Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied topic due to growing environmental concerns in the twenty-first century. Quoting from the National Bureau of Economic Research Environmental Economics program:
... Environmental Economics ... undertakes theoretical or empirical studies of the economic effects of national or local environmental policies around the world ... . Particular issues include the costs and benefits of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming.
Environmental economics is distinguished from ecological economics in that ecological economics emphasizes the economy as a subsystem of the ecosystem with its focus upon preserving natural capital. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing "strong" sustainability and rejecting the proposition that natural capital can be substituted by human-made capital.
Central to environmental economics is the concept of market failure. Market failure means that markets fail to allocate resources efficiently. As stated by Hanley, Shogren, and White (2007): "A market failure occurs when the market does not allocate scarce resources to generate the greatest social welfare. A wedge exists between what a private person does given market prices and what society might want him or her to do to protect the environment. Such a wedge implies wastefulness or economic inefficiency; resources can be reallocated to make at least one person better off without making anyone else worse off." Common forms of market failure include externalities, non-excludability and non-rivalry.
An externality exists when a person makes a choice that affects other people in a way that is not accounted for in the market price. An externality can be positive or negative, but is usually associated with negative externalities in environmental economics. For instance, water seepage in residential buildings occurring in upper floors affect the lower floors. Another example concerns how the sale of Amazon timber disregards the amount of carbon dioxide released in the cutting. Or a firm emitting pollution will typically not take into account the costs that its pollution imposes on others. As a result, pollution may occur in excess of the 'socially efficient' level, which is the level that would exist if the market was required to account for the pollution. A classic definition influenced by Kenneth Arrow and James Meade is provided by Heller and Starrett (1976), who define an externality as "a situation in which the private economy lacks sufficient incentives to create a potential market in some good and the nonexistence of this market results in losses of Pareto efficiency". In economic terminology, externalities are examples of market failures, in which the unfettered market does not lead to an efficient outcome.
When it is too costly to exclude some people from access to an environmental resource, the resource is either called a common property resource (when there is rivalry for the resource, such that one person's use of the resource reduces others' opportunity to use the resource) or a public good (when use of the resource is non-rivalrous). In either case of non-exclusion, market allocation is likely to be inefficient.
These challenges have long been recognized. Hardin's (1968) concept of the tragedy of the commons popularized the challenges involved in non-exclusion and common property. "Commons" refers to the environmental asset itself, "common property resource" or "common pool resource" refers to a property right regime that allows for some collective body to devise schemes to exclude others, thereby allowing the capture of future benefit streams; and "open-access" implies no ownership in the sense that property everyone owns nobody owns.
The basic problem is that if people ignore the scarcity value of the commons, they can end up expending too much effort, over harvesting a resource (e.g., a fishery). Hardin theorizes that in the absence of restrictions, users of an open-access resource will use it more than if they had to pay for it and had exclusive rights, leading to environmental degradation. See, however, Ostrom's (1990) work on how people using real common property resources have worked to establish self-governing rules to reduce the risk of the tragedy of the commons.
The mitigation of climate change effects is an example of a public good, where the social benefits are not reflected completely in the market price. This is a public good since the risks of climate change are both non-rival and non-excludable. Such efforts are non-rival since climate mitigation provided to one does not reduce the level of mitigation that anyone else enjoys. They are non-excludable actions as they will have global consequences from which no one can be excluded. A country's incentive to invest in carbon abatement is reduced because it can "free ride" off the efforts of other countries. Over a century ago, Swedish economist Knut Wicksell (1896) first discussed how public goods can be under-provided by the market because people might conceal their preferences for the good, but still enjoy the benefits without paying for them.
Assessing the economic value of the environment is a major topic within the field. Use and indirect use are tangible benefits accruing from natural resources or ecosystem services (see the nature section of ecological economics). Non-use values include existence, option, and bequest values. For example, some people may value the existence of a diverse set of species, regardless of the effect of the loss of a species on ecosystem services. The existence of these species may have an option value, as there may be the possibility of using it for some human purpose. For example, certain plants may be researched for drugs. Individuals may value the ability to leave a pristine environment to their children.
Use and indirect use values can often be inferred from revealed behavior, such as the cost of taking recreational trips or using hedonic methods in which values are estimated based on observed prices. Non-use values are usually estimated using stated preference methods such as contingent valuation or choice modelling. Contingent valuation typically takes the form of surveys in which people are asked how much they would pay to observe and recreate in the environment (willingness to pay) or their willingness to accept (WTA) compensation for the destruction of the environmental good. Hedonic pricing examines the effect the environment has on economic decisions through housing prices, traveling expenses, and payments to visit parks.
