Environmental economics Good environmental quality is a part of society’s welfare. Environmental economics is a way of incorporating the value of nature into society's decisions and, thus, encouraging the development of greater welfare. svenska Share Contact Listen Environmental economics deals with economics and the environment, and the management of limited resources. The aim of environmental economics is to encourage us to make the best use of our ecosystem's goods and services. The Swedish Environmental Protection Agency works actively to assess the value of the environment to society, business and individuals. Environmental valuation and economic impact assessment are examples of important tools used to help us make the right decisions within environmental policy. Economic instruments are important tools for implementing environmental policy. One reason why environmental problems occur in the form of emissions or the overexploitation of resources is because the price of many "environmental goods" (such as emissions or natural resources) does not reflect the socio-economic cost of producing or using the ecosystem good. It is consequently not as attractive as it should be to produce and consume in an environmentally friendly way. This is usually referred to as market failure, and is due to the occurrence of externalities and public goods. Externalities Externalities are the effects of a choice that an individual or company makes but that do not directly affect the individual or company in question. They also have an effect on society's wellbeing. Externalities arise, for example, when one person's consumption affects another individual's well-being. Or when one company's production affects another company's production capabilities without permission or compensation being provided. One example of a positive externality might be when a farmer's cultivation results in a beautiful landscape, which can be appreciated by people passing by. A negative externality might be when emissions from a company impair production conditions for another company. The problem occurs when the party causing the negative effect decides how much is to be produced and emitted without regard to the effect this has on others, and on society as a whole. In the case of a company's emissions, the company's production costs are lower than the actual cost of the production for society. This results in a higher level of production than what is socio-economically optimal. In the case of a positive externality, the opposite occurs, i.e. less than the socio-economically optimal level of the goods are produced since the private value of the production is less than the socio-economic value. Public goods Public goods is a general term for goods that are not rivalrous and/or excludable, which are two criteria that are generally met by goods in the traditional sense. Examples of environmental goods that do not meet either of these two criteria are the oceans and the atmosphere, known as "open-access resources" or genuinely public goods. A common feature of these natural resources is that they do not have any clearly defined owner, which means that everyone wants to use them but no one takes individual responsibility for ensuring that a sustainable level is maintained. Anyone who improves the conditions of such a good does not receive compensation that is commensurate with the improvement. Equally, someone who spoils the quality of the good is not required to pay the price for this. Here, too, the private cost differs from the socio-economic cost of using the good. This is often the reason wy natural resources are not managed in a sustainable way, but are instead overexploited or destroyed. Correcting market failures Environmental economics is largely concerned with correcting the abovementioned market failures. This means encouraging companies and private individuals to reduce emissions and their use of resources to the sustainable level. Environmental economics is also concerned with enabling companies and other activities to include their positive impact on the environment as earnings in the traditional sense. In order to resolve environmental problems that arise from the abovementioned market failures, the market needs to be managed. The state is often appointed the proxy owner of environmental resources and assigns values to these resources. These values should reflect the socio-economic benefit or cost of producing or consuming the product in question.