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10 things everyone should know about environmental economics

Stephen Smith, author of Environmental Economics: A Very Short Introduction, gives us an insight into what environmental economists do, what environmental economics is about, and how it measures and influences our impact on the environment. He also explores the steps we need to take to protect it at an international level. Do you agree with all of Stephen’s points? Let us know in the comments section below.

  1. Left to its own devices, a free market economy will not deliver the level of environmental quality that people want. Firms can pollute and consumers can make choices without concern for the environmental consequences. What we need is some level of environmental regulation and intervention to ensure that those decisions take into account those of the rest of society.
  2. Environmental economics is about this necessary intervention in the workings of the economy. It’s about the questions of: how much environmental quality do we want and what’s the best way of getting it?
  3. Environmental economics is not a dogma. It’s a framework for thinking about the fundamental choices and trade-offs in environmental policy. It can be used quite flexibly to think about a range of different issues in environmental policy and problems. On the local scale for example, local industrial pollution, right through to the major problems of global climate change.
  4. Eliminating pollution entirely is unlikely to be feasible or indeed desirable. What environmental economics helps us to do is to think about the costs and benefits, the advantages and disadvantages of more or less environmental protection.
  5. Environmental economists are skeptical about conventional legal approaches to environmental regulation. So-called ‘command-and-control’ approaches to environmental regulation (based on detailed legal instructions) tend to be inflexible and excessively costly.
  6. Market mechanisms which use prices and taxes to discourage pollution are more flexible and can achieve reductions in pollution, at a lower-cost.
  7. Emissions trading systems like, ‘The EU Emissions Trading System for Carbon Dioxide’, reduce pollution by putting a firm cap on emissions and by allowing firms to trade. Firms that have high costs in reducing emissions can buy permits from firms that are able to achieve emissions reductions more cheaply. In this way, the system reduces the overall economic cost of achieving a given environmental outcome.
  8. A lot of research in environmental economics is about trying to assess people’s concerns about the environment in the broadest possible way. Environmental economics is not simply about the costs and benefits for company accounts, or things that cost money in the economy. It involves a much broader view of social value and environmental benefit.
  9. Tackling climate change will need co-ordinated international action. It’s a global problem affected by the global concentration of carbon dioxide in the atmosphere. Individual countries acting alone can make only a very small impact on the overall problem, and would incur significant costs from any action they take. A meaningful international deal on climate change is the only way in which we will likely to make significant progress.
  10. Tackling climate change will require major changes in the way that our economy produces and uses energy and in the decisions of firms and individuals about production and consumption. The economists argument is that these major changes spread across all of society will be achieved at much lower economic cost, and much more effectively with much less disruption to the way in which we produce and consume, than if we tried to achieve the same outcomes through detailed legal prescription about how people behave.

Featured image credit: Sunrise and clouds, by Foto-Rabe. Public domain via Pixabay.

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