Environmental Economics is a sub-area (eəriə) in the

field of Economics.  This subject focuses on

effective use of natural scarce resources. The
concepts of environmental protection and economics
are contradictory. Economists sometimes have a
disregard for the environment. 
Humans' desire to have the biggest, the best, the
fastest,…the most, have very serious negative effects
on environment.
If we don’t dispose byproducts properly, they can
cause major harm to our environment.
Environmental economists can design policies for all
these issues.
As we know, economics is all about incentives;
when environmental problems arise, economists try
to change the response of rational individuals in the
situation. In the twenty first century, there is now a
greater public awareness of humans’ effect on the
earth.
Problems include climate control, a decrease in
biodiversity, and pollution in both the water and
air. When the results of the decision affects a person
who didn’t decide it causes negative externalities.
Environmental Economics works to correct negative
externalities that arise from decisions about natural
resources. For many of us, these environmental
problems are hard to detect in our daily lives so
they often go unnoticed. But by taking a closer look,
it is obvious that the problems are growing. In some
respects, the damage can be arrested; in others it can
actually be reversed. To do this some people turn to
the government for help while others turn to self-
regulated property rights (among other things) to
support our natural resources.
Are We Becoming More Aware?

Many politicians and celebrities discuss their support for

preservation of certain natural resources.  More and
more, consumer products indicate on the label that the
production process used was "environmentally-friendly". 
Some boast that their production process created little to
no waste that is sent to landfills.  Others say their actual
products are made of organic materials. These are visible
indicators of a change in the U.S., and even the world.
And also of increased concern about these issues.

Whose Turn Is It Anyway?

The concepts of public and private goods come up a lot in

environmental economics.  Even with all the progress,
polluters usually try to blame someone else and expect
them to clean up the pollution. It is difficult to convince
people that it is their turn to chip in, because everyone
gets equal benefit from pollution reduction. The ones who
prefer to enjoy the benefits of environmental clean up
without having to pay for it are called free riders. A free
rider is a person who uses the benefit of a good without
paying anything.

How Do We Apply Economics to An Environmental Situation?

Through valuation, cost-benefit analysis, and pollution control policies (among

others), economics is applied to environmental problems.  As economics would
explain, with limited amount of any natural resource, decisions about allocation
must be made.  It is easy to make a decision when each option is compared in the
same unit. The challenge here is to put a value on something like clean water, fresh
air, and healthy coral reefs.

1.0 DEFINING ECONOMICS AND THE ENVIRONMENT

Our starting point is to place this module within the field of environmental
economics. To do this, we need first to have an idea of what we mean by
economics and the environment.

Thus, economics is about the allocation of scarce resources amongst

competing uses.
What about ‘environment’? You can think that anything around you is
environment. For example, all flora and fauna, aquatic ecosystems, energy and
material resources, and the atmosphere can be the environment.
There are many examples of the way in which the economy and the
environment interact and are interdependent. Society has become very aware
of the environmental impact of agriculture over the last few decades, because
they understand the negative results of certain agricultural practices. Examples
of the negative consequences of agriculture include water pollution (both
surface and groundwater), soil erosion and soil
compaction, the loss of wetlands because of drainage, and the loss of
biodiversity.

1.1. LINKS BETWEEN THE ECONOMY AND THE ENVIRONMENT

Let’s consider how the economy and the environment are interlinked in
general. Then we will look at how environmental economics has developed
and the scope of the subject. We use the typical characterization
found in many textbooks and assume that the economy can be divided into
two sectors: production and consumption. These sectors use the
environment in three main ways.

 as a supplier of natural resource inputs

 as a supplier of environmental or amenity goods

 in its capacity as waste sink

Using the environment in one of these ways may affect the other uses,
as will become clear in the following discussion.
Supplier of resource inputs

Land, water, and stocks of raw materials are important inputs to

production. These resources frequently vary between countries and so will
affect the country’s economy. Some countries will have large stocks of
minerals, while others have good arable land.

Natural resources are either renewable (eg trees) or non-renewable (eg

crude oil). This distinction is important as it influences the way the
resources have to be managed in production.

These resources are used by the production sector, but in the process waste
products will also be produced.

 Can you think of an example from your country

where a natural resource is used in a
production process, resulting in both a
product for use by consumers and a waste
product?
Answer
An example could be coal used to generate
electricity. As the coal is burned, it produces
electricity, but at the same time, carbon dioxide
and sulphur dioxide are also produced, and these
may have detrimental effects on the environment.

Supplier of environmental or amenity goods

Environmental goods are also used for economic benefits.

There are many examples of where the environment provides amenity
benefits for society. For example, some countries enjoy beautiful
 landscapes and the public benefit from these via their associated
recreational services and tourism.

Environmental stocks of trees can offer global services such as climatic

regulation because the trees absorb carbon dioxide, which might otherwise
cause climate change.

Many people get enjoyment from the biodiversity that exists in the
world, and this can also be considered as a form of public consumption of
an environmental good.
Waste sink capacity
This is the capacity of the environment to assimilate the waste products of
production and consumption and convert them into harmless or ecologically
useful products. We are mostly concerned with this use of the environment. The
environment is not only affected by waste products, but also by intentional
releases of chemicals, such as pesticides, wood protectors, paints, and
lubricants. Let us put some figures on to these wastes and intentional releases.
The impact of human activity on the composition of chemicals in the
atmosphere is clear. Since 1750, pre-industrial period, carbon dioxide
concentrations have changed from 280 parts per million in 1750 to 380 parts
per million in 2000. There have also been significant increases in other gases
such as methane and nitrous oxide. There are serious concerns about these
increase and climate change.

We are thinking here about the physical assimilative capacity of the

environment. This is the physical capacity of the land, water and the
atmosphere to absorb wastes and is determined by physical factors such as
the climate, rainfall, wind patterns, and geographical location.
When thinking about waste we need to distinguish between degradable and
cumulative pollutants. With cumulative pollutants we need to understand if
there are any important thresholds that need to be avoided.
Environmental management can require to take actions to prevent further
pollution because we think that an important threshold might be breached.
The term used to describe this type of environmental management is the
precautionary principle.

The precautionary principle states that action on preventing or restricting

environmental damage should not be delayed just because there are
uncertainties about how the damage is caused or the level of damage
(Hanley et al 2007 p. 11).

1.2 THE FIRST TWO LAWS OF THERMODYNAMICS

The natural laws which govern the environment and which are, therefore,
of interest to us are the first two laws of thermodynamics. These relate to
closed systems. Strictly speaking, the earth is not a closed system as it
receives energy from the sun, but it is almost a closed system.