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Author: Saloni Jain, IV year of B.B.A.,LL.B. from Lovely Professional University, Jalandhar, Punjab


Today, it has been well understood by all the individuals around the globe that the environment isn't simply contemplating vegetation, i.e., flora and fauna, yet a blend of considering various parts of information, for example, science, economics, theory or philosophy, morals, humanities, etc. So there is a need for reviewing environmental economics by getting a deep understanding of different natural causes, their impact on the economy, their roles on the climate, and their effect on the lives of the present and future generation people.

If we acknowledge today's pandemic of COVID-19, it is well deduced that it has occurred due to artificial interference with the environment. The environment has a direct effect on economics, a lot of money and time has been invested in making environmental policies, which is very much necessary for quality living. Without a good and healthy environment, humans lives are in danger. Harmful diseases have infected humans due to living in a bad environment and also taken many people’s lives.

A review of environmental economics, therefore, calls for a detailed understanding of various environmental causes, their effect on the economy, their roles on the environment, and their influence on the present and future people's lives.

As the movement developed over time, other intricate details on the relationship between the environment and the economy became apparent. The study brought about powerful environmental arguments and propositions, which gave rise to contemporary environmental policies and regulations around the world. It led to the establishment of new environmental bodies – chief among them, the United Nations Environment Programme (UNEP) in 1972.


Environmental Economics is that part of economics that reviews the monetary effect of ecological strategies. Ecological financial1 specialists perform studies to decide the hypothetical or experimental impacts of environmental policies on the economy. This particular type of economics assists clients with planning proper ecological strategies and investigating the impacts and benefits of various policies which are already existing and some of them are new also. Environmental economics studies the monetary impacts of policies related to the environment all around the globe. The major motive behind introducing these policies is the effective distribution of ecological and natural resources and how elective natural strategies manage ecological harm, for example, air contamination, water quality, poisonous substances, strong waste, and global warming.


In simple words, economics is a study that deals with the production of goods and services and their alternative uses. The goods and services are limited in nature but have several uses. The same concept with the environment, it provides natural resources to the economy which are also limited in nature but have endless means of uses. Natural resources are essential for the growth of the economy, it helps in the production and consumption in various sectors, whereas it also leads to pollution and pressures on the environment. Indigent natural environment quality influences financial development and prosperity by bringing down the number of natural resources or mixing with artificial inputs in it have hazardous effects on the environment as well as the health of human beings.

Using excessive resources gives rise to depletion of the environment but its opposite will bring a downward effect on the economy. Hence there is a need to implement sustainable means of using natural resources which also bring benefits to the economy with minimal effects.

The Global Forum on Environment and Economic Growth by OECD held on 24-25 October 2016 in the OECD Conference Centre, Paris. have brought down the attention over the topic.2


Whenever any change takes place in the economy there are various advantages and disadvantages in the society. Similarly, the importance of Environmental Economics has been recognised in the 1960s when industrialization was experiencing a boom. Especially in the western world, pollution from the industries started showing its effects on the environment which became a huge concern of various people. Environmentalists started rising and debating over the negative consequences of industrialization on the environment. The environment started degrading over rapid and excessive use of natural resources and the world became aware of it.3

Industrialists were in the favour of expanding industries regardless of the impact on the environment, whereas environmentalists were in the favour of curing the environment by bringing down industries that will result in less development. Here the rise of environmentalists began, they gave simple solutions to the problems. They frame policies that will satisfy both parties. For example, if one wants to cut trees from a place to plant an industry, grow thrice trees in another place. The Use of hazardous gases stopped releasing into the environment. And the waste which was going directly into the water bodies started recycling.

The neoclassical approach started working out and showed results. This movement started to bring more opportunities for environmental economists which give rise to framing policies over environmental policies and regulation over the world. This movement also started establishing environmental bodies such as the United Nations Environment Programme (UNEP) in 1972. 4


Environmental economics is concerned with the framing of regulations and their implementation. Various important questions are concerned with the topic-

● What causes ecological difficulties regarding financial and institutional issues?

● What is the money related estimation of natural debasement through contamination and different specialists, just as the estimation of improvements in the avoidance and destruction of ecological damage?

● How could monetary impetuses and natural arrangements be adequately intended to improve ecological quality and discourage natural harm?

The questions over here cause to takes place several concepts:-

Sustainable Development

This is a concept which tells you how one should use the resources to not compromise with the ability of future generations to meet their own needs. There are four basic components of sustainable development are social equity, environmental protection, institutional capacity and economic growth.

Market Failure

Market failure refers to the gap between the demand and supply of goods and services in the free market.5 It leads to disturbance in the ecological balance also in many ways. Goods that are produced by all-natural resources are not being used if the market failure occurs.


Whenever any economic activity occurs two parties are affected “the buyer and the seller” but sometimes other than the buyer and the seller, other people are also affected due to economic activity. They do not have a direct relation with the activity but have indirect relation to it. Those are known as externalities. It can be either positive or negative. The economic activity of one person or group can have both a positive or negative "spill-over" onto other people or groups.6


Valuation is a significant part of ecological financial matters, as it assists with assessing an assortment of choices in overseeing difficulties with the utilization of natural and characteristic assets. The valuation of natural assets is an intricate interaction, as it is hard to allocate an incentive to theoretical advantages, for example, clean air and unpolluted climate.

