For most Americans, natural resources are readily available and can be bought and used without too much thought. Some people are a bit more aware of the danger the planet is facing and do whatever little things they can to preserve natural resources, like recycling or buying reusable shopping bags. For those who study environmental economics, however, natural resources are a precious commodity whose affect on the market must be studied and analyzed.
What is Environmental Economics?
Environmental economics is the study of environmental uses and abuses as viewed through the lens of economics. Typical economic concerns, such as market failure, externality, or valuation, are applied to environmental topics. Topics studied include things like pollution, consumption and alternative forms of energy. One of the big concerns of today is that people are taking too much from the earth without giving enough back. The goal of environmental economics is to discover a balance between the least amount of usage and the greatest societal benefit.
Valuation in Environmental Economics
One of the big issues in environmental economics is determining the value of natural resources. Some things, such as oil, have an actual monetary value assigned to it, and many things have a value based on their use and indirect use. However, it can be nearly impossible to determine the value of having a green Earth for future generations. This is especially true since such a concept may have an infinite value to some, but be worthless to others. Other natural things, such as the value of an intact ozone layer or a lack of pollution, are intangible and therefore without a price tag.
Cost Benefit Analyses in Environmental Economics
The use of natural resources and the degradation of the environment is an expected part of life. Modern living relies heavily on energy and a variety of nonrenewable materials, and side effects such as pollution are inevitable. Though such expenditures are by no means good or healthy, they are a necessary part of life and needed for the advancement of society. Some people focus solely on reducing the carbon footprint, but environmental economists perform cost benefit analyses instead. At times, mild environmental ruin may be worth great economic benefit.
The Relevance of Externality to Environmental Economics
In economics, the concept of externality refers to a cost or benefit incurred by someone other than the buyer or seller. This effect is generally not accounted for in the price the buyer paid. A positive externality provides a benefit; a negative externality results in a cost to society. The famous story of Erin Brokovich’s case with the Hinkley groundwater contamination is a great example of a negative externality. A third party, the residents of Hinkley, suffered debilitating medical conditions from contaminated water, and this cost not included in the price the buyers paid.
Environmentalists work on reducing the overall carbon footprints without giving any thought as to how that reduction will affect society’s ability to produce and advance. Economists work to ensure the best financial situation for the maximum number of people. Environmental economists combine the two fields, encouraging economic and societal advancement without forgetting the effect they may be having on the environment.