Business Ethics and Business

Table of Contents
Table of Contents........................................................................................................2 Introduction................................................................................................................ 3 What is Business Ethics...........................................................................................3 Approaches to Business Ethics:...............................................................................4 Why Business Ethics?..............................................................................................6 Models used in Business Ethics...................................................................................7 1) The Shareholder Model........................................................................................7 2) The Stakeholder Model........................................................................................8 3) The Market Failure Model of Business Ethics.......................................................9 Culture of Ethics....................................................................................................... 11 Some Facts about Ethics........................................................................................11 What companies can do to create a more ethical workplace................................12 Whistleblowing..........................................................................................................14 What Is Whistle blowing?.......................................................................................14 Brief History...........................................................................................................16 Steps for Creating a Whistleblowing Culture.........................................................18 Developing a Whistleblower Policy........................................................................19 Why Implement a Whistleblower Policy?...............................................................20 Protecting whistleblowers in India.........................................................................21 CASE-STUDY.............................................................................................................22 What is Biodiesel?..................................................................................................22 Reasons for biodiesel being promoted ..................................................................22 Environmental Impact...........................................................................................24

Introduction
What is Business Ethics A business is expected to achieve its objectives, usually to make a decent profit for the owners/shareholders. In doing so, it may need to overlook the wishes of others. For example, it could lie about the benefits of its products in order to get more revenue. It could skip important safety checks to save costs. What should the business do? To some extent, this is an area already covered by Business Law. When society largely agrees, a law can be passed to stop behaviour the society disapproves of. Business Ethics looks at areas that are relatively new, but increasingly important and too controversial, for society to agree on. For example, the medical business is increasingly controversial. The pharmaceutical businesses concentrate their (very expensive) research on illnesses that afflict rich people, because rich people (or the government of a rich country) can afford to buy these new treatments when they are launched on the market. This means too little research is done into illnesses (like malaria) that primarily affect poor people and poor governments. Is this right? So there is a trade-off between a profit-maximising business and the ethical businesses So is there a middle-way For e.g. BodyShop was one of the first businesses to build on this trend, and made their market niche largely out of the fact that their products are kinder to the world than are competing products. Why buy from BodyShop? Because their products arent tested on animals. So, the ethical nature of the product becomes part of the unique selling point ("USP") of the product and central to the Marketing of that product. In other words, there is no conflict between ethics and profit, because an ethical stance is part of the profit-making process.

One difficult question is what sort of things count as ethical question? There is no agreement on this, hence the difficulty. Take the example of Nike Nike (and others) have been widely criticised for using cheap labour in developing countries, which is what you would expect from a profit-maximising business. Some people might say well-done to Nike for creating jobs in a very poor part of the world where jobs are desperately needed. But other people have said that it is unethical to exploit very poor people, and to make them work in poor conditions for low wages, especially when the business could afford to pay them more. Approaches to Business Ethics: In most issues of business ethics, ideal moral principles will be checked by economic viability. To understand what is at stake, we will look at three different ways of deriving standards of business ethics. 1. Deriving Business Ethics from the Profit Motive Some businesspeople argue that there is a symbiotic relation between ethics and business in which ethics naturally emerges from a profit-oriented business. There are both weak and strong versions of this approach. The weak version is often expressed in the dictum that good ethics results in good business, which simply means that moral businesses practices are profitable. For example, it is profitable to make safe products since this will reduce product liability lawsuits. 2. Business Ethics Restricted to Following the Law A second approach to business ethics is that moral obligations in business are restricted to what the law requires. The most universal aspects of Western morality have already been put into our legal system, such as with laws against killing, stealing, fraud, harassment, or reckless endangerment. Moral principles beyond what the law requires appear to be optional since society wavers about its acceptance.

