Environmental economics is a subfield of economics concerned with environmental issues (other usages of the term are not uncommon). In using standard methods of neo-classical economics, it is distinguished from green economics or ecological economics which subsumes the nonstandard approaches to environmental problems, environmental science/environmental studies, or ecology. Quoting from the NBER Environmental Economics program: Environmental science is the science of the interactions between the physical, chemical, and biological components of the environment, in relation to the impact of humans on the environment, and the impact of the environment on humans. ... Atmospheric sciences is an umbrella term for the study of the atmosphere, its processes, the effects other systems have on the atmosphere, and the effects of the atmosphere on these other systems. ... Biology is the study, or science, of life. ... Chemistry (derived from the Arabic word kimia, alchemy, where al is Arabic for the) is the science that deals with the properties of organic and inorganic substances and their interactions with other organic and inorganic substances. ... (Ecology is sometimes used incorrectly as a synonym for the natural environment or environmentalism. ... Economics (from the Greek οίκος [oikos], house, and νομος [nomos], rule, hence household management) is a social science that studies the production, distribution, trade and consumption of goods and services. ... Environmental design refers to taking environmental concerns into consideration in the design process. ... Environmental ethics is the ethical relationship between human beings and the environment in which they live. ... Ethics (from Greek ethikos) is the branch of axiology – one of the four major branches of philosophy, alongside metaphysics, epistemology, and logic – which attempts to understand the nature of morality; to define that which is right from that which is wrong. ... Earth science (also known as geoscience or the geosciences), is an all-embracing term for the sciences related to the planet Earth. ... Environmental law is a body of law, which is a system of complex and interlocking rules, regulations and policies which seeks to protect the natural environment which may be affected, impacted or even endangered by human activities. ... Water covers 70% of the Earths surface. ... To meet Wikipedias quality standards and appeal to a wider international audience, this article may require cleanup. ... A black hole concept drawing by NASA. Physics (from the Greek, φυσικός (physikos), natural, and φύσις (physis), nature) is the science of the natural world dealing with the fundamental constituents of the universe, the forces they exert on one another, and the results produced by these forces. ... Political science is a social science discipline that deals with the theory and practice of politics and the description and analysis of political systems and political behavior. ... Environmental technology is the subset of technologies concerned with preserving the natural environment by recycling waste products produced by human activities. ... Economics (from the Greek οίκος [oikos], house, and νομος [nomos], rule, hence household management) is a social science that studies the production, distribution, trade and consumption of goods and services. ... Green economics loosely defines a theory of economics by which an economy is considered to be a component of the ecosystem in which it resides. ... Ecological economics is a branch of economic theory that addresses the interdependence and co-evolution between human economies and their natural ecosystems. ... The natural environment comprises all living and non-living things that occur naturally on Earth. ... Environmental science is the science of the interactions between the physical, chemical, and biological components of the environment, in relation to the impact of humans on the environment, and the impact of the environment on humans. ... Environmental studies is the systematic study of human interaction with their natural environment. ... (Ecology is sometimes used incorrectly as a synonym for the natural environment or environmentalism. ... The National Bureau of Economic Research (NBER) is a private, nonprofit, nonpartisan research organization dedicated to studying the science and empirics of economics, especially the American economy. ...

[...] 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.

A related field (or possibly alternative approach to the same field) is ecological economics, which takes as its premise that economics is itself a strict subfield of ecology. Ecological economics is a branch of economic theory that addresses the interdependence and co-evolution between human economies and their natural ecosystems. ...

Topics and concepts

Central to environmental economics is the concept of an externality. This means that some effects of an activity are not taken into account in its price. For instance pollution in excess of the socially "optimal" level may occur if the prices a producer pays do not include the impacts (costs) experienced by those adversely affected by the pollution. Too little nature conservation may occur if those who undertake such activities are not rewarded in relation to the increase in the quality of life they help to bring about for the general population. An externality occurs in economics when a decision (for example, to pollute the atmosphere) causes costs or benefits to stakeholders other than the person making the decision. ... In economics and business, the price is the assigned numerical monetary value of a good, service or asset. ... Environmental Pollution is the release of harmful environmental contaminants, or the substances so released. ...

