What Is Environmental Economics?
Environmental studies generally focus on the impact of man-made policies on the environment. For instance, we are currently experiencing a serious climate change. The excessive reliance on thermal energy has led to the thinning of the ozone layer, and average temperatures have also risen around the globe. As a result, a number of new and revised environmental policies have been introduced by governments all over the globe in order to combat climate change. However, there are some serious financial implications of introducing new environmental policies.
For instance, in a country where most of the power is produced through thermal energy, a restriction on thermal emissions could lead to several major companies going out of business altogether. This could have a huge impact on the country’s gross national product, and could also affect budgeting forecasts for the year. Therefore, governments can’t just introduce environmental policies out of the blue.
Numerous committees are formed in order to study the impact of proposed changes and make a decision on the best possible way to move forward. The field of environmental economics focuses on the financial impact of proposed environmental policies. Before a policy is introduced and implemented, economists usually carry out a series of different studies in order to determine the fiscal and empirical effects of how these policies impact the economy of a country.
Breaking Down the Definition
As evidenced by the meteoric growth of the Chinese economy, it is easy to see that fast-paced development in a country often leaves a huge impact on the environment. At the moment, China is one of the most densely polluted countries in the world. That’s why environmental economics have been introduced. The negative externalities, such as excessive degradation of the environment and pollution, could eventually lead to much more harrowing effects, such as complete market failure. An environmental economist basically studies the benefits and the costs of certain economic policies before they are introduced. Moreover, environmental economists also study the economic impact of what would happen in special circumstances, such as excessive environmental degradation.
Strategies
There are plenty of different strategies used by environmental economists. If a state is thinking of proposing a change to move towards clean energy, there are plenty of different options available. For instance, the government can introduce a limit on a number of carbon emissions. Or, they can adopt a more incentive-based approach. For example, many governments offer tax credits to companies that start using renewable power sources. Another option is to introduce quantity based taxes in order to reduce carbon emissions.
Needless to say, the state has to interfere in order for these policies to be implemented, so it is easy to see that a slight political factor lies behind environmental economics. Many of the
world’s leaders often highlight climate change and make promises while appealing to the public for votes.
Challenges
As mentioned above, environmental economists basically study different strategies and then decide the best possible way forward. There are several challenges that environmental economists encounter along the way. For instance, it is important to note that the whole concept of environmental economics is based on taking a transitional approach. The economist may highlight aquatic depopulation (caused primarily due to overfishing in certain parts) as a negative externality that must be addressed. This would allow the government to introduce a series of policies in order to limit fishing in certain areas. However, the problem won’t really be solved if only one country implements the policy.
If the United States introduces a policy to prevent overfishing and neighboring countries do not take any step, it won’t really resolve the issue. That is why global organizations introduce policies – all member states are obligated to follow the introduced policies. For example, the International Panel on Climate Change actively tracks environmental changes and introduces a series of different measures that are designed to reduce the harmful impacts on the environment. Certain organizations focus on market-based solutions, like trading caps in order to reduce carbon emissions from specific areas. The job of an environmental economist is not as easy as it looks, and without their consultation and guidance, most economic policies are very likely to backfire in the long run.
