E-Commerce

Electronic commerce (e-commerce) can be defined as “the buying and selling of products and services over the Internet or other electronic networks” [1]. It is a term for “the paperless exchange of business information”, referring “to Internet shopping, online stock and bond transactions, the downloading and selling of ’soft merchandise’ and business-to-business transactions” [2]. In short, e-commerce means to transact business electronically. Today, in most cases the transaction channel for e-commerce is the Internet. For this reason the expansion of e-commerce can be directly linked to the growth and increased utilization of the Internet. At the beginning of the year 2000 the Internet had about 300 million users, whereas in June 2011 this number was determined to be more than 2,100 million, which is 30 percent of the world population [3].

In an environmental context the proliferation of e-commerce has positive as well as negative impact. E-commerce inheres that products are purchased online, which means that the travel routes to shopping malls and stores drop out and the physical traffic and fuel consumption decreases. This clearly results in certain emission savings. Another example for emissions reductions achieved by e-commerce are digital products (e.g. music distributed as MP3 instead of CD), which can be distributed with low carbon impact, since nothing physical has to be produced. On the other hand, products purchased via the Internet have to be packed and shipped to the customers, a process that causes additional emissions. The question is: Do the emissions savings due to dematerialization and optimized distribution overweight the emissions arising from packaging, shipping and additional IT infrastructure? This question may be impossible to answer correctly today. The interrelations associated with e-commerce are too complex to allow profound estimations. However a closer look at the impact of e-commerce should be taken, in order to know about the effects in separate.
The economic, environmental and social effects of e-commerce can be divided into three categories. There are first-order, second-order and third-order effects [4]:

• First-order effects: These effects arise due to the need for ICT infrastructure and it’s direct use. The production, utilization and disposal of electronic systems consumes energy and therefore produces carbon emissions. Additionally the chemical substances needed for the production of electronic equipment constitute a potential threat for workers and the environment. Together with an increase of e-commerce these negative effects of ICT equipment on the environment are rising. 
• Second-order effects: As second-order effects the changes in markets and business activities are described. E-commerce changes business due to a new channel of marketing and distribution, which can be noted as a change of the supply chain. Products are ordered via the Internet and some products are dematerialized. 
• The economic effects of these changes are smaller warehouses, just-in-time delivery and fewer intermediaries. There is also an increased need for communication and coordination, as well as more frequent transport. 
• The environmental impact of these effects expresses as reduced emissions from warehouse building and utilization, but also as increased emissions from transport. The higher demand for packaging has direct environmental influence too. 
• The social effects in this context arise from an increasing amount of online orders and the consumption of digitalized products. These actions are directly linked to a more intense use of computer equipment and a reduction of shopping trips to stores and malls. The changed habits can lead to a change of society and potentially inhere health effects, due to decreasing mobility (obesity) and unidirectional stress of muscles while handling computers. 
• Third-order effects: These tertiary effects arise from consecutive rebound effects. 
• The impact of e-commerce influences economy by a change in consumer information and therefore a change in competition experienced by companies. This results in a change of prices, which leads to shifting demand. It is obvious that competition increases by the expansion of e-commerce. For this reason e-commerce most likely leads to lower prices and subsequently to increasing demand. 
• A number of rebound effects influence the environment: There are changes in energy use patterns, in transportation intensity and infrastructure (freight airports, ferry ports and shipping ports) and in land use (from shopping malls to smaller more decentralized warehouses). Some of these effects result in emissions savings, while some of the emissions just arise from a different source. 
• As mentioned before the social impact of e-commerce is a change in consumer and lifestyle habits. The third-order effects in this context are characterized by substitute activities of consumers. Since there is a possibility to save time and money by buying online, it is likely that the saved time and money is invested elsewhere. This change in consumer habits has a certain influence on the environment and on economy, but it’s impact is hard to assess. 

One of the most considerable arguments supporting that e-commerce has a positive net environmental impact is the fact, that it enables a more direct way of distribution with a fewer number of retailers [5]. In conventional commerce a product passes through a significant number of trade partners on it’s way from the manufacturer to the consumer. These trade partners can be retailers, franchises, wholesalers, distributors or brokers. In contrast to this, e-commerce enables a distribution with just one, or even without any intermediary. Manufacturers can sell their goods in their own online shops and ship them directly to the consumer. In practice there is still one retailer (e.g. online warehouses) in most of the cases, that orders goods directly from the manufacturer and sells them to consumers. The more direct distribution results in higher efficiency and reduced costs. Figure 1 depicts the paradigm change from conventional marketing to electronic commerce.

Figure 1: Traditional commerce (left) and e-commerce [1] 

The electronic exchange of business data and higher efficiency in the supply chain enable the manufacturers to market their products at lower prices compared to conventional commerce (see efficiency in figure 1). Additionally the markups by intermediaries drop out at electronic commerce, due to fewer retailers. Intermediaries usually sell their goods at a higher price as they paid for them. This means that the price of a good rises with every trade partner it passes through. The result of the change in distribution due to electronic commerce are decreasing costs, lower prices and - by the rules of simple economics - increasing demand, which also means increasing consumption. Therefore the efficiency gains of e-commerce consequently result in rising emissions. This coherence was recognized by researchers already more than a

decade ago [1] and is a strong argument to question the net environmental improvement by e-commerce.
When thinking about the question, if the environmental impact of e-commerce is positive or negative in total, several aspects have to be considered, that bring changes in greenhouse gas emissions and resource usage. The effects of e-commerce that have either positive or negative influence on the environment are summarized in table 1. 

Table 1: The positive and negative impact of e-commerce on the environment

Considering the large number of negative environmental aspects of e-commerce it is doubt- ful, that e-commerce can lead to environmental improvements. Table 1 shows that every positive environmental aspect is accompanied by potentially negative impacts. E-commerce is like every kind of commerce designed to create economic growth, which is in most of the cases counterproductive to environmental goals. This statement can be confirmed by the fact that economic growth involves growing energy demand. Therefore sustainability and economic growth are contradictory [1]. However, the opinions of researchers diversify on this topic, since there is currently no telling argument to answer the question if e-commerce can substantially contribute to a low carbon economy. The SMART 2020 Report constitutes that e-commerce could account for a reduction of 3 percent of the emissions arising from shopping transport [6]. Although this would imply savings of 0.03 GtCO2e in 2020, this cannot be claimed as a huge expectation of the positive environmental impact of e-commerce.

References

[1] J. C. Yang.   Environmental impact of e-commerce and other sustainability - implications of the information economy. Working Paper of the Research Group on the Global Future, Center for Applied Policy Research (CAP), Industrial Technology Research Institute, 2000.

[2] S. Tiwari and P. Singh. Environmental impacts of e-commerce. International Proceedings of Chemical, Biological & Environmental Engineering (IPCBEE), vol.8:202–207, 2011.

[3] InternetWorldStats.com. Internet growth statistics. http://www.internetworldstats.com/emarketing.htm. Accessed: 2013-03-06.

[4] B. Cushman-Roisin. Environmental impacts of e-commerce. http://engineering.dartmouth.edu/~d30345d/courses/engs171/eCommerce.pdf, 2011. Accessed: 2013-03-06.

[5] L.D.D. Harvey. Energy and the new reality 1: Energy Efficiency and the Demand for Energy services. Earthscan, 2010.

[6] The Climate Group. Smart 2020: Enabling the low carbon economy in the information age. Technical report, The Climate Group on behalf of the Global e-Sustainability Initiative (GeSI), 2008.