Chapter 5

Environmental Economics

A field of economics that considers the value of the environment and the cost of environmental degradation

Ecological Economics

A branch of economics that views the economy as a subsystem of the environment and emphasizes sustainability

Natural Capital

The world’s stocks of natural assets, including soil, air, water, and living things

Ecosystem Services

Benefits provided by ecosystems (pollination, water purification, climate regulation)

Cost-Benefit Analysis

Comparing the costs and benefits of a project or decision to evaluate its efficiency

Externality

A cost or benefit that affects a third party who is not directly involved in the transaction

Negative Externality

An unwanted side effect of an activity that affects others, such as pollution

Positive Externality

A beneficial side effect that affects others, like planting trees improving air quality

Full-Cost Pricing

Pricing that includes both the external and internal costs of goods and services

Subsidy

Government financial support to help lower the cost of a product or activity

Green Tax

A tax imposed on environmentally harmful activities or products

Cap-and-Trade

A system where companies buy and sell permits to emit limited amounts of pollutants

Command-and-Control Regulation

A type of policy where the government sets legal limits and enforces them with penalties

Market-Based Approaches

Using economic incentives to encourage sustainable behavior (cap-and-trade, green taxes)

Permit Trading System

A market-based system that allows companies to trade emissions permits

Policy

A rule or guideline that directs individual, organizational, or governmental behavior

Environmental Policy

A policy that addresses how humans interact with the environment

Regulation

Government rule that must be followed to limit environmental harm

Lobbying

Attempting to influence policymakers in favor of certain legislation

Non-Governmental Organization (NGO)

Independent groups that influence environmental policy through advocacy and research

Environmental Protection Agency (EPA)

The U.S. federal agency responsible for enforcing environmental laws

Clean Air Act

U.S. law that regulates air emissions and air quality standards

Clean Water Act

U.S. law that sets water quality standards and regulates pollution in water

National Environmental Policy Act (NEPA)

Requires environmental impact statements before major federal projects

Environmental Impact Statement (EIS)

A document outlining the effects of a proposed project on the environment

Command Economy

An economy where the government controls production and prices—often less flexible in environmental response

Market Economy

An economy where prices and decisions are guided by supply and demand—allows market-based policy tools

Tragedy of the Commons

The overuse of shared resources when individuals act in their own interest

Sustainable Development

Meeting present needs without compromising the ability of future generations to meet theirs

Precautionary Principle

Acting to prevent harm to the environment or health, even if full scientific certainty is not available