One frequently-noted example of an externality is Garrett Hardin's Tragedy of the Commons, which occurs in connection to public goods (goods that are "non-excludable" and "non-rival" - that is, they are open to all). Visitors to an open-access recreational area will use the resource more than if they had to pay for it, leading to environmental degradation. This of course assumes that there is no other policy instrument (e.g. permits, regulation) being used to control access. The tragedy of the commons is a phrase used to refer to a class of phenomena that involve a conflict for resources between individual interests and the common good. ... In economics, a public good is a good that is hard or even impossible to produce for private profit, because the market fails to account for its large beneficial externalities. ... Non-excludable goods are defined in economics as goods whereby it is impossible to stop a person consuming that good when it has become publicly available at a relatively low cost. ... In economics, something is considered rivalrous if its consumption by one person prevents it from being available to someone else. ...

In economic terminology, these are examples of market failures, and that is an outcome which is not efficient in an economic sense. Here the inefficiency is caused because too much of the polluting activity will be carried out, as the polluter will not take the interests of those adversely affected by the pollution into account. This has led to controversial research into measuring well-being that try to measure when pollution is actually starting to affect human health and general quality of life. Market failure is a situation in which markets do not efficiently organize production or allocate goods and services to consumers (for example, a failure to allocate goods in a way some see as socially or morally preferable). ... Pareto efficiency, or Pareto optimality, is a central theory in economics with broad applications in game theory, engineering and the social sciences. ... The well-being or quality of life of a population is an important concern in economics and political science. ...

Solutions

Solutions advocated to correct such externalities include:

• Better defined property rights. For example, if people living near a factory had a right to clean air and water, or the factory had the right to pollute, then either the factory could pay those affected by the pollution or the people could pay the factory not to pollute. Or, citizens could take action themselves as they would if other property rights were violated. The Coase Theorem states that assigning property rights will lead to an optimal solution, regardless of who receives them, if transaction costs are trivial and the number of parties negotiating is limited. The US River Keepers Law of the 1880s was an early example, giving citizens downstream the right to end pollution upstream themselves if government itself did not act (an early example of bioregional democracy). Many markets for "pollution rights" have been created in the late twentieth century -- see emissions trading. The assertion that defining property rights is a solution is controversial within the field of environmental economics and environmental law and policy more broadly; in Anglo-American and many other legal systems, one has the right to carry out any action unless the law expressly proscribes it. Thus property rights are already assigned (the factory that is polluting has a right to pollute).

• Taxes and tariffs on pollution/Removal of "dirty subsidies". Increasing the costs of polluting will discourage polluting, and will provide a "dynamic incentive", i.e. the disincentive continues to operate even as pollution levels fall. A pollution tax that reduces pollution to the socially "optimal" level would be set at such a level that pollution occurs only if the benefits to society (e.g. in form of greater production) exceeds the costs. Some advocate a major shift from taxation from income and sales taxes to tax on pollution - the so-called "green tax shift".

• Quotas on pollution. Often it is advocated that pollution reductions should be achieved by way of tradeable emissions permits, which if freely traded may ensure that reductions in pollution are achieved at least cost. In theory, if such tradeable quotas are allowed, then a firm would reduce its own pollution load only if doing so would cost less than paying someone else to make the same reduction. In practice, tradeable permits approaches have had some success, such as the U.S.'s sulphur dioxide trading program, though interest in its application is spreading to other environmental problems.

• Environmental regulations. Here the economic impact has to be estimated by the regulator. Usually this is done using cost-benefit analysis. There is a growing realization that regulations (a.k.a. "command and control" instruments) are not so distinct from economic instruments as is commonly asserted by proponents of environmental economics. E.g.1 regulations are enforced by fines, which operate as a form of tax if pollution rises above the threshold prescribed. E.g.2 pollution must be monitored and laws enforced, whether under a pollution tax regime or a regulatory regime.

This page deals with property as ownership rights. ... In law and economics, the Coase theorem, attributed to Ronald Coase, relates to the economic efficiency of a governments allocation of property rights. ... In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange. ... Bioregional democracy (or the Bioregional State) is a set of electoral reforms designed to force the political process in a democracy to better represent concerns about the economy, the body, and environmental concerns (e. ... Emissions trading is an administrative approach used to reduce the cost of pollution control by providing economic incentives for achieving emissions reductions. ... The tax, tariff and trade laws of a political region, state or trade bloc determine which forms of consumption and production tend to be encouraged or discouraged. ... pollution credits, sometimes called pollution permits or pollution certificates are pollution rights as used in emissions trading. ... A green tax shift is a fiscal policy which lowers the taxes on income including wages and profit, and raises taxes on consumption, particularly the unsustainable consumption of non-renewable resources. ... Emissions trading is a proposed economic solution to air pollution. ... Emissions trading is a proposed economic solution to air pollution. ... EPA redirects here. ... Cost-benefit analysis is the process of weighing the total expected costs vs. ...

