Corporate Citizenship: The Societal Impact of Law

1. Corporate Citizenship: The Societal Impact of Law Gwen Alexis, Ph.D. , J.D. Associate Professor Leon Hess Business School galexis@monmouth.edu Leadership and Ethics Track LeBow Business Professors Teaching Summit, Drexel University Philadelphia, PA - May 18, 2012

2. How did Mass vs. EPA About? EPA administers the Clean Air Act (CAA), but had failed to enact rules to regulate the emission of greenhouse gasses. • EPA’s argument for doing nothing: • “…regulation of greenhouse gas emissions from motor vehicles would ‘result in an inefficient, piecemeal approach to addressing the climate change issue’ because [t]he U.S. motor vehicle fleet is one of many sources of [greenhouse gas] emissions.” (EPA brief in Mass v. EPA, p. 5) In April 2007, U.S. Supreme Court held that EPA has authority to regulate greenhouse gasses under the CAA. (CSAP Rule adopted under this authority.)

3. One View of Mass vs. EPA: Pros and Cons of Globalization Twelve Coastal States, 3 Cities, and 3 NGOs sued EPA to force it to regulate carbon dioxide emissions as contributors to global warming. Indication of diminished clout of nation-state to alone establish national agenda. P’s and Amicus Briefs evidence of Transnational formation of coalitions for causes (shared values becoming a reason for “community” formation) . “Global Civil Society”

4. Another View of Mass vs. EPA “Tragedy of the Commons” Constraints must be placed on the use of the commons (i.e., our environment) because in the absence of constraints, self-interest is likely to lead individuals and organizations to behave in ways that will not sustain our shared resources.

5. DEBATE QUESTION Which of the following three choices is the best modus operandi for getting U.S. auto manufacturers to produce more environmentally friendly vehicles (both from the standpoint of emissions control and fuel efficiency): • Laissez-faire capitalism (let the invisible hand of the marketplace and the inevitable competition of the free enterprise system determine the timing) • Central Government Direction (federal government and federal regulatory agencies dictating a nationwide policy with firm timetables and stringent guidelines). With this alternative, assume there will be continued investment of federal taxpayer funds into the U.S. auto industry to keep it afloat until such time as it can stand on its own again. • State-by-State establishment of emissions control standards and fuel efficiency benchmarks to be attained over time as the U.S. auto industry gradually returns to a position of strength, whether on its own or through capital injections by the federal government (using taxpayer funds).

6. INSTRUCTIONS: In accordance with your assigned group role below, prepare to argue for one of the three choices above (and against the other 2): Group 1 - You are academics, Classical economists, descendants of Adam Smith. You will view the problem only in the abstract and talk in terms of general principles, having nothing to do with reality and everything to do with the science of economics. Remember; base your arguments only on tried and true economics, the general principles of capitalism and democratic (not autocratic) societies. The market is God; the invisible hand watches over us. You may draw on historical accounts to establish the soundness of your argument. Under no circumstances are you to allow yourself to be drawn into an argument about actual cases, real life situations, non-textbook data. Group 2 - You are consumer advocates, descendants of John Fitzgerald Kennedy (JFK). You will argue in favor of the alternative that you, as a group, conclude will best guarantee low prices, good quality, consumer choice, AND consumer safety. Your bible is the Consumer's Magna Carta; however, you have also read Ralph Nader’s Unsafe at Any Speed. Hence, you suspect that the auto industry will only do what is good for society when forced by government, public pressure, or competitive forces (like foreign automakers stealing away customers). • “There is not really demand. This is not the will of the people --- sales of Toyota Prius ... have absolutely tanked as fuel prices have gotten lower. .... There has to be an Energy Policy that somehow fosters demand for these fuel efficient vehicles or we are going to have these very expensive, very small cars that no one wants to buy so people will simply gravitate towards used vehicles.” (statement of Mike Dushane, Executive Director Car and Driver, on Revisiting Fuel Standards video.) • Consumer’s Magna Carta

7. Right to Safety Right to Be Informed Right to Choose Right to Be Heard The Consumer’s Magna Carta 0 (Mktg. and Advertising)

8. Assigned Roles, Continued • Group 3 - You are the people in all their messiness - environmentalists, asthma sufferers, skiers, ski resort owners, parents, children, Republicans, Democrats, church goers, atheists, wealthy, poor, smart, dumb, Humvee drivers, Smart Car drivers, SUV drivers, motorcyclists, skateboarders, Native Americans, illegal immigrants, resident aliens. You name it, you're it. • Group 4 - You are the group of states led by Michigan that filed an amicus brief siding with the EPA. The auto industry has been good to you, not just manufacturing autos within your borders, but also generating parallel industries that supply parts to the auto industry. You love the auto industry but you also have a fond affection for the UAW, the union that represents your citizens who work within the auto industry (or, more accurately, who used to work within the auto industry).

