Ask an eftec Expert

Q: What is environmental economics?
A: Economics related to the environment.

At its core, environmental economics is about understanding the value humans place on the environment and incorporating that value into decision-making. From that one premise, a vast array of tools and applications have been developed or adapted to better understand how the human economy depends on and affects the natural environment. Environmental economics also investigates the incentive structures that encourage people and organisations to behave in an environmentally friendly or damaging way. As such, it reaches into social and financial issues as well, dealing with sustainability as a whole.

Q: What do environmental economists do?
A:Everything any other economist does.

Many people think that environmental economists simply put a price tag on nature. In reality environmental economists do much more than that, they work to solve three big issues:

• Why environmental problems occur;
• Which problems are worth addressing, and
• Development of policy tools to address them.

In answering these three questions, environmental economists use similar tools and analyses as all other economists, ranging in fields of economics, from micro to macro and behavioural to financial.

Q: You can value the environment?
A: Yes, but carefully.

Valuing the environment brings environmental economists our greatest praise and most vile criticism. It is important to realise that the best practice of environmental economists is to value a change in the quality or quantity of an environmental resource within a realistic context. Basically, valuation is not simply putting a price tag on nature in its absolute sense. It is used to better understand what a gain or loss of an environmental resource means to those affected by it. Further, that value should only ever be determined with the help of environmental and social specialists.

Q: Who uses environmental economics?
A: Everyone.

Originally, environmental policy-makers were the only ones to use environmental economics. But now the use of environmental economics has spread through all aspects of policy-making and is also creeping into business practice, particularly in utilities such as water services, industries with a clear impact on the environment such as land development, and companies trying to better understand how sustainable they really are.

Q: Why should I use environmental economics?
A: To keep up with the new economy

The theory, tools, and applications of environmental economics are useful to tackle almost any issue where the environment and economy interact. And these days we realise that there are very few places where they don′t! As such, government regulation, consumer demand, and even businesses themselves are working towards a more sustainable economy. Any organisation that wants to keep up with this push needs to better understand the environmental and social aspects of its policies, projects, programmes, or operations, and should be thinking about environmental economics.

Q: What is cost benefit analysis?
A: Weighing the pluses and minuses.

Cost-benefit analysis (CBA) is a decision-making tool that compares the total costs and total benefits of a proposed project, programme or policy. Although it can get complex in practice, the basic premise is that if the benefits of a proposed activity are greater than the costs, then it is worth carrying out. Through valuation of environmental resources, we can now include the benefit of their protection or cost of their degradation when using CBA.

Q: What are ecosystem services?
A: The benefits we receive from nature.

Ecosystem services are very simply defined as ecosystem functions that are of value to human beings. For example, nature provides bees that pollinate crops, wetlands that purify water, rain that fuels hydropower and landscapes that have inspired some of the greatest artists. By better understanding these services and their value to humans, we can make better informed decisions on our economic activities that depend on and affect such services.