University of Bucharest, Faculty of Political Science, English Department

Ciornea Sabin

Innovative Methods in Combating Environmental Abuses in Developing Countries

May 15

2012
The case of Multinationals

This paper examines the role of third-party factors that form part of the complex web that works along with environmental regulation to generate innovations aimed at curbing industrial pollution. A case-study approach was used in analyzing the empirical data obtained from three Nigerian food-processing and textiles firms. It is the purpose of this paper to realize an introductory part, where to explain the key terms to be used during the research project, the international status-quo, the way in which things happen and the way in which things could happen according to the initiative engulfed in this writing of mine. Last but not least, I would like to point out the fact that I will be talking about multinationals coming in developing countries to take advantage of the very lax legislation existing there and to increase this way their profit at the expense of human and environmental rights. In addition, Nigerian environmental regulators were interviewed to complement the case-study findings. Particular attention was paid to how third-party factors affected the firms in their decision to adopt wastewater treatment technology.

SPE III

Introduction
Environmental policy is regarded by some economists as the main driver for industrial innovations that reduce external diseconomies of industrial production in both developed and developing countries1. However, recent research on the links between pollution regulation and environmental innovation suggests that environmental policy may not sufficiently explain the recently observed trends in environmentally beneficial technological innovation2. It is becoming apparent that a complex web of additional interacting factors determines pollution control innovations at the firm level. This paper examines the role of third-party factors that form part of the complex web that works along with environmental regulation to generate innovations aimed at curbing industrial pollution. A case-study approach was used in analyzing the empirical data obtained from three Nigerian food-processing and textiles firms. It is the purpose of this paper to realize an introductory part, where to explain the key terms to be used during the research project, the international status-quo, the way in which things happen and the way in which things could happen according to the initiative engulfed in this writing of mine. Last but not least, I would like to point out the fact that I will be talking about multinationals coming in developing countries to take advantage of the very lax legislation existing there and to increase this way their profit at the expense of human and environmental rights. In addition, Nigerian environmental regulators were interviewed to complement the case-study findings. Particular attention was paid to how third-party factors affected the firms in their decision to adopt wastewater treatment technology.

Transnational Corporations in the World Today

In an poque of increased globalization and international agreements, in an era of economic development and supranational organizations, transnational corporations (TNC) have become one of the most important actors on the world stage. This fact is attributed primarily to the quantitative criterion, showing that nowadays, TNCs are growing in number and

Baumol, William J. and W. E. Oates (1988) The Theory of Environmental Policy, New York: Cambridge University Press; Siebert, Horst (1987) Economics of the Environment: Theory and Policy, Berlin, Germany: Springer Verlag 2 See, for example, Porter and van der Linde (1995) and Hart and Ahuja (1996) on developed countries, and Adeoti (2002) on developing countries

2|Page

importance, as a significant amount of modern economic development is directly related to the activity of TNCs. Transnational corporations are enterprises which own or control value-added activities in at least two countries. In other words, a transnational corporation is an incorporated enterprise comprising a parent company and its foreign affiliates . The importance of transnational corporations in the modern world economy deals not only with its theoretical foundations but with its economic side as well. The dynamic development of TNCs started in the beginning of the fifties. In 1969 there were almost 7000 transnational corporations worldwide . According to the World Investment Report 2004, it is estimated that there were 61.000 TNCs in the world . In 2003, the foreign direct investment (FDI ) outflow, which is a measure according to which one could establish the productive capacity of TNCs, amounted to almost $ 612 billion . In 2008 the total number of TNCs in the world is estimated at around 82.000, which controlled almost 810.000 subsidiaries . While more than 60% of foreign affiliates are situated in developing countries, more than 70% of parent companies are headquartered in developed countries. TNCs are engaged in different activities that are part in their turn of pollution-intensive manufacturing industries, whose final products or the processes of production may jeopardize the environment in these host developing countries. In the period 1990-2002 the FDI stock rose almost threefold, especially in the manufacturing process. But TNCs are also engaged in several other sectors such as primary industries like agribusiness and mining, which have the potential to negatively affect environmentally sensitive areas. Unfortunately, statistics show that the FDI stock in primary sector more than doubled during 1990-2002. In 2002 alone, developing countries attracted more than 30% of FDI in the primary sector, which increases the chances of a degraded environment and related human rights violations. During several years, the services sector became the most important one, accounting for 55%, while the manufacturing sector for 38% and last but not least the primary sector for 7%. This very fact does not mean that the risk of environmental degradation decreased automatically. All to the contrary, the developing countries share of inward FDI stock in such sectors has also risen significantly. This certainly justifies serious concerns in terms of environmental consequences of the commercial activities of TNC in developing countries.

