Environmental economics

Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental economics "undertakes theoretical or empirical studies of the economic effects of national or local environmental policies around the world. Particular issues include the costs and benefits of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming."

Environmental versus ecological economics

Environmental economics is distinguished from ecological economics in that ecological economics emphasizes the economy as a subsystem of the ecosystem with its focus upon preserving natural capital.

One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing "strong" sustainability and rejecting the proposition that human-made ("physical") capital can substitute for natural capital.

History

18th and 19th centuries

Although the term "environmental economics" became popular beginning in the 1960s, the entwinement of the two fields of environmentalism and economics started much earlier. Starting with economist Marquis de Condorcet in the 18th century, who had an interest in the link between economic activity and environmental issues. This was seen in his usage of externalities while analyzing environmental issues.

During the classical period of economics, Adam Smith realized while the market is able to allocate private goods efficiently for most goods, it fails to do so in some environmental circumstances. It is within these scenarios where the market fails, that the government needs to take action.