Alternative approaches to environmental economics

All of the above are advocated by the specific theory of Natural Capitalism (Hawken, Lovins, Lovins). The book goes further by envisioning a world where natural services are considered on par with physical capital. Natural capitalism is a set of trends and economic reforms to reward energy and material efficiency - and remove professional standards and accounting conventions that prevent such efficiencies. ... Capital has a number of related meanings in economics, finance and accounting. ...

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 another outcome which is not efficient in an economic sense. This concern is related to the subfield of sustainable development and its political relation, the anti-globalization movement. An externality occurs in economics when a decision (for example, to pollute the atmosphere) causes costs or benefits to stakeholders other than the person making the decision. ... Globalization is the term used to describe the changes in societies and the world economy that result from dramatically increased international trade and cultural exchange. ... Biodiversity or biological diversity is the diversity of and in living nature. ... Natural capital is a metaphor for the mineral, plant, and animal formations of the Earths biosphere when viewed as a means of production of oxygen, water filter, erosion preventer, or provider of other natural services. ... Pareto efficiency, or Pareto optimality, is a central theory in economics with broad applications in game theory, engineering and the social sciences. ... Sustainable development is a process of developing (land, cities, business, communities, etc) that meets the needs of the present without compromising the ability of future generations to meet their own needs according to the Brundtland Report, a 1987 report from the United Nations. ... Anti-WEF grafiti in Lausanne. ...

Environmental economics was once distinct from resource economics but is now hard to distinguish as a separate field as the two became associated with sustainability and more radical green economists split off to work on an alternate political economy. The field of resource economics includes the study of environmental economics, agricultural production and marketing, bioeconomics, community economic development, resource utilization, and environmental policy. ... Sustainability is a systemic concept, relating to the continuity of economic, social, institutional and environmental aspects of human society. ... Green economics loosely defines a theory of economics by which an economy is considered to be component of the ecosystem in which it resides. ... Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ...

Environmental economics was a major influence for 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. Natural capitalism is a set of trends and economic reforms to reward energy and material efficiency - and remove professional standards and accounting conventions that prevent such efficiencies. ... The field of environmental finance, part of both environmental economics and the conservation movement, exploits various financial instruments (most notably land trusts) to protect biodiversity. ... Biodiversity or biological diversity is a neologism and a portmanteau word, from bio and diversity. ...

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. Green economics loosely defines a theory of economics by which an economy is considered to be component of the ecosystem in which it resides. ... Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... In common usage, the word capitalism means an economic system in which the means of production are primarily privately owned and operated for profit, with private investment of capital, and where production, distribution, and the prices of goods, services, and labor are affected by the forces of supply and demand... This article is about communism as a form of society and as a political movement. ...

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. The examples and perspective in this article may not represent a worldwide view. ... Bioregional democracy (or the Bioregional State) is a set of electoral reforms designed to force the political process in a democracy to better represent concerns about the economy, the body, and environmental concerns (e. ... In economics, arbitrage is the practice of taking advantage of a state of imbalance between two or more markets: a combination of matching deals are struck that exploit the imbalance, the profit being the difference between the market prices. ... In common usage, the word capitalism means an economic system in which the means of production are primarily privately owned and operated for profit, with private investment of capital, and where production, distribution, and the prices of goods, services, and labor are affected by the forces of supply and demand...

Accordingly, there is still a need for a more conservative environmental economics, and its subfields environmental finance, Natural Capitalism, measuring well-being and sustainable development. The field of environmental finance, part of both environmental economics and the conservation movement, exploits various financial instruments (most notably land trusts) to protect biodiversity. ... Natural capitalism is a set of trends and economic reforms to reward energy and material efficiency - and remove professional standards and accounting conventions that prevent such efficiencies. ... The well-being or quality of life of a population is an important concern in economics and political science. ...

See also

• biofuel
• energy balance
• fair trade
• risk assessment
• Green syndicalism

This article is about the general topic of biofuel. ... Energy balance has the following meanings in several fields: In physics, energy balance is a systematic presentation of energy flows and transformations in a system. ... Fair trade products shown at XI Unctad. ... Risk assessment is a step in the risk management process. ... Green syndicalism is the philosophy of the green guild or sustainable trades movement. ...

Prominent Environmental Economic Hypotheses and Theorems

• Coase Theorem
• Porter Hypothesis