3|Page

While almost all countries possess environmental laws designed to protect air, water, land, flora and fauna from pollution, these standards radically differ from one country to another. But to be even more precise, there is a tremendous difference between environmental laws in developed countries, where the vast majority of TNCs are headquartered, and the very same laws in developing countries, or host countries, where TNCs are engaged in pollution-intensive activities. As a general rule, the environmental norms in developed countries are much stricter than those in developing countries, and this is not necessarily something to be academically tested. Over the past two decades, is has been alleged by a growing body of evidence that TNCs are engaged in different operations in developing host countries with much lower environmental standards than those implemented in the developed country, where TNCs are headquartered. Unfortunately, as long as TNCs officially comply with the almost inexistent environmental legislation present in the developing countries, they cannot be held responsible or even liable for their environmental abuses in these host countries. However, environmental damage is not only a problem directly linked to the host country, but rather it is of global concern. In their turn, transnational corporations, being profit-oriented, are attracted to a great extent to those areas which permits them a higher profit, through lax environmental legislation, which in its turn, allows a higher degree of human rights violations, especially in host countries, namely in the developing countries . If we are to analyze why is this happening, one could argue that host countries do not have neither the means nor the will to enforce harsher standards on TNCs. And this should be explained by the very fact that governments realize the importance of the economic investment by TNCs, and conversely, the protection of the environment falls by the wayside . In this scenario, it is obvious that the host country, namely the developing country, has no chance in front of the political and economic power of the TNCs. At the same time, there is a growing body of evidence saying there is no solution provided by the international law community in order to equip victims with an adequate legal remedy against transnational corporations. The current international human rights law and environmental law do not provide a legal framework according to which TNCs could be held responsible for their environmental abuses in developing countries.

4|Page

The Problem
Proponents of globalization argue that foreign direct investments (FDI) encourage to a great extent the emerging economy, as there is a need to improve the standards of production in order to meet the needs of consumers3. On the other hand, opponents of globalization also take into account the negative effects of the phenomenon. In this sense, globalization could also cause serious harm to the environment, thus jeopardizing human rights. Among the factors that contribute to the environmental destruction, which in its turn falls into two categories: natural and man-made, one might name nation states, domestic populations, and last but not least corporations. The environmental degradation and its subsequent effects on humans are of global concern, that is why a growing body of evidence demonstrates how populations are victims of such degradation due to the process of irresponsible industrialization firstly, and the exploitation of developing countries by TNCs seeking to maximize their profit. A significant percentage out of the total number of TNCs existing in the world is based in the developing world in order to take advantage of the lax environmental rights and poor legislative infrastructure. But before going into further details analyzing the impact of TNCs on the environment in developing countries, I would like to make a series of clarifications. I have opened earlier the discussion on globalization and its positive, as well as negative effects upon the environment. However, the concept of economic globalization should be properly addressed as it is the core term in the current context. The globalization of the economy refers to increasing economic interdependence of national economies across the entire world through a rapid increase in crossborder movement of economic goods, services, technologies, etc4. Economic globalization is concentrated on the idea of economic efficiency, and it portrays the human as an economic being5. Given this pure economic architecture, the criterion of utmost importance in this equation is the efficiency. Everything that aggravates the economic efficiency, such as humans or the

WILSON, Norbert, L.W. Linking Globalization, Economic Growth and Poverty: Impacts of Agribusiness Strategies on Sub-Saharan Africa: Discussion, Oxford University Press, American Journal of Agricultural Economics, Vol. 83, No. 3 (Aug., 2001), p. 734 4 WELFENS, Paul, J.J, Globalization of the Economy, Unemployment and Innovation. Structural Change, Schumpetrian Adjustment and New Policy Challenges, Springer, 1999, p. 7 5 nd JACKSON, John, H, The World Trading System: Law and Policy of International Economic Relations, pp. 8-9, 2 edition, 1989

