Environmental economics is a discipline of economics which focuses on the development evaluation, application, and implementation of economic concepts to environmental problems and policies. It focuses on the evaluation of environmental costs and benefits and the value of natural resources and their utilization and the creation of regulatory incentives and policies to promote sustainable economic growth.
Environmental economics is primarily concerned with the economic value of environmental products and services. It is a matter of determining whether consumers are willing to pay for products or activities that are environmentally beneficial (WTP), or undesirable (WTA). These valuations are crucial to measuring the effectiveness of market allocation. They are also central to understanding the nature of externalities, which is the inability of market prices to account for certain aspects of human activities that impact others. For example, a person buying timber does not consider the water seepage that affects the lower floors of adjoining homes and a company that pollutes does not consider the health costs imposed on other people.
The issue of valuing nonmarketable assets is an additional issue in environmental economics. It was this concern that started the first environmental revolution, triggered by Rachel Carson’s Silent Spring in 1962. In the year 1962 economists began to connect external effects theory with an economic interpretation for environmental concerns.
Ecological economics is the study of the interconnectedness of biological systems as well as the impacts that humans have on them. It is an interdisciplinary discipline that has been criticized by scholars from different disciplines, such as Marxist and critical geography in the absence of incorporating human interactions with nature environment into its analysis.