Environmental Economics

In today's world, we are witnessing pollution, climate change, loss of biodiversity, and depletion of resources, and the environment cannot be ignored by the field of economics. This is the precise moment in time when the role of Environmental Economics, which is a branch of the economics field, comes into play. Environmental economics is when the environment and economics meet, in the sense that it deals with the impact of economic activities on the environment, as well as the policies that would need to be formed in order to achieve the growth sustainability balance.

As countries work to develop, they are faced with the dual challenge of achieving economic growth while environmental preservation. With environmental economics, it is easy to achieve a balance as it provides the necessary theoretical and practical frameworks to attain sustainability.

What is Environmental Economics?

Environmental economics is a branch of the world of economics that focuses on the impacts of policy implementation on the environment and how the environment is influenced by economic activities. It also tries to establish the limits of pollution payments and the mechanisms for environmental protection.

Notable Characteristics of Environmental Economics: 

1. Concentration on Externalities

As an illustration of market failure, the environment’s cost is often neglected, for instance, in the case of pollution. Environmental economics addresses this failure by applying taxes, subsidies, or regulations with the aim of internalizing the costs.

2. Estimation of Natural Resources

Valuation deals with the economic measurement of natural resources, for instance, clean air, forests, rivers, and biodiversity by applying contingent valuation, hedonic pricing, along with cost-benefit analysis.

3. Policy Instruments for Sustainability 

Environmental economists recommend these and other policy instruments:

• Carbon tax
• Permits for trading pollution
• Subsidies for clean energy
• Pigovian taxes (taxes levied to correct the negative externalities)

4. Cost-Benefit Analysis (CBA)

A distinctive accomplishment in this area of study is the CBA for proposed development or infrastructural projects. This entails the assessment of the economic value of the environmental damage and the value of development.

5. Multi-Disciplinary Approach 

The environment as an area of study focuses on the economics of the environment which incorporates ecology, law, sociology, geography and other disciplines. Environmental economists understand that social and ecological dimensions have sustainable development issues.

Goals of Environmental Economics

One of the causes for the failure to resolve environmental issues is the over-reliance on the market solution to environmental problems. Tools such as carbon credits, while beneficial, require strong environmental policies, public education, and the determination of environmental champions. Economic instruments, if improperly applied, can lead to policies of greenwashing, or loophole-driven policies under the pretense of environmental protection.

• To promote effective use of natural resources.
• To devise measures aimed at mitigating the harmful impacts of human activities on the environment.
• To promote economically viable development.
• To devise market-based strategies for the resolution of environmental issues.
• To promote equity between generations in the use of environmental resources.

Importance of Environmental Economics in India 

Environmental economics is not a matter of economy versus ecology. It is the integration of both worlds. It provides the ability to guide policymakers and the data to allow for responsible progress, achieving development without annihilating the planet. Urgently, as climate issues rise in the agenda, embracing discipline becomes a must for the students, policymakers, and the businesses towards a truly sustainable economy.

• Agriculture is largely climate-dependent, and India is prone to drought, flooding, and soil degradation.
• Urban and industrial activity is contributing to increased pollution.
• Environmental economics assists in formulating rational policies for the regulation of pollution, the conservation of forests, and the management of water resources.
• Informed economic policies on climate financing and carbon pricing are necessary for India to actively participate in climate negotiations such as COP28.

 

Did you know?  The carbon pricing market is one of the fastest growing markets in the world. Its value is already over $100 billion globally, demonstrating the immense value placed on carbon and proving the hypothesis that environmental economics is a big business, and not just a theory.

 

Explore More 

• Applied Economics 
• Microeconomics & Macroeconomics 
• Father of Economics
• Positive & Normative Economics 

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Frequently Asked Questions (FAQs)

What is the difference between Environmental Economics and Ecological Economics?

While Environmental Economics incorporates ecological aspects to the mainstream economics framework, Ecological Economics regards the economy as a subsystem of the ecosystem and is based on the premise of limits to growth.

What are some environmental valuation methods?

• Contingent Valuation (Willingness to pay)
• Travel Cost Method (Recreation area valuation)
• Hedonic Pricing (Effect of environmental factors on property prices)

 What is a Pigovian Tax?

A Pigovian tax is levied to mitigate some forms of negative externality, for instance, a carbon tax levied on industries to curb greenhouse gas emissions.