5|Page

protection of the environment is against the concept of economic globalization6, thus hardening the process. As a consequence, the economic reality is that the cost of goods such as the cost of oil is reflected in the environmental degradation rather than in the final price that reaches the consumer7. The effects of environmental destruction leave the affected populations with two basic options: on the one hand, to leave the infested land and move to another place, becoming this way environmental refugees8 or environmentally displaced people, or, on the other hand, to remain in the degraded environment and risk their lives by exposing themselves to contaminated food and water. As a result, one might observe that neither of the above-mentioned situations is ideal as both of them leave populations in altered environmental conditions than before the destruction occurred. From an international point of view, TNCs are less present in the legislative process than the national sovereign state. In this sense, multilateral investment treaties (MITs) or bilateral investment treaties (BITs) do not directly impose requirements on TNCs. Rather, these kind of treaties are more interested in regulating international actors such as states, limiting thus the ability of host governments to take action9. Although TNCs have an enormous influence and play a tremendously important role in the degradation and destruction of the environment, which subsequently harms human populations, these companies, paradoxically, are not signatories of international binding treaties10. Unrestrained by such international treaties, TNCs are safe from liability for the environmental destruction they provoke and the subsequent human rights abuses. Dinah Shelton in her book Protecting Human Rights in a Globalized World concluded by saying that globalization, and the existence of TNCs as a result of this specific process, created

SHELTON, Dinah, Protecting Human Rights in a Globalized World , 25 B.C. Int'l & Comp. L. Rev. 273 (2002), http://lawdigitalcommons.bc.edu/iclr/vol25/iss2/7 7 EATON, Jpshua, P. The Nigerian Tragedy, Environmental Regulation of Transnational Corporations, and the Human Right To a Healthy Environment, Boston University International Law journal, 1997, p. 297 8 An environmental refugee is a person who have been displaced owing to environmental causes, notably land loss and degradation, and natural disaster, Glossary of Environmental Statistics, Studies in Methods, Series F, No. 67, United Nations, New York, 1997 9 Alice de Jonge, Transnational Corporations and International Law. Accountability in the Global Business Environment, Edward Elgar Publishing Limited 2011, p. 75 10 Alice de Jonge, Transnational Corporations and International Law. Accountability in the Global Business Environment, Edward Elgar Publishing Limited 2011, p. 75

6|Page

powerful non-state actors that may violate human rights in ways that were not contemplated during the development of the modern human rights movement11. In the end, we observe that we confront with a vague and ambiguous legislation on two different levels. On the one hand, we have a lax legislation in the host countries, and on the other hand, the international community is as weak as the developing country in establishing certain limits towards the environmental degradation of the TNCs.

An overview of the environmental regulatory regime in Nigeria

Generally speaking, environmental regulation in Africa remains relatively weak while there is insufficient institutional capacity to deal with industrial pollution problems. Even South Africa with relatively advanced manufacturing had not established a comprehensive programme of industrial pollution control until the second half of the 1990s12. However, Nigeria appears to be an exception to the general African situation. In 1988, the government of Nigeria established a Federal Environmental Protection Agency (FEPA)13 to oversee and manage environmental regulatory processes in Nigeria. Industrial pollution control, which had previously been carried out on a rather ad hoc basis, came under the purview of FEPA which has a network of zonal offices14 and pollution control laboratories15 for the purpose of pollution monitoring and control. In addition to the establishment of FEPA, each of the Nigerian state governments also established a State

11

SHELTON, Dinah, Protecting Human Rights in a Globalized World , 25 B.C. Int'l & Comp. L. Rev. 279 (2002), http://lawdigitalcommons.bc.edu/iclr/vol25/iss2/7 12 DEAT (1996) "An Environmental Policy for South Africa", Green Paper for public discussion, Pretoria, South Africa: Department of Environmental Affairs and Tourism (DEAT) 13 FEPA was merged with some environment-related departments to form the Federal Ministry of Environment in January 2001. The use of FEPA is retained in this paper for clarity 14 As at the time of this research, these zonal offices were located at Ibadan, Kaduna, Kano, Lagos, Maiduguri, Owerri and Port Harcourt. The Lagos office also serves as the headquarters of the industrial compliance monitoring and enforcement department of FEPA 15 As of 1999, these laboratories included the National Reference Laboratory (NRL) located in Lagos, and two zonal FEPA laboratories located in Port Harcourt and Kano. Other pollution control laboratories also exist in some state environmental protection agencies. While some of these laboratories have existed for almost as long as their parent institutions, they were not adequately equipped until a World Bank-assisted programme on environmental management was implemented in 1998 (see Daily Monitor, 16 October 1998: 16). It is nonetheless yet to be seen whether the Nigerian environmental regulatory authorities can maintain and further equip these laboratories for effective industrial pollution control