3. Deriving Business Ethics from General Moral Obligations The third approach to business ethics is that morality must be introduced as a factor that is external from both the profit motive and the law. This is the approach taken by most philosophers who write on business ethics The most convenient way to explore this approach is to consider the supra-legal moral principles that philosophers commonly offer. Five fairly broad moral principles suggested by philosophers are as follows: Harm principle: businesses should avoid causing unwarranted harm. Fairness principle: business should be fair in all of their practices. Human rights principle: businesses should respect human rights. Autonomy principle: businesses should not infringe on the rationally reflective choices of people. Veracity principle: businesses should not be deceptive in their practices. The attraction of these principles is that they appeal to universal moral notions that no one would reasonably reject. But, the problem with these principles is that they are too general. These principles do not tell us specifically what counts as harm, unfairness, or a violation of human rights. So at this point the question that arises is:What affects an individual with strong moral values to make ethically questionable decisions in a business setting? There appear to be three general sets of factors that influence the standards of behavior in an organization; Individual factors Several individual factors influence the level of ethical behavior in an organization. An individual's knowledge level regarding an issue can help to determine ethical behavior. A

decision maker with a greater amount of knowledge regarding an object or situation may take steps to avoid ethical problems, whereas a less-informed person may unknowingly take action that leads to an ethical conflict Social factors A person's behavior in the workplace is, to some degree, determined by cultural norms, and these social factors vary from one culture to another Opportunity Opportunity refers to the amount of freedom an organization gives an employee to behave ethically if he or she makes that choice. In some organizations, certain company policies and procedures reduce the opportunity to be unethical. For example, at some fast-food restaurants, one person takes your order and receives your payment and another person fills the order. This procedure reduces the opportunity to be unethical because the person handling the money is not dispensing the product, and the person giving out the product is not handling the money Why Business Ethics? Widespread media coverage of business scandals in recent years has damaged the reputations of companies and eroded the trust of key stakeholders. In addition, greater transparency and connectivity has given the public better access to sensitive information. In order to succeed in this age of increased public scrutiny is to make ethics in business the cornerstone of how your company does business, demonstrating by its actions that your organization has nothing to hide.

Models used in Business Ethics

The different models used in business ethics are as follows: 1) The Shareholder Model The managerial role arises as a consequence of the so-called separation of ownership and control in the modern corporation. In the early stages of development, most corporations are run by the founders, who are also generally the principal owners. At a later point, the owners may choose to employ managers to assist them in running the firm, or to take over that role entirely. In the same way that individuals employ lawyers in order to advance their interests in a legal context, owners hire managers in order to advance their interests in a business context. Of course, as the firm becomes more mature, this relationship becomes significantly more complex. Nevertheless, the fact that shareholders are residual claimants in a standard business corporation means that their interests are not protected by an explicit contract. As a result, there is a set of fiduciary principles governing the relationship between managers and shareholders. Because the fiduciary relationship imposes upon managers a very broad duty of loyalty and duty of care toward shareholdersconcepts with explicit moral overtonesthis particular relationship might be thought to serve as a natural point of departure for the development of a theory of business ethics. Yet despite the fact that moral obligations toward shareholders are such a striking feature of the managerial role, in the business ethics literature they are the subject of considerable controversy, and are often downplayed or dismissed. It is a mistake to believe that self-interest alone, combined with a few performance incentives, is able to achieve a harmony of interest between managers and shareholders. The shareholder approach to business ethics suffers, first and foremost, from the taint of moral laxity. It does not seem to impose enough obligations upon managers to satisfy the moral intuitions of many people. Thus we consider the stakeholders model.

2) The Stakeholder Model Managers must exercise moral restraint in dealings with stakeholders because managers have direct fiduciary obligations toward those stakeholders. Companies have to cater the following groups of stakeholders:
1) Shareholders Generate profits and pay dividends 2) Customers provide good quality products at reasonable prices. Safety, honesty, decency

and truthfulness
3) Employees health and safety at work, security, fair pay 4) Suppliers pay on time, pay fair rates for the work done, provide element of security 5) Local Community provide employment, safe working environment, minimise pollution

and negative externalities provide external benefits?

6) Government abide by the law, pay taxes, abide by regulations 7) Management their aims versus those of the organisation as a whole 8) Environment limit pollution, congestion, environmental degradation, development, etc.

