Environmental Economics and Policy

Environmental Economics and Policy is a specialized field of applied microeconomics that analyzes the financial implications of environmental issues and the policies designed to address them. It primarily focuses on correcting market failures, such as externalities like pollution and the mismanagement of common-pool resources like clean air or water, where the private costs of economic activity do not reflect the full social costs. Practitioners use tools like cost-benefit analysis, valuation of non-market goods, and the design of incentive-based instruments—such as carbon taxes, emissions trading systems, and subsidies—to create and evaluate policies that promote both economic efficiency and environmental sustainability.

1. Foundations of Environmental Economics
   1. Introduction to Environmental Economics
      1. Definition and Scope of Environmental Economics
      2. Historical Development of the Field
      3. Relationship to Ecological Economics
      4. Key Questions and Challenges
   2. The Economy-Environment Interface
      1. The Circular Flow Model with Environmental Linkages
         1. Basic Circular Flow Between Households and Firms
         2. Natural Resource Inputs
         3. Waste Outputs and Environmental Sinks
         4. Feedback Effects
      2. Materials Balance Principle
         1. Input-Output Relationships in Economic Systems
         2. Law of Conservation of Mass
         3. Implications for Resource Use
         4. Implications for Waste Generation
      3. Thermodynamic Laws and Economic Activity
         1. First Law of Thermodynamics
         2. Second Law of Thermodynamics and Entropy
         3. Energy Quality and Economic Processes
         4. Limits to Growth Arguments
      4. Natural Capital and Ecosystem Services
         1. Defining Natural Capital
         2. Classification of Ecosystem Services
            1. Provisioning Services
            2. Regulating Services
            3. Cultural Services
            4. Supporting Services
         3. Economic Valuation of Ecosystem Services
         4. Natural Capital Accounting
   3. Microeconomic Foundations
      1. Supply and Demand Analysis
         1. Law of Demand
         2. Law of Supply
         3. Market Equilibrium
         4. Shifts in Supply and Demand Curves
         5. Elasticity Concepts
      2. Consumer Theory
         1. Utility Maximization
         2. Budget Constraints
         3. Demand Derivation
         4. Consumer Surplus
      3. Producer Theory
         1. Production Functions
         2. Cost Minimization
         3. Profit Maximization
         4. Producer Surplus
      4. Market Efficiency and Welfare Economics
         1. Pareto Efficiency
         2. First Fundamental Theorem of Welfare Economics
         3. Second Fundamental Theorem of Welfare Economics
         4. Limitations in Environmental Contexts
   4. Environmental Ethics and Equity
      1. Philosophical Foundations
         1. Anthropocentric vs. Ecocentric Views
         2. Intrinsic vs. Instrumental Value of Nature
         3. Rights-Based Approaches
      2. Utilitarian Approaches
         1. Cost-Benefit Analysis Framework
         2. Social Welfare Functions
         3. Aggregation Problems
      3. Equity Considerations
         1. Intergenerational Equity
            1. Discounting and Future Generations
            2. Sustainability Principles
            3. Bequest Motives
         2. Intragenerational Equity
            1. Distributional Effects of Environmental Policies
            2. Access to Environmental Resources
            3. Ability to Pay Principles
      4. Environmental Justice
         1. Disproportionate Environmental Burdens
         2. Procedural Justice
         3. Distributive Justice
         4. Environmental Racism and Classism