Environmental economics

 MA ECONOMICS

ENVIRONMENTAL ECONOMICS

Environment and Economy

Environmental Economics

Environmental Economics can be defined as that part of Economics which deals with the inter-relationship between environment and economic development. It focuses on the application of the principles of economics to study why and how human beings interact with their environment the way they do, how they use and manage the environmental resources, and what are the impacts of human activities on the environment. It also seeks to understand environment issues and to make necessary policies. Environment Economics incorporate various economic disciplines to study about the environment- economic linkages and externalities arising out of it. Environmental Economics involves non- market goods, amenities and services and economic problems associated with it. Environmental Economics is more anthropocentric. Economics development focused on controlled pollution and optimal use of resources are its objectives.

Ecological Economics

‘Ecology’ literally means the study of habitat. It involves the set of relationships between living and non-living elements. Ecological Economics emphasizes the economy as a subsystem of the ecosystem with it focus upon preserving natural capital with strong view of sustainability and reject the proposition that human made or physical capital can substitute for natural capital.

Natural Resource Economics

Natural resource Economics deals with the supply, demand and allocation of the Natural resources. Main objective of Natural resource Economics is to better understand the role of natural resources in economy in order to develop more sustainable methods of managing those resources to ensure their availability to future generations. Resource economists study interactions between economic and natural systems, with the goal of developing a sustainable and efficient economy.

 Economy and the Environment and interlinkages

The environment performs four vital functions they are:

1. Supplies renewable and non- renewable resources.

2. Assimilate wastes by either absorbing them or dispersing them.

3. Provides life support services by maintaining ecological balance and genetic diversity.

4. Provides natural services such as aesthetic enjoyment and recreation.

All the functions of the environment are interlinked and these functions have positive economic use. Thus, the economy is clearly a part of the environment.

Interlinkages

The word ecology and economics have the same root from the Greek word ‘Oikos’ means house. These two sciences are interdisciplinary subjects. Because Ecology is the study of the relationship between living organisms and their environment. Where as, the economic theory studies how the resources can be efficiently allocated to maximize human happiness. It is concerned with transformation of environmental goods into economic goods.

An integrated approach to environment problems is needed to identify both curative and preventive aspects. The various social science such as Economics, Sociology and Anthropology offer preventive tools for proper environmental planning and management. Due to this multidisciplinary nature and linkages of environmental issues several economists have called for an integrated study of Economics and Ecology.

For example, in the production process nature is polluted by emissions and wastes. Hence a conflict arise due to sustainability of ecological system and rate of economic growth. Hence, to reconcile the interests of human beings and nature, an ecological reoriented economic policy is required. This is the interlinkages between economy and environment.

For making the interlinkages more clear, a diagrammatic illustration can be made:

Here the economy is shown in two sectors, namely production and consumption. Exchange of goods and services, and factors of production takes place between these two sectors. The environment is shown as E1,E2 and E3. The production sector uses energy and materials from the nature and these are transformed into output and finally consumed. The generation of waste material also happens and some of them are recycled within the production stage itself (R1) and During the consumption stage (R2).

Thus, the environment supplies resources both renewable and non-renewable resources and it absorbs waste products.