If managers really are to be regarded as fiduciaries of stakeholder groups, it raises immediate difficulties with respect to questions of corporate governance. Giving managers the legal freedom to balance these claims as they see fit would create extraordinary agency risks. On the one hand, managers would need to be protected from being fired by shareholders upset over the performance of their investments. But even more significantly, it would become almost impossible for members of any stakeholder group to evaluate the performance of management. It is difficult enough for shareholders to determine whether managers are actually maximizing profits, given available resources. But when profits can be traded off against myriad other objectives, such as maintaining employment, sustaining supplier relationships, and protecting the environment, while managers have the discretion to balance these objectives as they see fit, then there is really no alternative but to trust the word of managers when they say that they are doing the best they can.

A narrow definition of the term stakeholders, which refers to groups that are vital to the success and survival of the firm, and a wide definition, which refers to any group who can affect or is affected by the achievement of the organizations objectives. The former includes employees, customers, suppliers, but also, in most formulations of the theory, the local community. The wide definition, on the other hand, is so wide that it becomes equivalent to all of society. (For example, every pricing decision made by the firm contributes to the national inflation rate, which in turn affects every member of society. So if a stakeholder is anyone affected by the corporation, then everyone is a stakeholder in everything.)It is believed that the managerial role imposes special obligations upon the individual have tended to stick to the narrower definition of the stakeholder. However, there seems to be no reason for the firm to pay special attention to stakeholders in the narrow sense of the term because the groups that are conventionally classified as stakeholders in the narrow sense are not necessarily those with the most at stake in a particular decision, in terms of their potential welfare losses. It tends rather to be those who are the best organized, or who have the most immediate relationship to the firm, or who are best positioned to make their voices heard.

3) The Market Failure Model of Business Ethics Market failure results in two responses: First and foremost among these obligations will be the fiduciary duty that managers have as the agents of shareholders. Thus when dealing with relationships or transactions inside the organizational hierarchy of the firm, the market failures approach to business ethics follows the shareholder-focused view quite closely. The second primary institutional response to market failure is less drastic than the first; it involves preservation of the market transaction, but subject to some more extensive set of legal, typically regulatory, constraints. The rationale for this strategy, it is helpful to recall that the point of permitting profit-maximizing behavior among firms in the first place is to promote price competition, along with all the beneficial upstream and downstream effects of such

competition, such as technical innovation, quality improvement, etc. Under conditions of perfect competition, lower price, improved quality and product innovation would be the only way that firms could compete with one another. We can refer to these as the set of preferred competitive strategies. Unfortunately, in the real world, the terms of perfect competition are never met. Because of the practical impossibility of satisfying these constraints, firms are often able to make a profit using non-preferred competitive strategies, such as producing pollution, or selling products with hidden quality defects. The basic rules for marketplace competition are laid down by the state. In many cases, the state simply lacks the information needed to implement the measures needed to improve upon a marketplace outcome. Even when the information can be obtained, there are significant administrative costs associated with record-keeping and compliance monitoring, not to mention the costs incurred by firms in an effort to evade compliance. Ideally, the only way that a firm could make a profit would be by employing one of the preferred strategies. However, for strictly practical reasons, it is often impossible to create a system of laws that prohibits the non-preferred ones. Thus according to the market failures perspective, specifically ethical conduct in an extra-firm business context (i.e., when dealing with external parties) consists in refraining from using non-preferred strategies to maximize profit, even when doing so would be legally permissible. Firms should run to maximize the Interest of the stakeholders, subject not only to legal constraints but also to moral or social obligations.

Culture of Ethics
Some Facts about Ethics Ethics are tied directly to who we are. The strongest motivation to act ethically comes from our relationships with our families and friends. It is hard for most people to establish a reliable commitment to ethics in the abstract but it is not hard for most of us to make an enduring commitment to a life that benefits the emotional health of our families.

From success to significance There also comes a time in the life of most high achievers when it becomes important to move beyond success, i.e., accomplishing our career, financial, and lifestyle goals, to significance, i.e., having a durable positive impact on individuals, on our company, on society. No matter what our job, no matter the size of our paycheck or the size of our responsibility, each of us can choose to use every single relationship, every encounter with a customer, a vendor, a colleague, even people on the street, to create a significant impact, to make things better in a meaningful way. Ethics is not about fixing something that is broken. Although it might be easy to assume this in todays corporate world where any discussion of ethics can provoke a self-defensive response, ethics is instead a dimension of business and organizational life that can-and should-be better. Its about living the values we say we espouse. It isnt a question of right rhetoric-Enron had an excellent written code of ethics-its a question of walking the talk.

