1. What is Environmental Economics ?
A brief introduction on environmental economics and why it is important to understand the market around resources.
Environmental economics is the branch of economics that is concerned with the influence of the economy on the environment, the importance of the environment to the economy, and the best approach to regulate economic activity such that environmental, economic, and social goals are balanced.
Environmental economics has witnessed one of the quickest growth rates among economics topics of study throughout the years.
It focuses on how they use and manage finite resources in a manner that serves the population while meeting concerns about environmental impact. This helps the government/organization/businesses to weigh the pros and cons of alternative measures and design appropriate environmental policies or business models that cause less harm to the environment.
There are four major key concepts in Environmental Economics. They are:
Similar to economics, environmental economics also includes concepts like market failure, externalities, valuation, etc. However, these concepts differ from traditional economics as they study the impact of business on the environment or vice-versa in environmental economics. According to environmental economics, the major concerns are:
i) Extraction of Natural Resources:
Raw materials such as crops, coal, iron ore, oil, etc. are needed for the creation of commodities and services. Excessive extraction of resources have disrupted the ecosystem. Examples include the alteration of the terrain and loss of flora brought on by mining operations, the loss of soil fertility and erosion brought on by intensive agricultural methods, the extinction of species due to deforestation, and so on.
ii) Pollution of the Environment:
The production and consumption of products and services often pollute the environment directly or indirectly which negatively affects human beings. A few examples of the same include:
Municipal solid waste and untreated sewage effluent
Sulfur and carbon dioxide emissions from thermal power plants
Effluent stream discharged from pulp and paper mills
Agricultural run-offs carrying fertilizers
Release of toxic wastes into the atmosphere from chemical plants
iii) Passive use of the Environment:
People tend to use the environment and its resources for leisure and education in various forms like field visits, ecotourism, etc. These activities could cause serious harm to the environment as access to nature for purely recreational and educational purposes may disturb some delicate natural settings.
Therefore, environmental economics includes concepts such as environmental externalities, market failure, valuation of environmental resources, and cost-benefit analysis to assess the impact of an activity on the nature. These are discussed in the subsequent sections.