11 C ORPORATE INCENTIVES AND E NVIRONMENTAL DECISION MAKING Alcoa by Jurgen Schmandt and Sunil Tankha Houston Advanced Research Center Center for Global Studies M ost of the major industries of today’s global economy depend to some degree upon exploiting natural resources, as inputs into products or as sinks that absorb wastes and by-products. Despite the emergence ofwhat some term the “knowledge economy,” tradi- tional industries are still the basic force driving the global economy. Of the dollar value paid for goods, a larger percentage goes towards purchasing the “in- telligence” inside the product, but this has in no way diminished the value of the physical material con- tained within most products that people continue to use on a daily basis. As more countries like Brazil, China, and India realize their development goals, more of these physical products will be produced, consumed, and discarded. Since the environmental impacts of current levels of production and consump- tion, especially of energy , are already causing concern, this growth must be carefully managed. In the face of increasing pressure for sustainable de - velopment, traditiona l industries face dilemma - they can either increase their lobbying expenses to predict dire economic consequences if regulations and other controls on their industry or their products are insti- tuted, or they can invest in new strategies and tech- nologies to reduce environmental impacts. This case study profiles one corporation that has made a strategic decision to invest in people and technologies to make its operations compatible with en- vironmental and social sustainability . The company made this choice based on the belief that it will have a brighter economic future by using less energy, reduc- ing pollution, increasing the safety of its workers and contributing to the well-being ofthe communities where it operates. The company is Aluminum Company of America (Alcoa), the world’s largest producer of aluminum and alumina and is a strong participant in all segments of the industry - mining, refining, smelting, fabrication and recycling. Major applications of its products are in the packag- ing, automotive, aerospace and construction markets. In recent years, aluminum demand has increased at an annual rate of 2 percent, with stable demand for aluminum cans and steady increases in the automo- tive sector. Alcoa: A Brief History The company was founded in 1888 as the Pittsburgh Reduction Company, following Charles Martin Hall’s discovery, in 1886, of a cheap process for producing aluminum. Aluminum is the most abundant met allic element in the earth’s crust, but because it is always found locked in combination with other elements such as oxygen and sulfur, it was also very difficult to ex- tract. Prior to Hall’s discovery, the extraction of alu- minum was very expensive and, as such, it was con- sidered to be a semi-precious metal. Despite the fact that only 125 lbs of aluminum had been produced in America by that time, it had the po- tential to be a very useful material. Rapid growth in the alumi- num market and the accompany- ing economies of scale led to a fall in the cost of aluminum from US$4.86 per lb in 1888 to US$0.78 per lb by 1893. In 1907, the Pitts- burgh Reduction Company - which had grown rapidly and es- tablished mining and manufactur- ing sites all over the US and