Intention makes a huge difference in how our actions are perceived. A company that invests substantially in safety equipment for its employees in order to lower its liability risk sends a clear

message to those employees that money matters more than human lives. We dont tend to give anybody moral credit for what we perceive as a bad intention. Yet companies seem afraid to credit for what we perceive as a bad intention. Yet companies seem afraid to take advantage of this kind of solid relationship with and among employees, hence, the all-too-common disparaging of such soft intentions. Can organizations nurture a sense of personal worth and worthiness without undermining productivity and profitability? Yes, if ethical values are truly lived within the company and in all aspects of business, from hiring to finances, from production to customer relations.

What companies can do to create a more ethical workplace 1) Review recruiting, hiring, and promotion criteria to see what messages you are sending about your values. Hire for character, train for skills. This touches on two important dimensions of goodness: competence (our effectiveness) and character (our ethical framework). Both are critical to business, for character without competence will lead to bankruptcy, and competence without character will lead to disgrace. 2) Review personnel practices for integrity. Evaluate for character on performance reviews. Employees will meet the expectations and disciplines you set up. What employees know is being evaluated is what they strive to accomplish and incorporate. When theres no mention of values, these ethical principles are seen as irrelevant or cosmetic, not as meaningful guides for behavior. In addition, realize that unrealistic performance expectations encourage unethical behavior, pressuring people to find short cuts to do what is not really possible otherwise.

3) Review the business plan and budgeting process for vulnerabilities. Unethical behavior can show up in the smallest things: asking for more money than your department needs in fear that you wont get enough, spending your end-of-the-year remainder on things you may not need to justify the next years budget, padding expense accounts, misusing sick days, etc. Thus it becomes important to review the business plan and the budgeting process. 4) Other areas of ethical review

Review marketing and sales practices for over-promising, intentional underpricing, and other dishonest practices. Review your fulfillment practices under pressure-what short cuts are taken and under what circumstances? Review competitive practices for fairness and respect-how fairly do you talk about the competition? Review community service, support and philanthropy practices to see if you are doing enough.

Whistleblowing
What Is Whistle blowing? Whistleblowing can be defined in a number of ways. In its simplest form, whistleblowing involves the act of reporting wrongdoing within an organization to internal or external parties. Internal whistleblowing entails reporting the information to a source within the organization. External whistleblowing occurs when the whistleblower takes the information outside the organization, such as to the media or regulators. Establishment of a clear and specific definition of whistleblowing itself should be a fundamental component of every whistleblower policy. When Time magazine editors named WorldCom's Cynthia Cooper and Enron's Sherron Watkins two of their People of the Year for 2002, they were acknowledging the importance of internal whistleblowersemployees who bring wrongdoing at their own organizations to the attention of superiors. At WorldCom, Cooper pushed forward with an internal audit, alerting the Board of Directors Auditing Committee to problems, despite being asked by the company's CFO to postpone her investigation. According to Fortune magazine, "If Cooper had been a good soldier, the whole incredible mess might have been concealed forever." At Enron, accountant Sherron Watkins outlined the company's problems in a memo to then-CEO Kenneth Lay. But by the time Watkins and Cooper blew the whistle, much damage had already been done, and the shareholders and employees were the ultimate losers. So the question is, how does an organization create a culture that encourages employees to ask questions earlyto point out issues and show courage in confronting unethical or illegal practices? And then how can a company ensure that timely action is taken? In other words, how does an organization encourage internal whistleblowing? Attitudes Toward Whistleblowing

These questions must be answered in the context of conflicting cultural norms, which make it likely that whistleblowers will encounter hostility and alienation. As Terance

