How Wal-Mart’s Environmental Conservation Can Top Government Regulation

In January, H. Lee Scott Jr., chief executive of Wal-Mart, announced that the company would begin working on its second wave of environmental conservation initiatives. The move follows Wal-Mart’s 2005 plans to create less waste, reduce energy use at stores, and sell more environmentally friendly products, including organic produce.

The new plans include increasing the availability of low-cost energy efficient appliances, and pressing Chinese suppliers to conform to environmental regulations. A major retailer like Wal-Mart, by leveraging their significant influence in the marketplace, can spur advancement and improvement in ways that government regulation cannot.

As an increasing number of consumers become interested in environmental sustainability, many companies and retailers are recognizing that there may be profits in appealing to this significant segment of the population. As it happens, Wal-Mart is not the first retailer to “green” their business.

The grocery chain Whole Foods, for example, has developed a loyal following of customers partly on the basis of their environmental consciousness, and at the end of January announced a complete switch to recycled paper or reusable grocery bags. However, Wal-Mart is almost certainly the largest and most powerful retailer to address environmental issues in any substantive way. The position that Wal-Mart occupies in the supply chain gives them a power that other organizations lack.

The efforts of a major retailer like Wal-Mart can be more effective in achieving change in areas over which they have influence than government regulation. For example, if Wal-Mart does indeed work to put pressure on Chinese manufacturers they have a good chance of forcing manufacturers who want to do business with Wal-Mart – which is many – to conform to environmental regulations and standards. This could be much faster and more efficient than a continued appeal to regulatory channels, which have so far been relatively ineffective.

Likewise, Wal-Mart is in a position to encourage the development of improved technology. By alerting suppliers to the fact that Wal-Mart is committed to selling low-cost energy efficient devices, and to offering energy efficient appliances such as microwaves and televisions, currently large energy hogs, Wal-Mart will likely stimulate innovations in engineering and design of these devices. When companies and suppliers can be assured of a huge retail market for their products, there is a great incentive to develop those products. Noah Horowitz, a senior scientist at the Natural Resources Defense Council, agrees.

“When Wal-Mart asks, suppliers jump,” Horowitz told The New York Times. “There are positive ripple effects throughout the supply chain.”

These moves in particular will also open opportunities for lower-income households to afford energy efficient appliances. Though many of these appliances will save consumers money in the long run, the higher up-front costs can make it difficult for consumers on very tight budgets. With Wal-Mart’s influence on suppliers to develop and offer low-price high efficiency appliances, more consumers are likely to feel able to buy those items.

If Wal-Mart is able to adhere to the goals that Mr. Scott has laid out, they will be offering significant benefits to environmentally conscious consumers – whether they are Wal-Mart customers or not. They will also have done it without the overhead of government regulation, and with the force and efficiency of the Wal-Mart supply-chain process.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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