7|Page

Environmental Protection Agency (SEPA)16 in the mid-1990s. Before the advent of SEPAs, FEPA was solely responsible for industrial pollution control in Nigeria. Since SEPAs were established, FEPA and SEPAs have worked together to monitor and control industrial effluents. It should however be pointed out that SEPAs are statutorily directly responsible for industrial pollution monitoring and control in their respective states, while FEPA is expected to provide institutional support and a regulatory framework for pollution control. The institutional support provided by FEPA has included the development of standards and guidelines for pollution control in Nigeria; training programmes for state environmental regulators and officers in charge of environmental issues in industry; and effluent and emission limits. Policy approach in dealing with industrial pollution in Nigeria has been mainly "command and control" in nature. Market-related policy instruments such as effluent taxes and tradable permits are still alien concepts and little understood, especially among local stakeholders in industry. A composite law was enacted in August 1991, coming into full application in January 1995. The industrial pollution control law is termed "National Effluent Limitation Regulation" (S.I.8) and "Pollution Abatement and Facilities Generating Wastes Regulation" (S.I.9) (FEPA 1991a). The full implementation of this law was delayed till January 1995 to allow for a three-year moratorium during which firms were expected to have made necessary technological changes to comply with the S.I.8/S.I.9 regulation. The S.I.8/S.I.9 law specifies the maximum permissible limits for various industrial emission parameters in Nigeria. These effluent limits are binding in every Nigerian state, though states are allowed to enact stricter emission limits. For example, Lagos State, which has the largest concentration of industry in Nigeria, has recently enacted stricter effluents limits17. At this juncture, it is necessary to point out that the level of environmental awareness and efforts to protect the environment appear to be on the increase in Nigeria. This was further demonstrated by the upgrading of FEPA into a full-fledged government department with a cabinet minister in January 2000. With this institutional reform FEPA became the Federal Ministry of Environment (FME)18.

16

Nigeria has 36 states and a Federal Capital Territory (FCT). Each state (and the FCT) has a SEPA or an environmental protection board 17 Lagos State has at least 10% of the Nigerian population and some estimates indicated that the state has 60 to 70% of industry in Nigeria (see Lubeck 1992: 17 and LASEPA 1999) 18 For further details on the environmental regulatory regime in Nigeria with respect to industrial pollution control, see FEPA (1991b) and Adeoti (2002)

8|Page

Limits to environmental policy as the stimulus for green innovation in developing countries While environmental policy is necessary to make firms appreciate and perhaps accept responsibility for the external diseconomies of their production activities, the factors determining the implementation of environmentally benign technical change largely transcend the traditional notion of environmental policy as the stimulus for innovation in pollution control. Theoretical models linking environmental policy and environmentally benign technological innovation (e.g., Downing and White 1986; Milliman and Prince 1989) are limited in their empirical applications. Such models adopt the neo-classical view of environmental policy as being the stimulus for environmentally benign technical change, and in the process assume off other pertinent factors that have been demonstrated from empirical studies as playing important roles in stimulating environment-friendly innovations. The focus in these theoretical viewpoints is not on the kind of technical change induced by policy, but rather the kind of policy or optimal mix of policies that could achieve a predetermined level of environmental quality or pollution reduction. For developing countries still in search of relevant paths and appropriate strategy for industrialization, these theoretical ideas that focus on environmental policy may appear more of a luxury. Many developing countries lack the appropriate institutional context for developing and managing elaborate environmental policy instruments such as pollution taxes and tradeable emission permits. Most developing countries are thus forced to adopt command and control strategies and resort to regulatory means that may not go beyond specifying emission limits and technology standards to be adopted to ensure compliance. Moreover, based largely on studies of industrial economies, the last few years have witnessed the development of theoretical and empirically tested propositions that emphasize that environmental policy does not provide sufficient impetus for green innovation in many instances. Among such propositions, Michael Porter's hypothesis that environmental regulation can create technological offsets, yielding economic benefits that write off the cost of compliance with environmental policy, is of particular importance. These propositions have been extended to suggest "win-win" solutions yielding double dividends that benefit both private and social parties. Some have even suggested a triple dividend that includes increased employment. Thus, the notions of double-triple-dividend suggest that the incentive to adopt green innovation may
9|Page

