that we can make this system more efficient?” Perhaps there is a more important
question, “Is the current capitalist system efficient at accomplishing what all the people of
the world need and want?”

29
Chapter 12
The Race for the Earth: The Hot War
The world’s largest corporations, ExxonMobil, Shell, BP, GM, and many others
are capitalist corporations that have grown in size and wealth during the last century
largely because of how they have used fossil fuels in the market economy. Now that
there is growing recognition that burning fossil fuels will progressively have a greater
negative impact on our planet due to global warming, what will these companies do? BP
and Royal Dutch Shell have clearly announced their recognition of the problem on their
web pages (see the quotes from these companies in Chapter 3).
Many of the world’s largest corporations have spent over 100 years perfecting
their business efficiencies in a capitalist system that is based on fuels that emit
greenhouse gases. Is it possible to create a new system that protects us from the dangers
that have been created by the twentieth century capitalism? Can we use the moon race as
a model?
During the cold war, generating revenue was of prime importance because taxes
paid for military budgets that helped keep communism from spreading. In the wars
fought on bloody battlefields, ethical codes give special allowances, including killing
people. When the war is over, the rules change, and most of today’s societies will not
tolerate killing people during peacetime. Can this analogy be applied to the cold war?
During the twentieth century it may have been considered within ethical bounds to cause
environmental and even social degradation for the sake of generating capital. Since the
cold war is over, is it time to change our cold war business ethics?
One possibility would be to create a system that forces companies to compete for
the earth by competing for the best environmental performance. If we restrict this race to
just the oil and power companies and the burning of fossil fuels, we might ask, “Who can
produce the most energy while adding the least amount of greenhouse gases?” The
problem, much like going to the moon, will be both in developing the technology and the
costs associated with it.
In order to win the race for the earth, companies will have to jump a generation in
technology to produce new sources of energy, such as hydrogen cells and renewable
energy. Just as the aerospace and defense industries needed “incentives” to race for the
moon, the energy companies will need incentives to race for the earth.
There are some negative incentives, in the form of fines or even prison terms for
violators of pollution laws, but today there are no fines for creating too much carbon
dioxide. Some day the world may decide that carbon dioxide (and other greenhouse
gases) is the most deadly pollutant made by man.
Consumers may provide some financial incentives, either by investing in or
purchasing energy from “green” energy producers. Employees of these companies may
add other pressures with their “intellectual capital” by arguing for company policies and

30
procedures that create less pollution. However it might require some type of government
intervention to encourage companies to compete in the “Hot War,” the race to save the
earth from global warming.
In the twentieth century the U.S. won the Cold War. The first question for the
twenty-first century is, “Will anyone win the Hot War?” If so, will it be a country or a
corporation?

31
Part IV Ethical Dilemmas: Problems with the System
Chapter 13
Ethical Systems
What are the ethical systems that impact decision making in business? The
chapters in this section highlight some of the key concerns that are raised by both
environmentalist groups and businesses. The intent is to provide brief discussions that
illustrate the ethical dilemmas that arise in companies as they interact with environmental
regulatory agencies and various stakeholders. This section will illustrate the tension
between commitments to the environment and commitments to the shareholder. This
problem must be resolved.
Chapter 14 discusses the responsibilities that environmental managers have to
meet business needs and comply with all applicable laws. Sometimes what is “legal” is
not clear. For example, an environmental permit may say that no penalties will be issued
if the company reports every exceedence of the permit. But what happens if the permit is
exceeded every day? How many exceedences are too many? How much money is a
business required or expected to spend to prevent exceedences from occurring? If a
business has no exceedences but then must shutdown due to high operating expenses,
who benefits?
Chapter 15 discusses the responsibilities a business has to protect the surrounding
community from harm. A few extreme historical examples, such as the London Fog of
1952, the Love Canal incident of 1974 and the Bhopal incident of 1984, are briefly
presented. These cases provide reasons why companies must take proper action to insure
the health and safety of the surrounding community, as well as their own employees.
Businesses can justify spending money when the threats to life and health are clear and
they can be held liable for negligence. Can businesses spend more money than the law
requires when the threats to life and health of the community are uncertain?
Chapter 16 discusses the responsibilities a business has to protect the surrounding
ecosystems. One argument is that adverse impacts to the ecosystems will eventually
damage the people in the surrounding community simply due to their place in the food
chain. Others argue that businesses must have concerns that go beyond human-centric
values because all plant and animal species have an inherent value and should be
protected, especially when they may be threatened with extinction. How can we
determine the value and rights of human versus non-human life?
Chapter 17 discusses the responsibilities a business has to comply with the wishes
of socially and environmentally concerned investors. There are a growing number of
environmentally concerned investors who expect the companies they invest in to operate
using for environmentally friendly actions. These investors may “vote” by choosing to
sell their stock. Business leaders need to consider these possibilities.