Miethe explains in his book, Whistleblowing at Work, many people see the whistleblower as a "snitch," or a "a lowlife who betrays a sacred trust largely for personal gain." This attitude was illustrated by an arbitrator in a 1972 case, who told the employee that you cannot "bite the hand that feeds you and insist on staying on for the banquet." Among others, Peter Drucker, the famed management guru and anti-whistleblower, viewed whistleblowing as "informing," illustrating yet another instance of the animus whistleblowers have to expect from advocates of loyalty to the organization first. On the flip side, whistleblowers such as Frank Serpico and Karen Silkwood are seen as "saviors" who ultimately helped create important changes in organizations. This approach to whistleblowers as guardians of public accountability is often taken by consumer advocates such as Ralph Nader. Given this dichotomy, whistleblowers may well encounter difficulties when they appeal internally or go public with information that may damage their companies.

Brief History Attitudes toward whistleblowing have evolved considerably during the past 50 years in corporate America, from the early days of the "organization man" ethos where loyalty to the company was the ruling norm, to the present time when public outrage about corporate misconduct has created a more auspicious climate for whistleblowing. In part because of this lack of protection for whistleblowers, problems were often concealed rather than solved. Even in cases where whistleblowing occurred, it was not always heeded. There have, of course, been successful cases of whistleblowing although even in these cases, the personal and professional toll on the individuals has been heavy. In 1996, Jeffery Wigand, a tobacco researcher, revealed that Brown & Williamson Tobacco Corp. knew tobacco was addictive. His revelations had a dramatic impact on public policy and public perceptions of the tobacco industry. To Encourage Whistleblowing Whistleblowing to an external entity, such as the media or government agencies, has been a hazardous activity, both for the individual and the organization. The ambivalent attitude toward whistleblowers ensures that, even with legal protection, they may face retaliation in subtle ways: being shunned by co-workers, being closely supervised, or just feeling alienated. So, the question is, How do organizations encourage internal whistleblowingthat is, to an authority within the organizationto preclude external whistleblowing and the resulting damage to an organization? The objectives of an internal whistleblowing program are

 To encourage employees to bring ethical and legal violations they are aware of to an internal authority so that action can be taken immediately to resolve the problem To minimize the organization's exposure to the damage that can occur when employees circumvent internal mechanisms To let employees know the organization is serious about adherence to codes of conduct The barriers to a successful internal whistleblowing program are A lack of trust in the internal system Unwillingness of employees to be "snitches" Misguided union solidarity Belief that management is not held to the same standard Fear of retaliation Fear of alienation from peers Although companies should seek to remove these barriers, it is also important to acknowledge that some whistleblowers have less-than-honorable motives.

Steps for Creating a Whistleblowing Culture A policy about reporting illegal or unethical practices should include Formal mechanisms for reporting violations, such as hotlines and mailboxes

 Clear communications about the process of voicing concerns, such as a specific chain of command, or the identification of a specific person in the organization, such as an ombudsman or a human resources professional Clear communications about bans on retaliation In addition, a clear connection should exist between an organization's code of ethics and performance measures. For example, in the performance review process, employees can be held accountable not only for meeting their goals and objectives but also for doing so in accordance with the stated values or business standards of the company. Get Endorsement From Top Management Publicize the Organization's Commitment Investigate and Follow Up Assess the Organization's Internal Whistleblowing System

Developing a Whistleblower Policy A whistleblower policy may be drafted and implemented by management, but it should then be submitted to the audit committee or board of directors. The foundation of any whistleblower policy is a clear and specific definition of whistleblowing. Other key aspects of a whistleblower policy include the following:
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Clear definition of individuals covered by the policy. Non-retaliation provisions. Confidentiality. Process Communication

Upon completion of the whistleblower policy, the organization should develop implementation and enforcement mechanisms that are consistent with the policy. Although the first step creating an environment where a whistleblower will report problems that existis the crucial one, to be fully effective a whistleblower policy must be consistently implemented, claims investigated and evaluated, and proper enforcement taken when necessary.

