Environmental_economics

Environmental economics is a subfield of economics concerned with environmental issues. Quoting from the National Bureau of Economic Research Environmental Economics program:

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, a firm emitting pollution will typically not take into account the costs that its pollution imposes on others. As a result, pollution in excess of the socially "efficient" level may occur. One frequently-noted type of externality is Garrett Hardin\'s Tragedy of the Commons, which arises for many public goods (goods that are "non-excludable" and "rival" - that is, they are open to all, but potentially exhaustible). 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. In economic terminology, externalities are examples of market failures, in which the unfettered market does not lead to a efficient outcome.

Solutions

Solutions advocated to correct such externalities include:

• Environmental regulations. Under this plan 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 (also known as "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. The main difference an environmental economist would argue exists between the two methods, however, is the total cost of the regulation. "Command and control" regulation often applies uniform emissions limits on polluters, even though each firm has different costs for emissions reductions. Some firms, in this system, can abate inexpensively, while others can only abate at high cost. Because of this, the total abatement has some expensive and some inexpensive efforts to abate. Environmental economic regulations find the cheapest emission abatement efforts first, then the more expensive methods second. E.g. as said earlier, trading, in the quota system, means a firm only abates if doing so would cost less than paying someone else to make the same reduction. This leads to a lower cost for the total abatement effort as a whole.

• 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.

• Taxes and tariffs on pollution/Removal of "dirty subsidies". Increasing the costs of polluting will discourage polluting, and will provide a "dynamic incentive", that is, 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 (for example, 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".

• Better defined property rights. 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. 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 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). DX

Common misperceptions

Most college-level introductory courses in economics strive to survey the array of basic models that form the foundation of modern neoclassical economics. To cover all of the material in a limited amount of time, many interesting exceptions and generalizations must be omitted. Many students who terminate their training after this introductory course come away with the impression that all economists actually believe that the simplifying assumptions made in an introductory course are "true in real life." These simplifying assumptions may include things like full information, complete and unambiguous property rights, no external costs or benefits, the absence of transactions costs, and so on. This introductory course is typically dedicated to forging an understanding of how markets work. Unfortunately, environmental economics is mostly about situations where markets fail. Most introductory texts are now careful to include a chapter about Market Failures, but this topic often occupies little more than a lecture or two in the curriculum.

As a consequence of having too little training in economics, some environmentalists form the impression that economists are oblivious to environmental problems and that economics, as a profession, is dedicated narrowly to the selfish maximization of consumers\' utility and firms\' profits, with no regard to the impact of human activities upon the environment. It is certainly true that both consumers and firms often make choices that adversely affect the environment, but to reject the potential for economics to address these problems is analogous to concluding that "criminologists are part of the problem" when one is actually upset about "crime." Environmental economists study the behavior of households and firms as it relates to the environment, and many of their insights pertain to ways in which policy-makers can harness individuals\' self-interest with interventions that will change these behaviors.

Alternative economic approaches to the environment

"Environmental Economics" should not be confused with "Ecological Economics." The two fields are related, but are in some ways very different. 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.

These two groups of specialists sometimes have conflicting views which can often be traced to the different philosophical underpinnings of the two fields. Many ecologists subscribe to deontological ethical systems; many economists subscribe to teleological ethical systems. Neither ethical system can be demonstrated to be right or wrong, but they may sometimes have different implications for environmental policy. Environmental economics is sometimes viewed as relatively more pragmatic; ecological economics as relatively more idealistic.

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).

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;, externalities associated with mining). 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 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. 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.

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.

See also

• Biofuel
• Ecological Economics
• Energy balance
• Environmental accounting
• Fair trade
• Green banking
• Green economics
• Green syndicalism
• Natural resource
• Property rights (economics)
• Renewable resource
• Risk assessment
• Climate change in Washington

Hypotheses and theorems

• Coase theorem
• Porter hypothesis

References

• Allen K. Kneese and Clifford S. Russell (1987). "environmental economics," The New Palgrave: A Dictionary of Economics, v. 2, pp. 159-64.
• David Pearce (2002). "An Intellectual History Of Environmental Economics", Annual Review of Energy and the Environment 2002, 27:57–81.
• UNEP (2007). Guidelines for Conducting Economic Valuation of Coastal Ecosystem Goods and Services, UNEP/GEF/SCS Technical Publication No. 8.
• UNEP (2007). Procedure for Determination of National and Regional Economic Values for Ecotone Goods and Services, and Total Economic Values of Coastal Habitats in the context of the UNEP/GEF Project Entitled: “Reversing Environmental Degradation Trends in the South China Sea and Gulf of Thailand”, South China Sea Knowledge Document No. 3. UNEP/GEF/SCS/Inf.3

Notes

External links

• Environmental economics (World Bank).
• Grant Thornton International Business Report Energy & Environment focus
• Earth Index (PDF).
• Sustainable Prosperity: building a greener and more prosperous economy for Canadians
• The Environmental Economics Blog.
• Environmental Economics Blog from a University of Chicago graduate\'s Perspective.
• Environmental Economics: Basic Concepts and Debates
• Introduction to environmental economics
• UNEP/GEF Regional Task Force on Economic Valuation

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