32
Chapter 18 raises the issues of ethical dilemmas and personal ambition. What
would be the result if individuals took on the business ethic of only doing what the law
requires and no more? At what point should a businessperson raise objections to business
decisions that impact the environment? Others in the business may argue that if they
create the greenest company in their industry, they will no longer be competitive. How
can someone in business raise environmental concerns that have a significant cost without
jeopardizing their career? Is there a way to create a system where businesses do not have
to choose between profits or a clean environment? Can we have both?

33
Chapter 14
Responsibilities and Legal Requirements
Environmental managers in business are often placed under extreme pressures.
They must ensure their company is in compliance with the law to avoid any possible fines
or prison terms and meet the business direction that tells them to keep costs down. In
order to stay within the law environmental managers need to know the regulations, the
details of environmental permits, and the law. However the cost of environmental
compliance is often very high. In 1993 the Amoco Refinery in Yorktown, Virginia
estimated that 22% of their operating costs were spent on satisfying environmental
requirements (Heller, Shields and Beloff 1995: 68).
In the United States companies often must obtain environmental permits to
operate their facilities. Companies and regulatory agencies keep detailed records of how
frequently there are “environmental exceedences” or violations of permits. The
requirements of permits vary widely in different states, different businesses and even
different applications within businesses. As an example, a permit may be issued stating
that the company cannot release more than 100 pounds of pollutant X per day. If the
company exceeds the 100-pound limit in any day and reports the exceedence to the state
agency, then there will not be a fine. However, if there are several exceedences in a
certain time frame or if any release is far above the 100-pound limit, the agency may
reserve the right to impose a fine according to the severity of the infraction.
Is an environmental exceedence equivalent to breaking the law? An
environmentalist might claim that it is, whereas a company official might say a single
exceedence is not and point out that due to circumstances beyond their control, such as a
difficult start-ups or shutdowns of unit operations, they expect to have some “reasonable”
number of exceedences each year. However, if the permit were exceeded every day, then
it would be difficult to claim that the company was not breaking the law. The question
becomes, “How many exceedences are too many?” The answer that the company (or the
regulators) decides on determines how much money will be spent on preventing future
exceedences.
Sometimes it is not clear whether spending money on a project will create any
significant reduction in the number of environmental exceedences. When there are gray
areas a manager is forced to use his or her best judgment. Peers or more senior managers
may question the environmental manager’s judgment. There are other cases where
managers may be asked to overlook a problem for a certain amount of time, until an
inexpensive solution is found for fixing a problem. Each of these situations requires a
great deal of knowledge and understanding by the environmental manager of the
requirements, the costs and the risks associated with environmental exceedences.
In some cases companies hope to avoid the problem entirely by lobbying against
any new environmental legislation. If legislation is passed, the company may decide to

34
negotiate as hard as possible to get the most lenient judgment when the actual permit is
issued. If a company does not spend any money on legal and environmental expertise,
they may end up with a permit that puts them at a severe competitive disadvantage to
others in their industry. One question a company must decide is how much should they
spend arguing their case? In some cases, particularly in poorer countries, there are no
applicable laws. What is a company’s responsibility then? What if a country relaxes the
laws specifically to attract more business?
The questions raised in this chapter are not easy to answer. The point of bringing
these issues up is not to find the answers, but rather to note the problem. Typically
companies know that if they have too many violations, they will eventually draw attention
from the regulatory agencies and may be faced with fines and even prison terms.
However, if a company performs perfectly and has no exceedences in a given year, it is
generally not rewarded. Many outside the business think that a target of zero exceedences
is a reasonable expectation of obeying the law. However, the cost to the business to
achieve a goal of no environmental exceedences may be extremely high. Often there is
concern that the costs will be so high that the company will not be competitive. If a
company becomes the only one in the industry to achieve zero exceedences, but then goes
bankrupt, who benefits?