Solutions advocated to correct such externalities include:
Environmental economics is related to ecological economics but there are differences. Most environmental economists have been trained as economists. They apply the tools of economics to address environmental problems, many of which are related to so-called market failures—circumstances wherein the "invisible hand" of economics is unreliable. Most ecological economists have been trained as ecologists, but have expanded the scope of their work to consider the impacts of humans and their economic activity on ecological systems and services, and vice versa. This field takes as its premise that economics is a strict subfield of ecology. Ecological economics is sometimes described as taking a more pluralistic approach to environmental problems and focuses more explicitly on long-term environmental sustainability and issues of scale.
Environmental economics is viewed as more pragmatic in a price system; ecological economics as more idealistic in its attempts not to use money as a primary arbiter of decisions. These two groups of specialists sometimes have conflicting views which may be traced to the different philosophical underpinnings.
Another context in which externalities apply is when globalization permits one player in a market who is unconcerned with biodiversity to undercut prices of another who is - creating a race to the bottom in regulations and conservation. This, in turn, may cause loss of natural capital with consequent erosion, water purity problems, diseases, desertification, and other outcomes which are not efficient in an economic sense. This concern is related to the subfield of sustainable development and its political relation, the anti-globalization movement.
Environmental economics was once distinct from resource economics. Natural resource economics as a subfield began when the main concern of researchers was the optimal commercial exploitation of natural resource stocks. But resource managers and policy-makers eventually began to pay attention to the broader importance of natural resources (e.g. values of fish and trees beyond just their commercial exploitation). It is now difficult to distinguish "environmental" and "natural resource" economics as separate fields as the two became associated with sustainability. Many of the more radical green economists split off to work on an alternate political economy.
Environmental economics was a major influence on the theories of natural capitalism and environmental finance, which could be said to be two sub-branches of environmental economics concerned with resource conservation in production, and the value of biodiversity to humans, respectively. The theory of natural capitalism (Hawken, Lovins, Lovins) goes further than traditional environmental economics by envisioning a world where natural services are considered on par with physical capital.
The more radical Green economists reject neoclassical economics in favour of a new political economy beyond capitalism or communism that gives a greater emphasis to the interaction of the human economy and the natural environment, acknowledging that "economy is three-fifths of ecology" - Mike Nickerson.
These more radical approaches would imply changes to money supply and likely also a bioregional democracy so that political, economic, and ecological "environmental limits" were all aligned, and not subject to the arbitrage normally possible under capitalism.
An emerging sub-field of environmental economics studies its intersection with development economics. Dubbed "envirodevonomics" by Michael Greenstone and B. Kelsey Jack in their paper "Envirodevonomics: A Research Agenda for a Young Field," the sub-field is primarily interested in studying "why environmental quality [is] so poor in developing countries." A strategy for better understanding this correlation between a country's GDP and its environmental quality involves analyzing how many of the central concepts of environmental economics, including market failures, externalities, and willingness to pay, may be complicated by the particular problems facing developing countries, such as political issues, lack of infrastructure, or inadequate financing tools, among many others.
In the field of law and economics, environmental law is studied from an economic perspective. The economic analysis of environmental law studies instruments such as zoning, expropriation, licensing, third party liability, safety regulation, mandatory insurance, and criminal sanctions. A book by Michael Faure (2003) surveys this literature.
The main academic and professional organizations for the discipline of Environmental Economics are the Association of Environmental and Resource Economists (AERE) and the European Association for Environmental and Resource Economics (EAERE). The main academic and professional organization for the discipline of Ecological Economics is the International Society for Ecological Economics (ISEE). The main organization for Green Economics is the Green Economics Institute.