arise from a desire to attend to socioeconomic benefits rather than the compelling force of the environmental policy. More recently, it has been questioned the effectiveness of environmental policy alone as the stimulus to green innovation, and underlined the importance of other factors needed to generate firm-level technological change. He lists among these factors regulatory requirements (including environmental policy); possible cost savings or additions to profits; public demand for a less polluting and safer industry; and worker demands and pressures arising from industrial relation concerns. Additionally, studies on environmental regulation and industrial pollution control in developing countries rarely focus on the impact of environmental policy on technology responses of firms19. Rather, the focus is usually on the impact of policy on emission reduction or pollution abatement expenditures. Though emission reduction would be impossible without technological application or change in production practices aimed at pollution abatement, the neglect of direct analysis of the technological or innovation impact of policy limits our understanding of all the factors that determine the actual emission reduction achieved. Technology is the medium through which emission reduction effects are accomplished. When the searchlight is focused on this medium, we may gain a more comprehensive perspective on the interplay of factors that interact with technology to generate the emission reduction effects. Having argued that environmental policy alone cannot explain green innovation among industrial firms in developing countries, we need to ask what other factors, in addition to environmental policy, are needed to provide the full range of benefits from emission reduction effects. While there may be striking similarities between innovation behaviour of developed and developing-country firms with respect to pollution control, it is pertinent to note that the divergence of the north-south percep-tion of the challenges of environmentally sustainable development would affect the level of stringency in environmental policy and its enforcement process.

19

Adeoti (2002) presents a major deviation from this trend by analysing the technological impact of the Nigerian industrial pollution control policies

10 | P a g e

Environmental policy in the South has never been, and may not in the near future be expected to be, as stringent as in the industrial countries of the North. Hence, when environmental technologies are observed among firms in the countries of the South, it is plausible to suggest that there may be other "third party" factors (apart from environmental policy) that drive firms' green innovation behaviour. Decoupling these factors from environmental policy is, however, difficult since environmental policy provides the basic guidelines for the firms' technological responses. Third party factors include, but are not limited to, community pressure on firms to reduce emission; influence of public corporations that may be affected by polluting activities; advocacy by environmental nongovernmental organizations; influences of parent companies on affiliates of multinational corporations; and the influence of environmental technology suppliers. Based on empirical case studies from the Nigerian food-processing and textile sectors, the remainder of this paper will discuss the relationship of third-party factors with firms' technological responses. First, however, a concise description of the two sectors in Nigeria and their respective pollution problems.

Pollution problems of the food-processing and textile industries

As typical of countries in the early stages of industrial development, resource-based manufacturing activities are an important feature of the Nigerian economy. Data on the structure of Nigerian manufacturing indicates that the food-processing and textile sectors contribute 29.4% of the total manufacturing output and 32.4% of the manufacturing value-added in 1994. The two sectors employ 38.7% of the Nigerian manufacturing workforce (UNIDO 2001)20. Manufacturing activity in Nigeria is concentrated in a few large cities21, and its pollution effects are the subject of much concern, particularly to the city dwellers.

20

These data are computed from UNIDO industrial statistics database 2001 CD-ROM. The data are based on the available information for 1994. Since there has been no ex-traordinary development that would have a drastic impact on Nigerian manufacturing, these statistics are not expected to be significantly different from what could have been obtained at the time of this research. In 1994, the food-processing and textiles sectors respectively contributed 16.1% and 13.3% of total manufacturing output; 22.1% and 10.3% of total manufacturing value added; and 14.7% and 14.0% of total manufacturing employment 21 Manufacturing in Nigeria is concentrated in the Lagos-Otta-Agbara industrial cluster, the Kano-Kaduna axis and Port Harcourt-Aba industrial zone

11 | P a g e

The food-processing and textile sectors both consume high volumes of water and have significant water-pollution potential associated with their activities. For example, from the data provided by the World Bank (2001) on industry's share of organic emissions, the two sectors accounted for nearly half (47.9%) of total polluted wastewater discharges from the Nigerian industry in 1994. Public health concerns are high with respect to the pollution effects of industrial wastewater since the majority of Nigerians still lack access to safe drinking water22. Perhaps not surprisingly, Nigeria has relatively well-articulated pollution-control regulation with respect to industrial wastewater. The more specific pollution problems of the two sectors are briefly described below.

Food processing
Food processing in Nigeria may be broadly classified into seven subsectors or divisions. These subsectors are grain milling; soft drink and fruit juices; brewing; distilleries and wine; dairy products; vegetable oil and fat products; and confectionery and sugar products. Apart from grain milling, which is essentially a dry process, all other sub-sectors are water-pollution intensive, discharging wastewater largely laden with organic wastes. The organic pollutants are mainly present in process wastewater, container/vessels wash water, clean in place (CIP)23 rinse water and floor-wash water. In many factories visited for this research, fugitive oil emission or the dripping of other organic pollutants due to old equipment further compounded the wastewater problem. Virtually all firms in this sector have oil traps to capture the fugitive oil as much as possible, and thus limit additional pollution of the wastewater. Among the firms visited, some burned oil in boilers to generate energy, a practice that could lead to air pollution, while others sold it on the open market and mainly to the informal sector where the oil is often used as fuel. This recycling of waste oil is not peculiar to the food processing industry. Similar practices were noted among the textile plants visited.