Why Implement a Whistleblower Policy? All organizations, including universities, governmental entities, and nonprofits, should consider implementing whistleblowing provisions. Consider these important facts from the Association of Certified Fraud Examiners 2006 Report to the Nation on Occupational Fraud and Abus: More than $600 billion in annual losses is attributed to fraud. Anonymous reporting mechanisms are the antifraud measure with the greatest impact on reducing losses: Companies with anonymous reporting mechanisms reported median losses of $100,000, while those without reported median losses of $200,000. Tips from employees, customers, and vendors and anonymous tips account for: 34% of the detection of all fraudulent activity; 34% of the detection of fraudulent activity for not-for-profit organizations; 39.7% of the detection of fraudulent activity for government agencies; and 48% of the detection of owner/executive fraud schemes.

Reporting on internal controls was recommended to the corporate community in the late 1970s, but it took the large scandals (such as Enron) for the SOX legislation to impose such reporting.

IRS data indicate that many nonprofit organizations would be categorized as small businesses. Most small businesses struggle with an appropriate level of segregation of duties, making a whistleblower policy a good mitigating control.

Whistleblowing can significantly affect a whistleblowers life and livelihood. The authors believe that the potentially huge personal impact whistleblowing can have on individual whistleblowers means there is an even greater need for organizations to develop clear whistleblower policies.

Protecting whistleblowers in India During the past decade, scams, swindles, and rip-offs have become a regular feature of the Indian political and corporate landscape, costing taxpayers, investors and banks thousands of crores of rupees With the consent of the required number of State governments, Parliament should try to enact a single Act for all employees working in any tier of government and also for employees working in any form of organisation in the private and voluntary sectors. The Official Secrets Act should be overridden to provide for a public interest defence and the `gagging clauses' in employment or severance contracts should be declared void in respect of public interest disclosures. Act's protection should be extended to members of the armed forces, the secret services and the police subject to the condition that the disclosures shall not jeopardise operations or endanger the lives of personnel

What constitute `public interest disclosures' need to be clearly defined. The protection should apply to specific disclosures only involving an illegality, criminality, breach of regulatory law, miscarriage of justice, danger to public health or safety and damage to environment, including attempts to cover up such malpractices.

The whistleblower must reasonably believe that his information about a malpractice is substantially true, and must act in good faith. The Act must encourage employees to raise the matter internally in the first instance and mandate organisations to establish suitable mechanisms for this purpose. There should be a `fast track mechanism' for adjudication of cases on the lines of the Sarbanes-Oxley Act.

As things stand today in India, the chances of enacting such legislation may seem remote. But whistleblower protection measures are gathering a momentum of their own around the world, aided partly by spectacular government and corporate scandals.

CASE-STUDY
Energy security has become an area of significance, engaging the attention of all countries. Biofuels have come into prominence as they are considered to be environmentally friendly with reduced gas emissions. Less dependence on fossil fuels is a goal which many nations have set for themselves. Bio-fuels are thus considered to be a viable option for achieving the targeted reduction by many countries. What is Biodiesel? Biodiesel is an alternative to petroleum-based diesel made from renewable resources such as vegetable oils, animal oils and fats. Biodiesel either completely substitutes petro-diesel or is simply blended with petro-diesel for use as a transportation fuel due to its very similar combustion properties. Biodiesel is composed of fatty acid methyl esters and produced from edible oils such as palm oil, Soybean oil, Sunflower oil and mustard oil. Non-edible vegetable oils used are Jatropha oil, Pongamia seed oil, and Waste vegetable oil (WVO). Oil extracted from algae for producing biodiesel is still in an experimental stage. It does not require any special storage facilities and it can be transported and sold using todays infrastructure. Reasons for biodiesel being promoted A] Biodiesel has a closed CO2 loop.

The reason for this is, biodiesel is produced from renewable resources such as vegetable oils. During the process of growing oilseeds, the plants consume the CO2 from the atmosphere. Once these oilseeds are processed and used in vehicles, the combustion of this biodiesel leads to the release of CO2 in into the atmosphere again. And this CO2 is then reused by the plants in their photosynthesis process. So it is a complete cycle. B] Studies have found that the lifecycle production and use of biodiesel produces approximately between 80-100% less carbon dioxide and almost 100% less sulphur dioxide emissions because it contains no sulphur. C] Biodiesel further provides significant reductions in particulates and carbon monoxide than petroleum diesel fuel. D] Based on Ames Mutagenicity tests, biodiesel provides a 90% reduction in cancer risks. E] The use of biodiesel can extend the life of diesel engines because it is more lubricating than petroleum diesel fuel while fuel consumption, ignition, power output and engine torque are unaffected.

