Introduction to Environmental Economics (Econ 370 / EnviroN 375)

Course Context & Scope

• Cross-listed as Econ $370$ / EnviroN $375$.
• This video is topic introduction; students should already have watched the syllabus video (course mechanics).
• Goal of the term: apply economic reasoning to environmental issues.

Reflecting on Everyday Use of the Environment

• Instructor’s opening exercise: list all the ways you personally “use” the environment. Typical answers include:
  • Resource extraction & consumption
  • Drinking water, irrigation, industrial water use.
  • Food (agriculture, fishing, hunting).
  • Timber, minerals, energy fuels.
  • Pollution / waste disposal
  • Air emissions, solid waste, chemical effluents.
  • Shelter & material goods
  • Housing, clothing, manufactured goods.
  • Life-support services
  • Breathing oxygen, climate regulation, nutrient cycling.
  • Recreation & aesthetic enjoyment
  • Hiking, camping, boating, wildlife viewing, non-consumptive fishing.
• Key insight: even recreation is a use that can leave footprints (trails, litter, noise).
• Modern demand often exceeds natural regenerative capacity, leading to over-use or outright abuse.

Historical Milestones in Human Impact

Two hypothesised turning points

1. Industrial Revolution (commonly cited)
   • Transition from agrarian to manufacturing society ⇒ sharp rise in fossil fuel use, factory pollution, urban waste.
2. Early Anthropogenic Hypothesis (Ruddiman, $2003$)
   • Human over-burden began with shift from nomadic hunter-gatherers to settled agriculture (thousands of years ago).
   • Farming, land-clearing, early methane releases already altered atmospheric composition.

When did society notice environmental damage?

• Rachel Carson, Silent Spring ($1962$)
  • Exposed persistence & ecological toxicity of DDT; galvanised public concern.
  • Often labelled the start of modern environmentalism.
• Immediate policy wave in the U.S. & abroad:
  • $1970$ — Clean Air Act; formation of the Environmental Protection Agency (EPA) under President Nixon.
  • $1972$ — Clean Water Act; U.N. Conference on the Human Environment (Stockholm).
  • Early $1970\text{s}$ = era of intense legislative & institutional creation at local, national, and international levels.

Why & When Economics Entered the Discussion

Essence of economics

• Canonical definition: “study of the allocation of scarce resources.”
• Markets are the primary allocation mechanism (at least in Western economies).

Timeline of economic engagement

• Early $20^{th}$ C.: natural-resource economics (forestry, fisheries, land-use) already analysing optimal harvest, depletion, and conservation.
• Mid-$20^{th}$ C.: as environmentalism rose, economists supplied frameworks for pollution control & externalities.
  • Ronald Coase, “The Problem of Social Cost” ($1960$)
  • Clarified how property rights & bargaining could internalise externalities if transaction costs are low.

Market failure & environmental degradation

• Many environmental problems = markets misallocating resources because external costs are unpriced.
• Economic tools diagnose why (missing property rights, information asymmetry, public goods) & propose fixes (taxes, permits, standards, liability rules).

Monetisation: tool & controversy

• Economists monetise environmental amenities to compare benefits & costs in the same unit (dollars).
• Critiques:
  1. Inexactness — full value cannot be measured; non-market benefits often hidden.
  2. Anthropocentrism — valuation surveys reflect only human preferences, ignore intrinsic or species-specific worth.
• Counter-argument: markets & policy are money-driven anyway; without dollar estimates, environmental benefits are systematically undervalued.

Two Disciplinary Lenses

1. Environmental Economics (economy-centric)

• Start with the circular-flow diagram (households ⇄ firms):
  • Environment enters as inputs in the factor market (resources) and sinks for waste/pollution.
• Focus: price the inflows & outflows correctly so the existing economic system internalises externalities.
• Typical question: “How do we maximise net social benefits given both market value of goods and damages from pollution?”

2. Ecological Economics (environment-centric)

• Picture the economy embedded inside Earth’s biophysical system.
  • Planetary carrying capacity imposes hard limits; innovation cannot magic away finite mass-energy constraints.
• Priority: maintain ecosystem integrity; then find cost-effective (minimum-cost) ways for society to operate within those limits.
• Often invokes thermodynamics, complex-systems science, and strong-sustainability ethics.

Comparative example – Climate Change

• Reality: contemporary scholars increasingly blend both views—recognising economic incentives and biophysical limits.

Key Terms & People (Quick-Reference)

• Scarce Resource – any good/service with positive opportunity cost.
• Externality – cost/benefit borne by non-consenting third parties.
• Social Cost of Carbon (SCC) – marginal global damage from emitting an extra tonne of $CO_{2}$.
• Carrying Capacity – maximum population/throughput an ecosystem can sustain indefinitely.
• Ronald Coase – Nobel laureate; property-rights solution to externalities.
• Rachel Carson – author who ignited modern U.S. environmentalism.
• EPA – U.S. Environmental Protection Agency, established $1970$.

Ethical & Practical Implications Discussed

• Balancing firm-level profit motives vs. societal well-being.
• Whether assigning dollar values to nature diminishes intrinsic worth.
• Innovation optimism (substitution possibilities) vs. finite-Earth realism.

Looking Ahead in the Course

• Next lecture unit: “Making Decisions”—methods for comparing policy options (cost-benefit analysis, cost-effectiveness, risk assessment).
• Continual theme: translate ecological realities into economic signals that guide behaviour toward sustainability.