What is "environmental economics"?
When I tell people that I am an environmental economist, I can't help but notice some suspicious looks at times. I have even been informed that combining these two words in the same phrase amounts to little more than an oxymoron! This critical view appears to be one shared by many. (How often do we see magazine articles or documentary films telling us that modern economics is fundamentally at odds with caring for the environment?) To these people, any kind of economic activity is seen as anathema to environmental stewardship.
However, I would argue that this strict distinction between the environment and economy is a false dichotomy. The economy does not and cannot exist outside of the natural environment; all of our resources and energy inputs are ultimately derived from nature. At the same time, to argue that "the environment is beyond economic valuation" simply serves to seal off any meaningful debate about how society should allocate scare resources or tackle competing problems like poverty alleviation and pollution reduction.
Now, it is certainly true that a lot of environmental economics is about trying to put a monetary figure on environmental goods and services. There are various tools that economists use to achieve such a goal. For example, the contingent valuation approach basically involves surveying different people to elicit their willingness-to-pay (WTP) for environmental amenities and resources.
Of course, people's hypothetical answers may not be an accurate reflection of their true WTP. They may react quite differently when it comes to paying real money/taxes towards protecting natural systems and wildlife habitats. An alternate approach then, is the so-called revealed preference method, whereby researchers measure how certain environmental characteristics affect people's economic choices and behaviour. (For example, what environmental features are important in driving up home prices?) As you may have guessed, this too has its own limitations. However, the broader point is that the "number" which environmental economists ascribe to natural resources is not a magic figure drawn out of the air, but something based on careful analysis and consultation.
To answer my own question, environmental economics is framework for better understanding the value of nature to individuals and society at large. It is certainly not the only tool at our disposal, but a very valuable one nonetheless. Most importantly, it acknowledges that the economy and environment are inextricably linked together.
Grant McDermott
- The author is a PhD research scholar at the Norwegian School of Economics. He is among various authors contributing to the environmental economics blog, http://blogg.nhh.no/reconhub/.
- Norwegian School of Economics offers a MSc in Energy, Natural Resources and the Environment, for more information please visit: www.nhh.no\en.
