HL.b Environmental economics

Define economics as the study of allocation.

Economics studies how people and institutions produce, distribute and consume goods and services when resources and choices are limited.

A water-allocation decision compares competing household, farm and ecosystem uses.

Supply, demand, incentives and distribution help explain who gets a resource and at what cost.

Key idea: Define economics as the study of allocation.

Economics is not only the study of money or markets.

Environmental economics applies economic reasoning to environmental scarcity, external costs and policy choices, but conclusions depend partly on environmental value perspectives.

A carbon price may make climate damage visible in a fuel choice, while an ecocentric evaluation may also set a non-negotiable habitat or emissions limit.

Using prices does not prove nature is only monetary, and valuing intrinsic nature does not remove allocation trade-offs.

Diagnose market failure.

A market fails environmentally when prices do not include important social or ecological costs, so private decisions create excessive harm.

A factory releases pollution without paying for health damage; its product price is too low relative to total cost.

Identify the missing cost, the affected party and the mechanism that could internalise it.

Key idea: Diagnose market failure.

Market failure is not simply a market with an unpopular result.

Apply the polluter-pays principle.

The polluter-pays principle assigns the costs of preventing, controlling or repairing pollution to the polluter.

A discharge tax can make a factory compare treatment cost with the cost of releasing waste.

Possible tools include fines, quotas, taxes, permits and certification; choose by the behaviour and monitoring problem.

Key idea: Apply the polluter-pays principle.

Polluter-pays is not permission to pollute after paying a token fee.

Recognise greenwashing.

Greenwashing presents an organisation or product as environmentally responsible without evidence that its practices materially changed.

A company advertises a small renewable project while its main expansion increases fossil extraction.

Check the claim’s scope, baseline, measurable outcome and independent evidence.

Key idea: Recognise greenwashing.

A green logo or isolated initiative does not prove a green business model.

The tragedy of the commons occurs when users gain privately from a shared resource while depletion costs are distributed, especially when access and responsibilities are unclear.

Several herders may each add livestock to shared pasture because each receives the extra benefit while all users share grass loss; individually rational actions can therefore produce collective overuse.

Elinor Ostrom's work on shared pastures shows that tragedy is not inevitable: users can create legitimate boundaries, locally fitted rules, monitoring, graduated sanctions and conflict-resolution processes.

Choose governance that defines users, limits, monitoring, enforcement and participation rather than assuming privatization or central control is the only answer.

Common property is not the same as open access; effective community institutions can prevent overexploitation.

Use environmental accounting.

Environmental accounting records natural-resource stocks, depletion and environmental costs alongside conventional economic activity.

GDP may rise after forest clearance, while a natural-capital account records the loss of timber stock and flood protection.

Ask what stock changed, what service was lost and whether the account avoids double counting.

Key idea: Use environmental accounting.

Adding a number does not remove uncertainty or create consensus about value.

Separate use and non-use values.

Use value comes from direct or indirect benefits; non-use value reflects existence, option or bequest concerns even without current consumption.

A person may pay to protect a wetland they never visit because they value its existence or future availability.

State whose value, which time horizon and whether willingness-to-pay is a defensible measure.

Key idea: Separate use and non-use values.

Non-use value is not “no value” just because no product is taken.

Model the economy as part of the biosphere.

Ecological economics treats the economy as a subsystem of society and the biosphere, dependent on finite natural capital and biophysical limits.

A factory can increase output only while energy, materials and waste sinks remain available.

Start with ecological carrying limits, then ask how production and distribution fit inside them.

Key idea: Model the economy as part of the biosphere.

The economy is not independent of ecosystems simply because markets use prices.

Ecological economics gives ecosystem services greater weight, but translating them into payments can redistribute power as well as money.

A resource-depleted country may pay a resource-rich country to preserve forests, biodiversity or carbon storage; this can finance conservation while raising sovereignty, local-rights and fair-distribution tensions.

If payments reach a national government but restrict Indigenous or local land use without consent or benefit sharing, a global service gain can reproduce environmental injustice.

Check ecological additionality, permanence, who controls the resource, who is paid, whose use is restricted and whether intrinsic or cultural values are crowded out.

A monetary estimate is a decision aid, not the service's full worth or automatic consent to outside control.

Measure economic growth carefully.

Economic growth is commonly measured as the percentage change in GDP; GDP per capita better approximates average output per person but still misses distribution and wellbeing.

GDP rises 4% while population rises 5%; GDP per person can fall even as total output grows.

State whether you mean total or per-capita growth and what the measure leaves out.

Key idea: Measure economic growth carefully.

GDP growth is not automatically improvement in living standards.

Explain the linear-growth perspective.

A linear economy follows extract–make–use–discard flows and often treats supply and demand as the main drivers of growth.

Selling more short-lived phones raises output while leaving extraction and waste outside the price.

Trace material input, useful service, waste and who pays for disposal.

Key idea: Explain the linear-growth perspective.

Economic growth figures do not automatically track material throughput.

Trace both benefits and harms of growth.

Economic growth can fund environmental protection but can also increase extraction, pollution and unequal exposure.

Higher tax revenue may finance wastewater treatment, while a new industrial estate raises local air pollution.

Evaluate source, scale, time lag and distribution instead of labelling growth simply good or bad.

Key idea: Trace both benefits and harms of growth.

Aggregate GDP gains can hide environmental injustice.

Relative decoupling means environmental pressure grows more slowly than the economy; absolute decoupling means total pressure falls while the economy still grows.

Compare an absolute environmental indicator with GDP over the same boundary and period. Emissions per dollar may fall while total emissions rise, which is only relative decoupling.

If GDP rises 25%, emissions intensity falls 20% but total emissions rise 5%, efficiency improved without absolute decoupling.

Sustained global absolute decoupling across all materials, energy, biodiversity and pollution is likely impossible because growth still requires physical throughput and some impacts shift across borders.

Lower intensity, domestic emissions or one selected indicator does not prove total environmental degradation has fallen.

Explain degrowth as a planned reduction.

Degrowth proposes deliberately reducing resource-intensive production and consumption, especially where high-income demand exceeds ecological limits.

A shorter work-and-consumption cycle could reduce energy demand while policy protects health and income.

Judge the proposal by biophysical reduction, equity and which activities are reduced—not by recession alone.

Key idea: Explain degrowth as a planned reduction.

Degrowth is not simply an unmanaged economic crash.

Evaluate slow, no-growth and zero-growth models.

These models prioritise stable or reduced throughput and wellbeing, but must solve how jobs, finance, public services and wellbeing are measured.

A city caps material use while expanding repair work and public services rather than relying on new sales.

Ask how social needs are met within biocapacity and how embedded systems are redesigned.

Key idea: Evaluate slow, no-growth and zero-growth models.

No growth in GDP does not automatically mean no improvement or no hardship.

Circular economy keeps products and materials useful through design, repair, reuse, remanufacture and recovery; doughnut economics adds a social foundation and ecological ceiling.

Product stewardship assigns producers responsibility across design, sale, collection and end-of-life, encouraging durable products and take-back rather than transferring disposal costs to users or poorer communities.

A repair-and-refill system can reduce virgin material demand, but test whether low-income residents can access it, workers are protected and residual waste is not exported to communities with less power.

Evaluate loop quality, producer responsibility, ecological limits, social access and distribution of benefits and harms.

A circular product is not automatically equitable, closed-loop or impact-free.