In real estate and lodging, an amenity is something considered to benefit a property and thereby increase its value. Tangible amenities can include the number and nature of guest rooms and the provision of facilities such as elevators (lifts), wi-fi, restaurants, parks, communal areas, swimming pools, golf courses, health club facilities, party rooms, theater or media rooms, bike paths or garages, while intangible amenities can include aspects such as well-integrated public transport, pleasant views, nearby activities and a low crime rate. Within the context of environmental economics, an environmental amenity can include access to clean air or clean water, or the quality of any other environmental good that may reduce adverse health effects for residents or increase their economic welfare.Eco-economic decoupling
In economic and environmental fields, decoupling refers to an economy that would be able to grow without corresponding increases in environmental pressure. In many economies, increasing production (GDP) raises pressure on the environment. An economy that would be able to sustain economic growth without having a negative impact on the environment would be said to be decoupled.Ecological economics
Ecological economics (also called eco-economics, ecolonomy or bioeconomics of Georgescu-Roegen) is both a transdisciplinary and an interdisciplinary field of academic research addressing the interdependence and coevolution of human economies and natural ecosystems, both intertemporally and spatially. By treating the economy as a subsystem of Earth's larger ecosystem, and by emphasizing the preservation of natural capital, the field of ecological economics is differentiated from environmental economics, which is the mainstream economic analysis of the environment. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing strong sustainability and rejecting the proposition that natural capital can be substituted by human-made capital (see the section on Weak versus strong sustainability below).Ecological economics was founded in the 1980s as a modern discipline on the works of and interactions between various European and American academics (see the section on History and development below). The related field of green economics is, in general, a more politically applied form of the subject.According to ecological economist Malte Faber, ecological economics is defined by its focus on nature, justice, and time. Issues of intergenerational equity, irreversibility of environmental change, uncertainty of long-term outcomes, and sustainable development guide ecological economic analysis and valuation. Ecological economists have questioned fundamental mainstream economic approaches such as cost-benefit analysis, and the separability of economic values from scientific research, contending that economics is unavoidably normative rather than positive (i.e. descriptive). Positional analysis, which attempts to incorporate time and justice issues, is proposed as an alternative. Ecological economics shares several of its perspectives with feminist economics, including the focus on sustainability, nature, justice and care values.Environmental accounting
Environmental accounting is a subset of accounting proper, its target being to incorporate both economic and environmental information. It can be conducted at the corporate level or at the level of a national economy through the System of Integrated Environmental and Economic Accounting, a satellite system to the National Accounts of Countries (among other things, the National Accounts produce the estimates of Gross Domestic Product otherwise known as GDP).
Environmental accounting is a field that identifies resource use, measures and communicates costs of a company’s or national economic impact on the environment. Costs include costs to clean up or remediate contaminated sites, environmental fines, penalties and taxes, purchase of pollution prevention technologies and waste management costs.
An environmental accounting system consists of environmentally differentiated conventional accounting and ecological accounting. Environmentally differentiated accounting measures effects of the natural environment on a company in monetary terms. Ecological accounting measures the influence a company has on the environment, but in physical measurements.Environmental finance
Environmental finance is the use of various financial instruments (usually land trusts and emissions trading) to protect the environment. The field is part of both environmental economics and the conservation movement.
The field of Environmental Finance was first defined by Richard L. Sandor, American economist and entrepreneur, when he taught the first ever Environmental Finance course at Columbia University in the fall of 1992.
Dr. Gretchen Daily, of Stanford University has written a book, The New Economy of Nature that addresses the issue of financing ecosystem services.
Dr. Jürg P. Blum, defined the term environmental finance (Dissertation: Corporate Environmental Responsibility and Corporate Economic Performance..... 1994 at USIU) as a fairly new field, "concerned mainly with finance and investment regarding the ecological environment. The term environment, although frequently used in areas, such as strategic management (Ansoff, 1968), has been popularized throughout literature synonymously with the term ecological environment."Free-market environmentalism
Free-market environmentalism argues that the free market, property rights, and tort law provide the best means of preserving the environment, internalizing pollution costs, and conserving resources.
Free-market environmentalists therefore argue that the best way to protect the environment is to clarify and protect property rights. This allows parties to negotiate improvements in environmental quality. It also allows them to use torts to stop environmental harm. If affected parties can compel polluters to compensate them they will reduce or eliminate the externality. Market proponents advocate changes to the legal system that empower affected parties to obtain such compensation. They further claim that governments have limited affected parties' ability to do so by complicating the tort system to benefit producers over others.Good Country Index
The Good Country Index measures how much each of the 163 countries on the list contribute to the planet, and to the human race, through their policies and behaviors.Industrial ecology
Industrial ecology (IE) is the study of material and energy flows through industrial systems. The global industrial economy can be modelled as a network of industrial processes that extract resources from the Earth and transform those resources into commodities which can be bought and sold to meet the needs of humanity. Industrial ecology seeks to quantify the material flows and document the industrial processes that make modern society function. Industrial ecologists are often concerned with the impacts that industrial activities have on the environment, with use of the planet's supply of natural resources, and with problems of waste disposal. Industrial ecology is a young but growing multidisciplinary field of research which combines aspects of engineering, economics, sociology, toxicology and the natural sciences.