9. CAA and the States • Under the Clean Air Act, States have to develop State Implementation Plans (SIPs) that outline how each state will control air pollution. • A SIP is a collection of the regulations, programs and policies that a state will use to clean up polluted areas. • Unfortunately States work at cross-purposes. This is evidenced with the diverse sides taken by states like NY, IL, MA, CT, etc. which supported the EPA cross-state emissions rule and states like Texas that joined the electric power companies in opposing the Rule as an undue financial burden.

10. Second DebateTexas vs. EPABM 515 (Spring 2012) Group Debate Nice Summary of Issues http://www.americanprogress.org/issues/2012/02/csapr_contributions.html

11. Background Material 2nd DebateEnvironmental Terminology : Negative Externalities and NIMBY. Negative Externalities - Side Effects or By-products of operations not included in standard cost accounting systems (not paid by for business or the consumer) • Examples - Air Pollution, Water Pollution, Improper Waste Disposal Illustrative examples of the 2 uses of NIMBY terminology: NIMBY is the human denial of responsibility or accountability for misuse of the environment An example of this use of NIMBY is the community that uses ever-increasing amounts of electricity but fights against having an electric power plant in its vicinity. NIMBY also encompasses the problem of entities that cause environmental pollution being unwilling to accept responsibility for being the sources of the problem. An example of this use of NIMBY is a company generating waste such as old motor oil, but unwilling to pay the cost of proper disposal Perpetuation of the NIMBY mindset is facilitated by the absence of government intervention to make business pay for Negative Externalities such as air pollution.

12. Background for Second Debate, Cont’d. The following statements are from the Texas "Motion to Stay": • "Additionally, the Final Rule violates the CAA by requiring Texas to reduce its emissions far more drastically than necessary to eliminate its modeled significant contribution to a single monitor in Illinois that currently reflects NAAQS attainment.” (p. 2) • It is the NIMBY mindset that makes operative the Tragedy of the Commons. NIMBY describes the situation in which those responsible for pollution deny being the root cause of damage; i.e., they "excuse" their contribution to pollution on the grounds that it is minor or insignificant in the overall scheme of things. • “The Final Rule Will Cause Texans to Lose Their Jobs and the State to Suffer Unrecoverable Economic Loss” (pp. 16 – 18) .

13. Background for Second Debate, Continued • The following statement by Houston-based Dynegy CEO Robert C. Flexon is contained in the "Issue Brief" prepared by the Environmental and Energy Study Institute (EESI): "We have made substantial capital investments in state-of-the-art air pollution control devices. Any efforts to delay or derail CSAPR would undermine the reasonable, investment-backed expectations of Dynegy … Of course, it goes without saying that control of interstate air pollution serves important public policy objectives, including protection of human health and the environment as well as the preservation of opportunities for economic development in downwind communities.” • From Shaw’s article "Beyond the Invisible Hand" (Week 4 reading assignment): The “Ineluctable Elusiveness” of Profit Maximization, which “frees us from the moral tyranny of Friedman and other economists.”

14. Assigned Roles • Group 1 – U.S. Chamber of Commerce. See these websites for inspiration: http://www.uschamber.com/ http://www.velvetrevolution.us/stop_chamber2/index.php?q=node/1 • Group 2 – Activist Environmentalist Groups like the Sierra Club. See, “Sierra Club, et al. Opposition to EME Homer” on eCampus, Item 12 under Supplementary Material • Group 3 – Diverse Utilities and Coal-Fired Power Plants, many of whom have already invested in pollution-control technologies such as scrubbers in response to the Clean Air Interstate Rules of 2005(CAIR). These CAIR investments are estimated to have averaged approximately $1.6 billion per year up until 2008 when a federal court struck down CAIR. Group 3, in developing your positions on the assigned questions, keep in mind that included among your number are Dynegy, Luminant and EME Homer City (Defendant sued by EPA as serial polluter). See Complaint against EME Homer on eCampus -- Item 11 under Supplementary Material.

