Environmental Economics. Flashcards

Introduction: Basic Concepts

Environment: Basic components (water, air, soil) and their interrelationships with humans, organisms, plants, and microbes.
Economics: Studies resource allocation to ensure general welfare.
Ecology: Deals with relationships between organisms and their physical environment.
Environmental Economics: Studies the interaction between the economy and the environment, focusing on the impact of natural resource use and consumption.
- Aims to provide policymakers tools for evaluating costs and benefits of environmental policies.
- Examines externalities where costs/benefits of economic activities aren't reflected in market prices (e.g., pollution).
- Seeks to balance economic development with environmental sustainability.
Interlinkage: Strong relationship exists between environment and economics because economic activities rely on resources from the environment.

Analyzes costs and advantages of environmental policies using regulations, taxes, subsidies, and market-based mechanisms.
Quantifies externalities to inform policy decisions.
Studies how economic decisions affect the natural environment and vice versa, addressing issues like pollution, climate change, deforestation, and resource depletion.
Recognizes sustainable development: meeting present needs without compromising future generations.
Examines market failures, externalities, and economic instruments (taxes, subsidies) to solve environmental problems.

Studies the relationship between the economy and the environment.
Focuses on effects of economic activity on the environment and how environmental policies impact economic activity.
Balances economic growth with environmental protection by analyzing costs and benefits.
Examines market forces in environmental outcomes and resource management to satisfy societal desires.

General Definition: Environmental Economics deals with the inter-relationship between environment and economic development and studies the way and means by which neither is the former is impaired, nor is the latter impeded.
OECD: Application of economic analysis and instruments to environmental issues.
D.W. Pearce: Applies economic analysis to pollution, resource use, conservation, and environmental policy.
Charles Kolstad: Focuses on static and dynamic issues related to natural resources, including pollution and market failure.
EPA: The branch of economics concerned with the connection between environment and economic development.
Scott J. Callan & Janet M. Thomas: Studies how economic activity affects and is affected by the environment.

Aims to allocate scarce natural resources to maximize social welfare and promote sustainable economic growth while minimizing negative environmental impacts.

Costs or benefits not reflected in the price of a good or service.
- Example: Factory air pollution leads to health problems but the factory doesn't pay for these costs.
Can lead to over/underproduction and environmental degradation.
Unintended side effects of economic activities that affect third parties.
- Environmental externalities include air pollution, water contamination, and deforestation.
External costs aren't reflected in market prices, leading to inefficient outcomes.
Positive externalities (reforestation) can benefit beyond direct participants.

Markets don't allocate resources efficiently, resulting in suboptimal outcomes.
Environmental goods (clean air/water) are underpriced; natural resources (fossil fuels, forests, fisheries) are overused.
Leads to overconsumption or degradation of resources and excessive polluting activities.

Cost of reducing one unit of pollution.
Helps policymakers determine the optimal level of pollution control by comparing MAC to benefits of pollution reduction.

Evaluates the economic feasibility of environmental policies/projects.
Compares costs of environmental protection with resulting economic and social benefits.
Helps policymakers decide whether benefits outweigh costs.

Ecosystem services provide benefits like clean air, clean water, and biodiversity.
Places a monetary value on these services to aid decisions balancing economic development with environmental protection.

Tools governments use to address environmental problems:
- Taxes, subsidies, emissions trading, regulations.
Policymakers must choose the most appropriate instrument for the specific problem.

From the French word 'Environ' meaning surround.
Includes water, air, and soil, along with relationships between humans, organisms, plants, and microbes.
Provides essential services, including social food, material energy, and absorbing waste products.
Encompasses minerals like coal and petroleum.

Modification of air, water, or soil characteristics affecting human health or other living organisms.
Pollution is a loss of human well-being from physical environmental changes.
Environmental economists study policies for controlling pollution, such as taxes, subsidies, permits, and regulations. Also explore market-based solutions, like carbon pricing, tradable pollution permits, or cap-and-trade systems, which aim to incentivize businesses to reduce pollution efficiently.

Resources obtained from the environment to meet human needs.
Nature supplies basic needs like air, water, soil, minerals, coal, petroleum, animals, and plants.
Increased societal needs lead to misuse and overexploitation of renewable and nonrenewable resources.
Renewable Resources: Exist in unlimited quantities (sunlight, wind, water) and aren't destroyed by human actions.
Non-Renewable Resources: Limited raw materials created over millions of years (coal, petroleum, natural gas, minerals) and easily destroyed in number/quality.