Industrial ecology has been defined as a "systems-based, multidisciplinary discourse that seeks to understand emergent behaviour of complex integrated human/natural systems". The field approaches issues of sustainability by examining problems from multiple perspectives, usually involving aspects of sociology, the environment, economy and technology. The name comes from the idea that the analogy of natural systems should be used as an aid in understanding how to design sustainable industrial systems.Journal of Environmental Economics and Management
The Journal of Environmental Economics and Management is a peer-reviewed academic journal of environmental economics published six times per year. It was the official journal of the Association of Environmental and Resource Economists until 2014 and publishes theoretical and empirical papers concerned with the linkage between economic systems and environmental and natural resources. When it was the official journal of the Association of Environmental and Resource Economists, the journal was generally regarded as the top journal in natural resources and environmental economics. The current editor-in-chief is Till Requate (Kiel University). Previous editors include Daniel J. Phaneuf, Joseph Herriges, and Charles F. Mason.Kaya identity
The Kaya identity is an identity stating that the total emission level of the greenhouse gas carbon dioxide can be expressed as the product of four factors: human population, GDP per capita, energy intensity (per unit of GDP), and carbon intensity (emissions per unit of energy consumed). It is a concrete form of the more general I = PAT equation relating factors that determine the level of human impact on climate. The Kaya identity is both simple and tricky, as it can be reduced to only two terms, but it is developed so that the carbon emission calculation becomes easy, as per the available data, or generally in which format the data is available.Land (economics)
In economics, land comprises all naturally occurring resources as well as geographic land. Examples include particular geographical locations, mineral deposits, forests, fish stocks, atmospheric quality, geostationary orbits, and portions of the electromagnetic spectrum. Supply of these resources is fixed.List of environmental journals
This is a list of scholarly, peer-reviewed academic journals focused on the biophysical environment and/or humans' relations with it. Inclusion of journals focused on the built environment is appropriate. Included in this list are journals from a wide variety of interdisciplinary fields including from the environmental sciences, environmental social sciences, environmental humanities, etc.Mitigation banking
Mitigation banking is the preservation, enhancement, restoration or creation (PERC) of a wetland, stream, or habitat conservation area which offsets, or compensates for, expected adverse impacts to similar nearby ecosystems. The goal is to replace the exact function and value of specific habitats (i.e. biodiversity, or other ecosystem services) that would be adversely affected by a proposed activity or project. The public interest is served when enforcement agencies require more habitat as mitigation, often referred to as a mitigation ratio, than is adversely impacted by management or development of nearby acreage.Polluter pays principle
In environmental law, the polluter pays principle is enacted to make the party responsible for producing pollution responsible for paying for the damage done to the natural environment. It is regarded as a regional custom because of the strong support it has received in most Organisation for Economic Co-operation and Development (OECD) and European Union countries. It is a fundamental principle in US environmental law.Pollution haven hypothesis
The pollution haven hypothesis posits that, when large industrialized nations seek to set up factories or offices abroad, they will often look for the cheapest option in terms of resources and labor that offers the land and material access they require. However, this often comes at the cost of environmentally unsound practices. Developing nations with cheap resources and labor tend to have less stringent environmental regulations, and conversely, nations with stricter environmental regulations become more expensive for companies as a result of the costs associated with meeting these standards. Thus, companies that choose to physically invest in foreign countries tend to (re)locate to the countries with the lowest environmental standards or weakest enforcement.Review of Environmental Economics and Policy
The Review of Environmental Economics and Policy (REEP) is a peer-reviewed journal of environmental economics published twice each year. It is the official "accessible" journal of the Association of Environmental and Resource Economists (AERE), and complements the organization's other journal, the Journal of the Association of Environmental and Resource Economists (JAERE), which has a more technical research orientation.
REEP was conceived after years of consideration by the Association. Just as the Journal of Economic Perspectives is to the American Economic Review, REEP is intended to fill the gap between traditional academic research journals in environmental economics (like JEEM) and the general interest press by providing a widely accessible yet scholarly source for the latest thinking on environmental economics and related policy. REEP publishes symposia, articles, and regular features that contribute to one or more of the following goals: to identify and synthesize lessons learned from recent and ongoing environmental economics research, to provide economic analysis of environmental policy issues, to promote the sharing of ideas and perspectives among the various sub-fields of environmental economics, to strengthen the linkages between environmental economics research and environmental policy, to encourage communication and connections between academics and the wider policy community, to offer suggestions for future research, to provide insights and readings for use in the classroom, and to address issues of interest to the environmental economics profession.