22

According to UNDP (2001), only 57% of Nigerians have access to improved water sources, which includes household connections, public standpipes, boreholes with hand pumps, protected dug wells, protected springs and rainwater collection. Many of these improved sources may not guarantee the provision of safe drinking water because of the high risk of contamination during transportation from fetching point to point of use 23 "Clean in place" operation for periodic washing of process lines and equipment

12 | P a g e

Textiles
The pollution problems of the textile industry in developing countries have long been a concern24. For textile plants in Nigeria, the handling of the wastewater effluents constitutes the most important problem. For example, 89% of the textile firms in our survey sample indicated wastewater as the most serious pollution problem they have confronted (see table 1). The equivalent figure of 78% for the food-processing industry suggests a relatively less difficult view of the perception of the problem of industrial wastewater by plant managers.

Table 1

Third-party factors and innovation in pollution control processes

The cases discussed in this section include two breweries, two confectionery plants and two textile plants. Table 2 presents the summary of the background and basic characteristics of the case-study firms. For reasons of confidentiality, the case studies are designated FP1, FP2, FP3 and FP4 for the food processing plants, and TT1 and TT2 for the textile plants. As one could notice, the firms affiliated to a multinational are the most hazardous in terms of polluting the environment.

24

According to UNEP (1993: 1718), pollutants arise from the dirt and grease that is removed from raw natural fibres, as well as from process chemicals and dyestuffs that are lost during operations. The extensive use of synthetic chemicals in particular can lead to serious environmental and occupational impacts if proper precautions are not taken. Air pollution can arise from dyeing and finishing agents, and in the form of oil mists from machinery. Land pollution may occur from the uncontrolled dumping of chemical residues and treatment plant sludges.Even with more-efficient processes and better handling, there will generally remain some effluent, and some waste residues. Adequate treatment processes exist for the most common pollutants, with only colour removal sometimes presenting any real difficulty

13 | P a g e

Table 2

Environmentally benign technology implemented by the case-study firms can be classified as end-of-pipe, e.g., firms with industrial wastewater treatment plants, or preventive, e.g., innovative measures or technologies that reduce the generation of industrial wastewater at the source. Pollution prevention technical change was classified under four groups: wastewater reduction/recycling, raw material reuse/recycling, materials substitution, and process-integrated techniques that reduce wastewater. A firm could adopt one or more of these wastewater pollution prevention innovations. Table 3 shows the sectoral distribution of the adoption of these pollution prevention innovations, according to the time of adoption, among our survey sample.

Table 3

14 | P a g e

It is not clear from the above analysis what role third parties played in influencing the adoption of wastewater prevention innovations. However, cross-tabulation of the adoption of wastewater treatment by the adoption of wastewater prevention innovations reveals that 39 (85%) of the 46 adopters of wastewater treatment technology are also adopters of one or more forms of wastewater prevention innovation. The adoption of wastewater prevention innovations thus appear to be closely associated with the adoption of wastewater treatment technology. It is accordingly plausible to expect that the factors driving the adoption of wastewater treatment technology also play significant roles as rationales for the adoption of wastewater prevention measures. This paper nonetheless pays more attention to the adoption of industrial wastewater treatment technology because the case-study firms give clear and vivid illustrations of the role of third parties in the implementation of the adoption of wastewater treatment plants in the Nigerian food and beverages and textiles sectors.

Case Study FP1

An affiliate of a multinational company based in a west European country, FP1 is a largescale brewing plant employing about 800 people and located in an industrial estate on the outskirts of a large city in Nigeria. When it was established in the early 1980s it was only equipped with a primary wastewater treatment plant. Over the years, the community where the plant is located began to complain of environmental damage attributable to wastewater discharges from FP1. Actions by the host community intensified, and in 1997 a community association was founded with a mandate to address industrial pollution. This non-governmental organization has instigated a court action (against FP1), which is presently one of the few highprofile environmental lawsuits in Nigeria. According to the Nigerian environmental regulators and FP1's environmental consultants interviewed as part of this research, the environmental damage reported by the community included the poisoning of ground-water, thereby rendering well water undrinkable; the nearby stream into which the discharge from the primary wastewater treatment plant flows has lost all aquatic life, especially fish; and palm and other trees of economic value are severely threatened, signalling the possibility that farmland productivity may also be threatened. In spite of the fact that the claims of the communal association were not accepted by FP1, the firm appears not to have appropriately responded to the environmental regulatory demand of
15 | P a g e