35
Chapter 15
Responsibilities to the Community
What is a company’s obligation to protect the surrounding community from harm?
This chapter looks at a few extreme cases in which lives have been lost and health has
been severely impaired. Certainly a company has an obligation to protect the public from
these harms, but what about when the health impacts are not immediately obvious or at
least not provable? What should a company do then?
In December 1952 a London fog brought with it dark clouds of industrial
pollution, so dark that it was extremely difficult to see beyond just a few feet. To many
Londoners the dark fog turned out to be toxic. Over 4000 people, mostly sick and
elderly, died in a single day. Several thousand more died in the weeks that followed
(Clayton and Chilver 1973: 42).
Despite the severity of this incident, for several years there were no laws passed to
prevent it from happening again. In January 1956 another dark fog rolled over London.
There were no reported deaths, however the memory of the previous episode moved
people to action. Within a few months Great Britain passed their first Clean Air Act and
began regulating the air pollution from coalmines and other industries (Clayton and
Chilver 1973: 130).
In the 1970’s a rising water table at Love Canal in New York brought to the
surface toxic chemicals from a hazardous waste site that had not been used in almost 20
years. A company that had been purchased by the Occidental Chemical Corporation
dumped over 21,000 tons of chemical wastes from 1942 to 1952, including halogenated
organics, pesticides, chlorobenzenes and dioxin. Odors and residues were noticeable in
the 1960’s, but became very evident in the 1970’s. Claims were made about unusually
high rates of birth defects, miscarriages, cancers and respiratory diseases. Eventually
about 950 families were relocated. Occidental was required to reimburse the Federal
government over $129 million to compensate for losses and clean-up activities. The
contamination at Love Canal and subsequent clean up led to the creation of federal
legislation that regulates abandoned hazardous waste sites (EPA, “Love Canal” 2000).
In 1984 the Union Carbide chemical plant in Bhopal, India released a cloud of
methyl isocyanate into the atmosphere and caused the deaths of approximately 3000
people. Many people sued Union Carbide, however many victims and relatives of
victims sued the Indian government for failing to perform a safety investigation that had
been recommended by the Indian Labor Department. Within a few years after the Bhopal
incident the U.S. Chemical Manufacturers Association implemented the Community
Awareness and Emergency Response (CAER) program. In this case the chemical
industry developed a plan to address public concerns because they knew that without
action the government would step in and potentially implement much more costly
controls (Shrivastava 1992: 65).

36
It is easy for businesses to argue that they must spend money to prevent incidents
like the toxic London Fog, the hazardous waste exposure at Love Canal or the methyl
isocyanate release in Bhopal. Investors recognize that companies must perform certain
acts to protect the public health, if for no other reason than to limit damages awarded in
lawsuits. After the Bhopal incident, many shareholders sued Union Carbide for failing to
warn them about the threats to public health and potential liabilities that may exist when
doing business in foreign countries (Shrivastava 1992: 65).
If there are no obvious potential impacts on the surrounding community,
businesses have a hard time justifying spending money on environmental protection that
is not required by law. If a company spends significantly more money on environmental
controls that its competitors, it risks becoming both the greenest and the least profitable
business in its industry.
Today the EPA monitors 6 “criterion” pollutants across the nation. Many cities in
the U.S. do not meet the acceptable pollution levels standards and are placed in a “non-
attainment” category. On high pollutant days it is common for cities to encourage
residents, particularly children, the elderly and those with respiratory problems to stay
inside. However industry is not the only contributor to pollution. In many towns vehicles
contribute the most pollution, but there are also many contributions from a variety of
other sources. One argument that some companies make is if the general public does not
curb their contribution to pollution, why should industry?