REEP is edited by Carlo Carraro of the University of Venice, Harvard University, Matthew Kahn University of California, Los Angeles. Articles published by the REEP are generally commissioned by the editors, but are still typically subjected to anonymous peer review. Given the requirement that material appearing in the journal should be written for a non-technical audience and be highly readable, the submission of unsolicited manuscripts is not encouraged. There are simply too few other outlets for a paper with this structure if it turns out not to be appropriate for REEP. Speculative preparation of an article thus represents more of a gamble that usual in the world of economics journals. Instead, the editors welcome proposals for topics and authors, so that the suitability of potential contributions can be considered carefully in advance. All such proposals are invited to be sent to the journal's editorial office. AERE and the editors of REEP hope that this new journal will evolve to continually reflect the interests and the changing needs of the worldwide membership of the AERE, as well as REEP's broader constituency of interested but non-specialist readers.
REEP is indexed by EconLit and the Journal of Economic Literature.Riparian water rights
Riparian water rights (or simply riparian rights) is a system for allocating water among those who possess land along its path. It has its origins in English common law. Riparian water rights exist in many jurisdictions with a common law heritage, such as Canada, Australia, and states in the eastern United States.
Common land ownership can be organized into a partition unit, a corporation consisting of the landowners on the shore that formally owns the water area and determines its use.Ross McKitrick
Ross McKitrick (born 1965) is a Canadian economist specializing in environmental economics and policy analysis. He is a professor of economics at the University of Guelph, and a senior fellow of the Fraser Institute.
McKitrick has authored works about environmental economics and climate change denial issues, including co-authoring the book Taken By Storm: The Troubled Science, Policy and Politics of Global Warming. He is the author of Economic Analysis of Environmental Policy published by the University of Toronto Press. His background in applied statistics has also led him to collaborative work across a wide range of topics in the physical sciences including paleoclimate reconstruction, malaria transmission, surface temperature measurement and climate model evaluation.Social metabolism
Social metabolism or socioeconomic metabolism is the set of flows of materials and energy that occur between nature and society, between different societies, and within societies. These human-controlled material and energy flows are a basic feature of all societies but their magnitude and diversity largely depend on specific cultures, or sociometabolic regimes.
Social or socioeconomic metabolism is also described as "the self-reproduction and evolution of the biophysical structures of human society. It comprises those biophysical transformation processes, distribution processes, and flows, which are controlled by humans for their purposes. The biophysical structures of society (‘in use stocks’) and socioeconomic metabolism together form the biophysical basis of society."
Social metabolic processes begin with the human appropriation of materials and energy from nature. These can be transformed and circulated to be consumed and excreted finally back to Nature itself. Each of these processes has a different environmental impact depending on how it is performed, the amount of materials and energy involved in the process, the area where it occurs, the time available or the Nature's regenerative capacity.Social metabolism represents an extension of the metabolism concept from human bodies to the biophysical basis of society. Humans build and operate mines and farms, oil refineries and power stations, factories and infrastructure to supply the energy and material flows needed for the physical reproduction of a specific culture. In-use stocks, which comprise buildings, vehicles, appliances, infrastructure, etc., are built up and maintained by the different industrial processes that are part of social metabolism. These stocks then provide service to people in form of shelter, transportation, or communication.
Society and its metabolism together form an autopoietic system, a complex system that reproduces itself. Neither culture nor social metabolism can reproduce themselves in isolation. Humans need food and shelter, which is delivered by social metabolism, and the latter needs humans to operate it.
Studies of social metabolism can be carried out at different levels of system aggregation, see material flow analysis. In material flow accounting, for example, the inputs and outputs of materials and energy of a particular state or region, as well as imports and exports, are analysed. Such studies are facilitated by the ease of access to information about commercial transactions.Social or socioeconomic metabolism stipulates that human society and its interaction with Nature form a complex self-reproducing system, and it can therefore be seen as paradigm for studying the biophysical basis of human societies under the aspect of self-reproduction. "A common paradigm can facilitate model combination and integration, which can lead to more robust and comprehensive interdisciplinary assessments of sustainable development strategies. ... The use of social or socioeconomic metabolism as paradigm can help to justify alternative economic concepts."