15. Assigned Roles, Continued • Group 4 – Polluting States in Opposition to Stay (Illinois, New York, and North Carolina). See eCampus, Item 1 (“Dirty Deeds Done Dirt Cheap”) under Media for a useful link in preparing your Debate positions. • Group 5 – Polluting States such as Texas in Favor of Stay. In addition to Texas “Motion for Stay” on eCampus, see Item 1 (“Dirty Deeds Done Dirt Cheap”) under Media for a useful link in preparing your Debate positions. “Prompter” Notes to be Handed In: At the end of the debate on February 21, each Group is to hand in a set of “prompter” notes -- one set per group. This may be handwritten as you may think of new points that you want to add by hand as you hear various arguments made during the debate.

16. Debate Questions • On February 7, 2012, the EPA made what it characterized as “minor” adjustments to the Cross-State Air Pollution Rule (CSAPR): http://www.epa.gov/airtransport/actions.html Question 1: Does the fact that the EPA is still tinkering with the CSAPR represent irrefutable evidence that the Court’s decision to postpone the effectiveness of CSAPR is an excellent idea? (Be prepared to state in excruciating detail why or why not.) • The U.S. Chamber of Commerce is the world’s largest business federation, with a long history of taking on the EPA, sometimes with lawsuits, for adopting environmental regulations with no regard for the impact stringent environmental regulations may have on the economy, most particularly on the job market. Thomas Donahue, President and CEO of the U.S. Chamber of Commerce, recently asked, “ Is it just me, or does it seem like EPA regulators are writing new rules in an alternate reality? Maybe it’s a gravity-free zone in which the burden of a growing federal bureaucracy doesn’t weigh down the economy, or where the uncertainty of overregulation isn’t a drag on job creation.” Question 2:(a) Should the EPA avoid adopting regulations that will potentially have a negative impact on the economy? (b) What if a costs/benefits analysis definitely shows that the economic costs in terms of loss of jobs far outweigh the benefits in terms of lowered health risks that will be reaped from adoption of particular environmental regulations -- should the EPA then just abandon the regulations? (c) Does it constitute moral bankruptcy to take economic factors such as the present perilous state of the economy into account when it is a known fact that human health is being jeopardized by environmental degradation? Consider the following in answering all parts of Question 2: http://www.infratime.com/video/4qzhydfP1a3EwL0

17. Debate Questions - Continued • In a Motion for Stay filed by EME Homer City , the claim is made that the CSAPR violates a basic tenet of the Clean Air Act (CAA) to promote a “cooperative-federalism scheme” in which air quality standards are set at the federal level by the EPA while leaving local implementation of the federal guidelines to each individual state. Rather than setting statewide emissions reductions and allowing the States to determine how best to implement them, the Rule unilaterally imposes on upwind States a federal implementation plan (“FIP”) that dictates the way States must meet EPA’s new standards. That “FIP first” approach plainly exceeds EPA’s statutory Authority … and upends the careful balance Congress struck between state and federal decisionmaking. (Emphasis Added.) Question 3: (a) Does the fact that, with the CSAPR, upwind states are being asked to decrease pollution going to downwind states justify the EPA using federal authority to “override” SIPs? In other words, can states really be relied upon to rigorously follow federal guidelines that put the onus upon them to decrease the effect of their pollution on some other state? (b) Is there anything in recent history that would justify the EPA having such blind faith in the ability of states to put their self-interest on the back burner for the betterment of mankind in general or another state in particular? (c) Is there any event in recent history or current affairs that demonstrates that such faith in state altruism would be extremely foolish on the part of the EPA? (d) In any event, do you interpret the CAA as standing for the proposition that a “FIP first” approach exceeds the EPA’s statutory authority?

18. Debate Questions - Continued • In a Motion for Stay filed by EME Homer City, it is noted that because the EPA has appropriated the right of states to come up with their own SIPs, regulated entities such as EME Homer City have been deprived of the opportunity to participate in the SIP process as is customary. N.B. All federal regulatory agencies like the EPA must follow a specific procedure in adopting new regulations. Notice of proposed regulations must be published in the Federal Register to enable citizens to comment on the pending rules prior to their adoption. The comment period varies, but from 90 days to six months is common. After the comment period has expired, the agency publishes the final rule in the Federal Register and it must address any concerns raised by the public during the comment period, stating with specificity how the public’s concerns were dealt with. Question 4: Does the existence of this public comment period sufficiently address the concerns being expressed by EME Homer City in its Motion? (Be prepared to state in great detail why or why not.)

19. The End! • Questions?Comments?