37
Chapter 16
Responsibilities to Ecosystems
What is a company’s responsibility to protect ecosystems such as wetlands,
rainforests and local nature preserves? One point of view is that the loss or degradation
of these systems eventually hurts people, in which case arguments can be made to
implement environmental controls to protect the public. But often the degradation of the
ecosystems does not immediately harm humans or at least not in any way that is obvious.
Do animals and plants have an inherent worth completely independent of humans?
The Judeo-Christian attitude towards nature sometimes reflects a sense that God
has given man dominion over animals and nature to do with as man pleases. In addition
emphasis is placed on spiritual matters, not matters of this world. Some
environmentalists argue that the Judeo-Christian viewpoint encourages indifference
towards environmental issues. Some ecology books even blame the Judeo-Christian
orientation for our current environmental problems. However others argue that the
Judeo-Christian expectation is to provide good stewardship over what God has given
(Dobel 1994: 20).
There are some who claim our only responsibilities are to other people.
According to Kant, we should not intentionally damage the earth; however, kindness to
animals and the environment is useful in that it provides opportunities for us to learn
kindness towards each other (Kant 1994: 27-28). Kant’s view is considered human-
centric, but others suggest that ethics should be more eco-centric or concerned with the
entire ecosystem, not just how the ecosystem supports people. For example, some argue
that we should demonstrate respect for any living organism that can experience pain
(Singer 1994: 33-40) or any organisms that are aware of their own existence (Rollin
1994: 29-32). Arne Naess, who developed the theory of deep ecology, argues that
“Nature does not belong to man” and “Nature is worth defending, whatever the fate of
humans” (Naess: 1994: 111).
The debate about how much responsibility we have to protect animal and plant
species that have no apparent worth to humans will likely continue for many years. The
answers are not clear. Today engineers and business people often do not take impacts to
the ecosystem into account when planning new projects. There are many reasons, but the
most common argument is that those who work in business are not trained to identify
what constitutes a significant threat to nature if human health and safety is not at stake
(Harris, Charles E. Jr., et. al., 1999: 225-227).
In recent years more legislation has been passed requiring companies to replace or
replenish wetlands and other sensitive areas when it has been damaged by construction
projects. Other legislation has been passed that does not allow construction to occur in
some sensitive areas. Should we allow urban sprawl to continue unabated, if it means

38
that some plant and animal species will become extinct? Is there any situation where the
value of non-human nature greater than or at least equal to the value of humans?

39
Chapter 17
Responsibilities to Socially and Environmentally Concerned Investors
There are a growing number of investors who use their investment choices to
influence the social and environmental activities of companies. Investors try to influence
how a company behaves in three ways: avoiding “bad” companies, buying “good”
companies and changing bad companies to good ones (Judd 1990: 9). Social and
environmental investors change companies by voting, either on shareholder ballots, or by
moving their cash out of unfavorable stocks. What is not clear is how widespread this
kind of investing will become.
Most institutional investors still have not embraced the social/environmental
approach towards investing. In many cases institutional investors claim that it is either
not their responsibility or outside their ability to adequately judge how well companies
are performing according to some social or environmental standard. Additionally, the
standards that have been created have a specific set of values that may be significantly
different in various parts of the world. To illustrate one potential problem with this kind
of investing, one organization created an “infidelity fund” for investors who wanted to
profit from tobacco, gambling, alcohol and pornography. The infidelity fund manager
was able to find many investors (Schmidheiny and Zorraquin 1996: 84).
Social and environmental investing became popular during the late 1980’s and
early 1990’s in response to Shell’s presence in South Africa during the apartheid era and
Exxon’s Valdez oil spill. The Coalition for Environmentally Responsible Economies
(CERES) created the Valdez Principles, which encourage companies to assume
responsibility for their environmental impact on the environment.
The main tenets of the Valdez Principles are as follows:
1. Minimize or eliminate pollution to air, water and earth.
2. Minimize or eliminate practices that contribute to the greenhouse effect, ozone
depletion, acid rain or smog.
3. Conserve non-renewable resources and protect wildlife and ecosystems.
4. Recycle when possible, and when not possible use resources wisely.
5. Use safe, sustainable energy supplies.
6. Use safe technologies.
7. Market environmentally safe products.
8. Inform consumers about the environmental impact of products.
9. Compensate victims of damage.
10. Disclose environmentally harmful operations.
11. Appoint a board member qualified to answer questions on environmental risks.
12. Evaluate progress, complete audits and make them public. (Judd 1990: 17-18)
Companies are typically judged by the kind of projects they promote. The

