‹ Back to Economics topics

Business activity that damages the environment

Almost all business activity has some effect on the environment. Most firms use electricity, which may come from burning fossil fuels, and most produce waste that ends up being burnt or sent to landfill. Heavy industry tends to cause the most damage.

Business activities that cause the most damage:

• Mining: open-cast mines dig huge holes that leave ugly scars on the landscape and wipe out wildlife habitats. Crushing rock can release harmful dust, and toxic waste and dirty water can leak into rivers and drinking water.
• Power generation: burning coal and oil to make electricity releases greenhouse gases that contribute to global warming, and gases that cause acid rain. Nuclear power stations risk leaks of radioactive material and create waste that must be stored for thousands of years.
• Chemical processing: some chemical plants and refineries release harmful gases into the air, which can cause cancer, asthma and other health problems.
• Agriculture: fertilisers and pesticides wash into rivers and the sea, where they kill fish and other water life. Clearing forests to grow crops adds to global warming.
• Construction: building sites create more waste than any other industry, and much of it goes to landfill. They also create dust, noise and water pollution.

Ways businesses damage the environment

• Visual pollution, including litter: business activity that looks ugly and spoils an area, e.g. smoke from power stations, huge advertising signs, overflowing skips, disused factories and litter. It lowers people’s well-being and quality of life.
• Noise pollution: excessive noise that disturbs everyday life, e.g. aircraft flying over homes, construction machinery, factory equipment, busy roads and late-night bars near houses. It can damage hearing, disturb sleep and raise stress levels.
• Air pollution: factories, power stations and vehicles release gases and particles into the air. Poor air quality damages people’s health and can cause early deaths.
• Water pollution: harmful substances from industrial waste, ships dumping waste or oil at sea, and untreated sewage get into rivers, lakes and seas. This kills fish and plants, destroys habitats and can spread diseases through dirty drinking water.

Government intervention to protect the environment

Pollution permits: give firms the legal right to discharge a certain amount of polluting material.

Six ways a government can protect the environment:

• Taxation: a tax on activities that damage the environment makes the firms that cause the damage pay for it. For example, a carbon tax raises the price of energy from fossil fuels, making cleaner energy, like solar and wind power, relatively cheaper. A landfill tax encourages firms to recycle waste instead of dumping it.
• Subsidy: the government gives grants or tax allowances to firms that reduce damage or do good for the environment, e.g. building a recycling plant or producing renewable energy. Subsidies to rail companies can take traffic off the roads, cutting congestion and carbon emissions.
• Regulation: laws and rules limit what firms can do, e.g. banning factories that pollute rivers or setting limits on harmful emissions. Government agencies monitor pollution and take action against firms that break the rules.
• Fines: firms that break environmental laws must pay a penalty. As fines reduce profits, they give firms a reason to obey the law.
• Pollution permits: the government limits the total amount of pollution by issuing permits. Permits can be bought and sold, so a firm that cuts its pollution can sell its spare permits. This gives firms an incentive to use cleaner technology.
• Government provision of parks: the government sets up national parks where business development is not allowed. These protect areas of natural beauty, wildlife and historic sites, while still welcoming visitors.