installing effective industrial wastewater treatment technology until after the community pressure became intense. According to FP1, the plant was built before the community settled in its current location, and other manufacturing plants producing wastewater (though on a much smaller scale) are also located in the same industrial layout. In the mid-1990s, prior to community complaints becoming an issue, FP1 extended the primary wastewater treatment plant to include more oil schemers from where oil and grease are collected regularly. In addition, an aquatic weed (water hyacinth) was introduced as macrophytes to enhance the purification of wastewater in the plant's lagoon. According to FP1, the adoption of these pollution control measures was due to regulatory pressure and the desire to improve their environmental image. These measures were, however, considered unsatisfactory by both the community association and environmental regulators. Taking advantage of an expansion programme financed by the parent company, FP1 has decided to adopt modern industrial wastewater treatment technology. The company's new wastewater management system is termed "cost-effective wastewater treatment". The technology adopted incorporates an "upflow anaerobic sludge blanket reactor" (UABR) and a "sequence batch reactor" (SBR).

Case Study FP2

A medium-sized local brewing plant, FP2 employs 300 people and was established in the early 1980s. At the time of the fieldwork for this research the plant had significant undercapacity (capacity utilization was only 30% in 2000) which it hoped to eliminate with improved, and more stable, political conditions. One expected result of democratic governance in Nigeria was the positive impact of the transfer of ownership to some Asians. The plant had been built with no facility for wastewater treatment. According to FP2, regulatory-compliance monitoring had not been of much effect on the company until the establishment of SEPA in 1995 and the more stringent monitoring programme that ensued. However, FP2 interviewees stated that even after the establishment of SEPA, compliance monitoring was not carried out regularly until there was an environmental incident, which led to the shutdown of the plant in 1996. The environmental incident arose due to a complaint from a public water corporation: FP2 was releasing its untreated wastewater into a perennial stream, which is dammed downstream and purified for public consumption. The public water corporation discovered that
16 | P a g e

the cost of water purification was excessively higher than expected. On examination of the raw water, the cause was traced to the wastewater discharged by FP2. Since the water corporation had no statutory power to compel FP2 to stop the release of contaminated discharges, the problem was reported to SEPA, who acted promptly by sealing off the plant until appropriate industrial wastewater treatment was installed by FP2. The wastewater treatment method adopted was a locally built secondary wastewater treatment technology. Although the wastewater treatment succeeded in improving the effluent quality to an acceptable level for the third party (public water corporation), it was however observed that the effluent quality did not meet the statutory requirement of the effluent limitation regulation. The State Environmental Protection Agency insisted on improvement of the wastewater treatment technology while allowing more time for the firm to meet this requirement.

Case Study FP3

A large-scale manufacturing plant, FP3 is an affiliate of an American multinational company. The firm was established in the early 1990s and produces candies. It is ISO 9001 certified, employs about 200 people and operates 85% of its full capacity at the time of this research. The firm's environmental management is directed from the parent company's environmental department headquarters located in western Europe. The parent company also engages in annual environmental performance ratings of its subsidiaries. Any subsidiary that does not obtain eight-point rating out of 10 points for five consecutive years is liable to being closed down. According to sources at FP3, this challenge has largely encouraged the plant's commitment to environmental management. The firm boasts that its environmental management standard is better than that of many local plants. It was also observed that though regulators have been visiting this plant, they have not succeeded in making the plant adopt wastewater treatment technology. Rather, under a contract with a local environmental management consultant, the plant regularly transfers its wastewater effluent to a distant stream for dilution by means of a tanker service. The parent company of FP3 appears to have ignored this aspect until regulatory pressure became more intense in recent years. However, FP3 ascribes non-adoption of industrial wastewater treatment to the high cost of the technology. It is also likely that prior relatively weak environmental policy enforcement provided little incentive for FP3 to install wastewater treatment.
17 | P a g e

When the firm finally agreed to implement wastewater treatment, there was a sharp disagreement between the regulators and FP3. While FP3 wanted to adopt an anaerobic digester, regulators recommended an aerated activated sludge system because it would be more effective in bringing the effluent quality to the statutorily required level. However, regulators had to allow FP3 to make its free choice since the effluent limitation regulation is silent on the specific technology to be employed for waste treatment.16 FP3 later consented to installing the aerated activated sludge system after a visit by the head of the environmental management of the parent company who advised FP3 on the preference of the aerated activated sludge technology for efficiency reasons, and because methane and other gaseous products of the anaerobic system could create new sources of pollutants emission.