Assets that offer numerous advantages are hard to esteem – for instance, mountains may forestall flooding, give grand excellence, direct stream designs, and give rich soils to horticulture.

Ecological assets can be relegated to values relying upon use and non-use strategies. It's simpler to allot an incentive to an item being used by seeing what customers will pay.

Cost Benefits Analysis

The CBA refers to the analysis of benefits arising from a policy over the losses incurred due to any activity. Expenses and advantages to be acknowledged later on are limited utilizing a markdown factor to make for the time estimation of cash.

Advantages incorporate additional pay, improved personal satisfaction, clean water and seashores, and expenses incorporate freedom costs, inner and outside expenses, and externalities.


Environmental economics habitually requires a transnational methodology because the nature and monetary estimation of the goods regularly rise above the public limits. For instance, an ecological economist or environmental financial analyst could recognize oceanic termination because of overfishing, as a negative externality to be tended to. And if only the United States forces the guidelines on its fishing industry, it will do nothing. The problem of overfishing will not get solved until strict actions addressing this problem will be taken by all the countries which are involved in this same issue. The worldwide character of such ecological issues has prompted the ascent of NGOs like the International Panel on Climate Change (IPCC).

One more challenge which relates to environmental economics is how much its discoveries influence different enterprises. It is explained earlier also that environmental economics has a wide-based methodology and influences a few moving parts. As a general rule, discoveries made by environmental economists can create controversies. Because of the complexity, the execution of the solution provided by the environmental financial analysts is very difficult. One of the examples of the chaotic transnational implementation of ideas is the presence of numerous commercial centres for carbon credits. The Environmental Protection Agency (EPA) set the standards related to the fuel economy are another illustration of the difficult exercise needed by strategy recommendations identified with environmental economics.7


Before the 1970s, no such awareness of environment economics was there and as a result, this particular topic was not known much in economics. This area had no growth and development before the 1970s. The primary oil stock in 1971 and from that point the rise of generally more significant levels of ecological harms at the worldwide level provoked the researchers in this field to apply monetary instruments to environmental science.

Environmental economics is the branch of economics that tells how the interaction between men and nature affects the environment and provides solutions to maintain the balance between nature and human beings. From environmental economics, it can be learnt how nations can grow economically without damaging the environment.

Recently renowned Indian Environmental Economist Pavan Sukhdev wins the 2020 Tyler Prize. He is also the UN Environment Programme (UNEP) Goodwill Ambassador.8 The Tyler prize is regarded as the “Nobel Prize for the Environment. He has started working on groundbreaking "green economy" work.

Advocate M.C. Mehta is a renowned environmentalist but also he is recognised as Environmental economics as he suggests various solutions towards the problem of the environment with regards to the economy.


Several critical issues can be addressed by distinct environmental policies. Therefore it is needed to introduce various suitable strategies or environmental policies for each country and simultaneously they need to determine the transnational issues related to the environment. Like in India, both the State and the Union Government had passed several environment-related laws.

So it is necessary to develop environmental policies for tending to natural issues that have emerged and for staying away from the nearby or local environmental threats that are probably going to happen.

Both the State and the Central government will report their environmental policies occasionally to limit the degree and size of environmental destruction through legislation. Asia, Europe, and the USA have diverse environmental policies in a few regards.


The upcoming generation is facing a lot of abnormalities due to mismanagement in the environment. Not only humans the aquatic animals have also been affected due to the mismanagement. Recently the news has shown a picture of a fish which is having two heads. This is directly related to human activities which have increased water bodies deficiencies.

Environmental degradation has led to problems like pollution, global warming, loss of environmental habitats, soil erosion, long term waste and toxins, natural calamities etc. To solve the problems, the concept of environmental economics has played a major role.

Environmental protection itself contributes to economic growth. Due to the absence of effective public policy introduced by the government, climatic problems have arisen. There is a reason why economic development cannot be abandoned that people living in the developed regions will not agree to compromise their way of living. Asking them to do so dooms environmental advocates to political marginalization and failure.

By choosing an environment we society will suffer financial loss but choosing industrialists will lead to environmental depletion. By implementing policies with good implementation can bring balance between the environment and economics.

1They corporate finance institute, available at https://corporatefinanceinstitute.com/resources/knowledge/economics/market-failure (Last Modified February 03, 2021)

2 The Environment.org, available at

https://www.oecd.org/economy/greeneco/global-forum-on-environment-2016.htm#:~:text=The%20links%20betwee n%20the%20economy,sink%20for%20emissions%20and%20waste.&text=Poor%20environmental%20quality%20i n%20turn,due%20to%20health%20impacts%2C%20etc. (Last Modified February 03, 2021)

3The corporatefinanceinstitute.com, available at, https://corporatefinanceinstitute.com/resources/knowledge/economics/environmental-economics/ (Last Modified February 03, 2021)

4 The environment.org, available at https://www.unenvironment.org/about-un-environment (Last Modified February 03, 2021)

5They corporate finance institute, available at https://corporatefinanceinstitute.com/resources/knowledge/economics/market-failure/ (Last Modified February 03, 2021)

6The e-education.PSU., available at https://www.e-education.psu.edu/ebf200/node/144 (Last Modified February 03, 2021)

7The Investopedia, available at, https://www.investopedia.com/terms/e/environmental-economics.asp (Last Modified February 03, 2021)

8The Business-standard, available at, https://www.business-standard.com/topic/environment (Last Modified February 03, 2021)