F] Biodiesel is safe to handle and transport because it is as biodegradable as sugar, 10 times less toxic than table salt and has a high flashpoint of about 125C compared to petroleum diesel fuel which has a flash point of 55C. G] When burned in a diesel engine, biodiesel replaces the exhaust odour of petroleum diesel with the pleasant smell Environmental Impact The use of biodiesel has an impact on the environment at multiple levels. The production of biodiesel leads to air, water and soil pollution. It also leads to global warming. The environmental impact of biodiesel production is linked largely with the production of the feedstock for biodiesel production. Various stages of bio-fuel production can affect water quality, beginning with chemical applications to agriculture. When fertilizers and pesticides containing phosphorus and nitrogen enter bodies of water, they deplete it of oxygen, thus creating a more difficult environment for aquatic species to survive in. Soil erosion can also threaten water quality as soil and chemicals are washed into local streams and lakes. Bio-refineries also release wastewater, potentially high in biochemical oxygen demand, into local water sources. In the case of fuel crops for biodiesel, to get a good yield of oil from the seeds it is essential that the crops are genetically modified, and are provided with an adequate amount of fertilizer and pesticides Bio-fuels are supposed to reduce greenhouse gas emissions. But they do exactly the opposite. Almost all of them produce more greenhouse gases than petrol or diesel, for two reasons: 1] Emissions of nitrous oxide which is a very powerful greenhouse gas caused by the application of nitrogen fertilizers. 2] The destruction of grassland, wetland and forest caused by the expansion of agriculture stimulated by this new market of biofuels increasing greenhouse gases.

Biofuels - especially biodiesel made from palm oil - also cause other kinds of environmental havoc. They are now among the major drivers of deforestation in Indonesia and Malaysia, wrecking tens of millions of hectares of primary forest and driving orang-utans and other wildlife towards extinction

And they help to starve the world. Last year, the global food crunch was caused by a decline in the world's stockpiles of cereals: they fell by around 53m tonnes. The production of bio-fuels consumed almost 100m tonnes., According to an IMF report, the use of corn for ethanol production and their demand for soya bean oil has increased world food prices by about 10 per cent. The extra millions who died as a result of malnutrition-related diseases when the price of grain rose last year did so largely because we took their food to put in our tanks. Recent studies have shown that there is a net energy loss in the production of biodiesel, i.e., it costs more energy to produce biodiesel than is gained from the biodiesel.

Net Energy Losses in production of biodiesel

In terms of its impact on both the local and global environments, biodiesel is more destructive than crude oil from Nigeria. So, as a conclusion, from an environmental perspective, biodiesel is not suitable as a future fuel. This is because the production of biodiesel on such a large scale is causing and will cause irreversible damage to the environment. If looked at from the economic perspective, it is still not viable because the cost of production ranges from Rs 35-40, while the procurement price set by the government for biodiesel is Rs.26.50, making the production of biodiesel unviable for the manufacturers, but only because it is subsidized by the Government, can it be marketed to the consumers. This still looked attractive when the crude oil prices were touching $140 per barrel. But now when the crude oil prices have come down to $ 40 per barrel, it has not remained a very attractive proposition considering the irreversible damage wrought overall as we have seen.

So here's what we gain from the bio-fuels trade: 1. Global environmental destruction 2. Higher greenhouse gas emissions. 3. Mass starvation 4. The loss of hundreds of millions of dollars. 5. The prospect of a new trade war. So why is bio-fuels still being promoted as a panacea for all the environmental issues? Because, by taking into account only some of the emissions produced by biofuels, the government can claim to be cutting greenhouse gas production, thereby helping it to meet the legally binding targets in its climate change act. Because it means that people can carry on driving without constraint, this policy causes the government no political pain. It is exchanging political convenience at home for the lives of people overseas. The question that needs answering is: Is it the Business which decides on the ethics it wants to follow or is it a higher authority i.e. the Government which actually sets the tone of ethics for any business.