Environmental Economics
There are several branches of economics, and one of them is environmental economics. Environmental economics studies the relationship between economic development and environmental safety. It deals with how human activities impact the environment and how can economic policies impact human welfare and environmental conservation. In other words, environmental economics is a science that studies, how the environment and the services of the environment like potable water, food, cleaner air, recreational land, medicine, etc. help in the growth of the economy and how economic decisions should be taken to improve the environmental quality and its valuable goods and services.
Environmental economics is also used to design and innovate environmental policies and technology to solve the problems of pollution, biodiversity loss, species extinction, climate change, plastic pollution, and natural resource scarceness.
What are market failure and negative externalities?
Environmental Economics also helps to minimize market failures using better economic decisions. The environment provides a lot of goods and services which are often taken for granted especially by industrialists and businesses. For any business activity, environmental goods are over-utilized, which results in the degradation of the resources and increment of the pollution. The negative result and impact on the environment due to any development activity by industries or businesses is called negative externalities and if the guilty party does not bother to give a penalty fine to eradicate negative externalities, this will be called market failure since it created the undesirable and unbearable impact environmentally and socially. For instance, if any company is manufacturing their item and generating wastewater or smoke in the air, which is causing different health issues for local people, living in the proximity of that industry and industry does not care about paying the penalty charges for the damage causes to the health of the people and the people are bearing the price of that industrial activity by paying with their health. Environmental economics is helpful to reduce these kinds of market failures.
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Environmental economics tools
Environmental economics helps reduce market failures and reduce negative externalities by using the following tools.
- Cost-benefit analysis
- Environmental valuation
- Environmental accounting
- Environmental indicators and
- Market base instruments MBIs or Environmental policy instruments
Cost-benefit analysis
In this analysis, the cost and the benefit of a certain project or policy are evaluated and compared. If the benefits of the project are more than the cost applied to this project, it is said to be an environmentally efficient project and thus approved.
Environmental valuation
The financial value of environmental goods and services is calculated in currency to understand the importance of the land of a proposed project. For example, if any project or industry is to be constructed, what is the value of this area, and should a project be approved or not?
Environmental accounting
This environmental economics tool aims to make sure that companies make environmental costs and benefits a part of their financial statements. In this way, the environmental impact of the company’s operations will be understood easily and the company will be able to reduce their environmental footprints.
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Environmental indicators
An environmental indicator is a concept in which environmental trends over time are being assessed which gives the baseline study of the proposed area and predicts how much it can get worse or better in the future.
Market-base instruments MBIs
This is also a very proficient tool of environmental economics which uses different market mechanisms to reduce negative externalities and make the environment a priority. These MBIs include taxes, subsidies, emission trading schemes, regulations, and standards to enforce environmental precedence in decision-making.
Taxes
Taxes Are used to discourage the use of exponential and reckless utilization of earth’s resources. For example, carbon taxes are imposed on the purchasing of fossil fuels this carbon tax aims to reduce greenhouse gas emissions.
Subsidies
A subsidy is a type of reward or it could be a relaxation in taxes by state to encourage the use of clean and green energy and resources. For example, a subsidy can be given to industries that use renewable energy resources.
Standards
Similarly, regulations and standards can also be set by the state to limit the use of resources and energy. Such as emissions standards can be set to reduce the amount of air pollutants from a factory or business or some water quality standards can also be set to ensure the minimal discharge of pollutants in the waste stream.
Conclusion
Environmental economics is an integral part of designing a better economic model for the environment. Environmental economics is a full-fledged science that deals with how policies and different economic tools can be used to reduce environmental damage, degradation, and pollution. Environment economics promotes the sustainable development concept and ensures the resources, goods, and services of the environment can be used efficiently today and tomorrow for future generations. Without environmental economics, it would be impossible to balance environmental well-being and economic development.