Conclusion: Third-party factors as complements to environmental regulation

The above case studies illustrate the impact of third party factors in advancement of environmentally benign technical change in two sectors. These case studies demonstrate that environmental policy, though necessary, is not sufficient in effecting environmentally responsible behaviour by firms. Table 6.4 presents the summary of the third-party factors that seem to have played important roles in the adoption of industrial wastewater treatment technologies in the two sectors. In developing countries where environmental regulation is weak, third party factors can and do provide additional influence on how firms manage environmental impacts. However, it has to be recognized that third-party factors are incapable of acting on their own without the backing of an environmental regulatory regime. For example, in each of the case studies, third parties were not able to influence companies to implement environmentally benign technologies without the intervention of environmental regulators, who had formal authority and supporting legislation. Even where third parties are parent companies of multinational corporations with high environmental performance norms, a decision to adopt wastewater treatment plants was not taken until regulatory demands were enforced.

18 | P a g e

It appears from the Nigerian experience that it is possible for third-party factors to catalyse processes that result in superior environmental performance by firms that lack commitment to environmental protection in the first instance. Third parties may serve as important sources of information on the actual environmental performance of firms. Information asymmetries between regulators and industrial firms may thus be reduced. As the case studies demonstrate, information received by regulators from third parties could form the basis for sanctions that may force firms to embark on environmental innovation. Information based on third-party factors could increase the returns on investments in compliance-monitoring resources. Such information can also be used to prioritize the severity of problems and reduce the potential for environmental incidents. In the case of parent companies as a third party, it is plausible to expect a poor environmental performer to cover up non-compliance where compliance monitoring is weak. It is possible for regulators to isolate such cases for more regular inspection visits, which may stimulate the parent company to intervene and make the necessary operational adjustments to bring the affiliate firm into compliance. From the Nigerian experience, however, affiliates of multinational corporations appear to be generally more committed to environmental management when compared to local firms, and this is reflected in the adoption of the wastewater treatment technology. Sixty-eight per cent of the affiliates of multinational corporations in the research sample had adopted wastewater treatment, whereas only 27% of the locally owned plants had adopted wastewater treatment25. It is also important to note that only one out of the wastewater treatment technologies adopted by the case study firms performed satisfactorily in meeting the regulatory requirement for effluent quality. There may be a case of regulatory standard being higher than the majority of firms in Nigeria could comply with, given the existing local conditions under which they operate.

25

The research sample of 122 firms had 91 local firms and 31 affiliates of multinational corporations

19 | P a g e

Bibliography
Baumol, William J. and W. E. Oates (1988) The Theory of Environmental Policy, New York: Cambridge University Press Siebert, Horst (1987) Economics of the Environment: Theory and Policy, Berlin, Germany: Springer Verlag WILSON, Norbert, L.W. Linking Globalization, Economic Growth and Poverty: Impacts of Agribusiness Strategies on Sub-Saharan Africa: Discussion, Oxford University Press, American Journal of Agricultural Economics, Vol. 83, No. 3 (Aug., 2001) WELFENS, Paul, J.J, Globalization of the Economy, Unemployment and Innovation. Structural Change, Schumpetrian Adjustment and New Policy Challenges, Springer, 1999 JACKSON, John, H, The World Trading System: Law and Policy of International Economic Relations, SHELTON, Dinah, Protecting Human Rights in a Globalized World, 25 B.C. Int'l & Comp. L. Rev. 273 (2002), http://lawdigitalcommons.bc.edu/iclr/vol25/iss2/7 EATON, Jpshua, P. The Nigerian Tragedy, Environmental Regulation of Transnational Corporations, and the Human Right To a Healthy Environment, Boston University International Law journal, 1997 Alice de Jonge, Transnational Corporations and International Law. Accountability in the Global Business Environment, Edward Elgar Publishing Limited 2011 SHELTON, Dinah, Protecting Human Rights in a Globalized World , 25 B.C. Int'l & Comp. L. Rev. 279 (2002), http://lawdigitalcommons.bc.edu/iclr/vol25/iss2/7 DEAT (1996) "An Environmental Policy for South Africa", Green Paper for public discussion, Pretoria, South Africa: Department of Environmental Affairs and Tourism (DEAT) FEPA was merged with some environment-related departments to form the Federal Ministry of Environment in January 2001. The use of FEPA is retained in this paper for clarity Adeoti (2002)

20 | P a g e