40
traditional method for evaluating projects in economics is the cost benefit analysis
(CBA).
“Economic developments should make people better off without making
any one worse off… …and so should only proceed if benefits exceed
costs. Conventional CBA compares costs and benefits as measured in
market prices, and the argument is that if environmental ‘goods and
services’ are valued using the same measuring rod – money – and added
into CBA, then the environment will be properly accounted for in decision
making. But for many environmental resources no real markets exist”
(Clark 1995: 82).
There are other methods for assigning values to the environment, but any attempts in the
absence of real markets is precarious at best. This makes it very difficult to judge the
social or environmental value of either projects or companies by standard cost benefit
analyses.
Integrating the concerns of social and environmental investors into a company’s
business plan is not an easy task. It becomes especially difficult when a company is
requested to perform actions that require millions if not billions of dollars, such as Shell
divesting out of South Africa or Exxon cleaning up the Valdez spill to the specifications
of environmentalists. Many companies are asking these questions, not just multinationals
that are the size of ExxonMobil and Shell.

41
Chapter 18
Ethical Dilemmas and Personal Ambition
Companies and individuals want to make money and have a clean environment.
Everyone has a different view about the relative importance of profits and environmental
protection. Often companies take the view that they should only do what the law
requires. If they do more some say they will be at a competitive disadvantage. Does this
position encourage individuals within companies to take the same view in their daily
lives? For example, are individuals encouraged to compete against their coworkers by
any means possible as long as it is legal? If employees take that point of view at work,
will they take that point of view at home with their families and in their communities?
Finding the answers to how the business approach to environmental legislation
impacts individuals is outside the scope of this thesis. However it is worth mentioning
the issues that arise for individuals who are more interested in implementing
environmental controls than their supervisors and coworkers. The “environmentalists” at
work may find that their views are unpopular at their place of employment. Is it possible
for employees to advance their desires for protecting the environment at work without
jeopardizing their careers?
One way to eliminate or reduce conflicts of interest is to focus on implementing
projects that both generate profits and reduce pollution. The sustainability movement
provides many examples of how sustainability can be accomplished through energy
savings and reclaiming waste streams into products. However there are cases when
management may still prevent or discourage employees from working on environmental
projects that are profit generating. For example, management may refuse to allow work
to proceed on environmental projects if they do not generate as much revenue as other
projects that the employee could be spending time on. Another reason management
might block an environmental project is because it would eliminate a pollution source
that might be used in the future to negotiate with the regulatory agencies when the
company expands their operations or the company may want to “save” the pollution
source and eliminate it at a later time in order to meet the requirements of new legislation
that calls for pollution reductions.
Sometimes as companies compete for profits, environmentalists and others accuse
them of being greedy. Profit seeking alone is not unethical, although it can be depending
on the methods that are used to make money. Generating revenue has many obvious
benefits to society, including creating jobs and providing a tax base for a community’s
schools and roads, etc. If a company focused only on creating a “green” business and was
not profitable, it could soon go bankrupt and not be beneficial for anyone.
The ethical dilemmas between making a profit and creating a clean environment is
not only the problem of business, it is also a problem of personal choices.

42
“I have therefore come to believe that the world’s ecological
balance depends on more than just our ability to restore a balance between
civilization’s ravenous appetite for resources and the fragile equilibrium of
the earth’s environment; it depends on more, even, than our ability to
restore a balance between ourselves as individuals and the civilization we
aspire to create and sustain. In the end, we must restore a balance within
ourselves between who we are and what we are doing. Each of us must
take a greater personal responsibility for this deteriorating global
environment; each of us must take a hard look at the habit of mind and
action that reflect – and have led to – this grave crisis.” (Gore 1992: 12).
Is it possible that by changing “the system” to one where legislators and regulators
force businesses to compete for the best environmental performance, that we can create
more profits and a cleaner environment? There are many ways in which individuals must
change their consumption patterns in order for this to succeed. However, the focus of this
thesis is not on the individual, but business. The next section of this book will describe
some possible ways to either alter or change the existing relationship between business
and regulatory agencies to create a clean environment at a price that society can afford.

Profits_and_PollutionThesis

Recommended

Recommended

More Related Content

Similar to Profits_and_PollutionThesis

Similar to Profits_and_PollutionThesis (18)

Profits_and_PollutionThesis