What is Environmental Economics?

The idea of profits and capitalism have long appeared at odds with environmental policy. In most cases, the word “economics” conjures up images of supply-demand curves and talks of GDP. But economics is a surprisingly complex topic with multiple sub-fields, including environmental economics, which is primarily concerned with understanding how all aspects of the economy and the environment intersect.

What Does Environmental Economics Do?

At the heart of this subfield is the need to understand the cost of environmental policy. Environmental economics attempts to understand the cost of pollution, overuse of resources, and other key issues for citizens, corporations, and governments. These issues aren’t just about health or global shortages of supplies. Economists in this area attempt to quantify the damage in dollars and cents.

Right now, you might be thinking that defeats the entire purpose of environmentalism — that some things (like clean air) simply can’t have a price tag attached to them.

It’s true, good health and plenty of resources are invaluable from a humanist perspective. But calculating those costs has a major benefit: It helps scientists and politicians understand the economic investment required to tackle these challenges and rectify problems. In many cases, the cost of inaction (not doing anything to change policies) is greater than the cost of taking action.

Measuring Environmental Economics

By calculating the economic impact of, for example, air pollution, economists can also calculate the amount of investment needed to reduce it. Scientists can provide solid numbers to advocate alternative energy sources (wind, solar, biodiesel, etc) over traditional fossil fuels.

In addition, environmental economics provides a way for economists to factor in natural capital into equations of GDP, which will ultimately provide a more effective measurement of wealth. Depleting resources such as forests and minerals has an adverse effect on wealth. Factoring those numbers into GDP calculations provides a platform from which to propose better regulations and environmental protections and guide truly sustainable development that can decrease poverty levels worldwide.

Environmental Economics, Climate Change and Carbon Footprints

Environmental economics enable scientists to understand the impact of climate change, to take a complex topic and pinpoint specific outcomes if no changes happen. That includes everything from food prices to lost property as water levels rise along the coast lines. (For example, rising water levels could put the largest U.S. naval base, in Norfolk, VA, under water completely by 2050.) Increased numbers of storms, and more severe storms, could lead to higher rates of property damage, driving up insurance claims and insurance costs. And that’s not to mention the increase in food costs, energy costs, and a myriad of other factors.

Environmental economics also sets the groundwork for calculating the cost of someone’s carbon footprint. Once that cost is understood, you can take action in a variety of ways:

• Living a greener lifestyle (which can yield savings for you).
• Impact investing.
• Bonds to offset your carbon footprint directly.

Environmental economics is a unification of two ideas that many people might see as being in conflict. Instead, it bridges the gap and provides people a means to understand how sustainability and protective environmental policies yield positive economic results.