Environmental Economics

  Environment Economics


Environment Economics can be defined as a holistic discipline which deals with the interaction between the different economic development activities and their interacting systems like atmospheric, hydrospheric and lithospheric system of nature and socio-political and psychological system of man

Environment Economics is that part of economics which deals with the interface between environment and development

The concept originated in 1960s but gained momentum in last 3 decades

  Development and the Environment Interlinkages


  Economic Development and Environment

Economic Development

Economic growth is the increasing capacity of an economy to satisfy the needs and wants over time.

It can be also defined as increase in per capita production of goods and services with time

Measured as Gross Domestic Product (GDP) or Gross National Product (GNP)


Why Environmentalists are concern about Economics??

Is GDP real growth indicator?

  Environmental Economics Terminology

Environmental Cost - Degradation of Environmental Quality

Cost of Product

  • Internal Cost – Cost of the product
  • External Cost – Cost paid by the environment for the manufacture of that product


Production of more goods and services

Externality / Spillover Effect

Cost or benefit that is not transmitted through prices and is incurred by a party who was not involved as either a buyer or seller of the goods or services

Negative externality / External cost – when environment/society loses something due to some economic activity

Positive Externality / External Benefit – when environment/society gain something due to the activity


Positive and Negative Externality

  Biophysical Measurements

Biophysical measure of sustainability evaluate to what extent humanity’s demands on the biosphere, in terms of renewable and non-renewable resource consumption and waste production, exceed nature’s capacity to renew itself

Physical capital: economic assets such as buildings, machines and infrastructure that are the economist’s usual concern

Social capital: people’s skills and abilities as well as the institutions, relationships, and norms that shape the quality and quantity of a society's social interactions

Natural capital: natural resources, both commercial and non-commercial, and ecological services which provide the requirements for life, including food, water, energy, fibers, waste assimilation, climate stabilization, and other life-support services

  Ecological Footprints

The ecological footprint is a measure of human demand on the Earth's ecosystem. It represents the amount of biologically productive land and sea area necessary to supply the resources human population consumes, and to assimilate associated waste 

Measure of demand for natural capital that may be contrasted with the planet's ecological capacity to regenerate

Humanity's total ecological footprint was estimated at 1.5 planet Earths; that is, humanity uses ecological services 1.5 times as quickly as Earth can renew them


Ecological Footprint Analysis

Per capita ecological footprint is known as Ecological Footprint Analysis (EFA).  It compares consumption and lifestyles, and check this against nature's ability to provide for this consumption. This tool examines to what extent a nation uses more (or less) than is available within its territory. The footprint can also be a useful tool to educate people about carrying capacity and over-consumption, with the aim of altering personal behavior.

The darker the colors, the higher the concentration of consumption. "Footprint Intensity" is high because of high population density (India and China), because of high consumption (North America), or because of both (Europe).

Previous Analysis

In 2007, the average biologically productive area per person worldwide was approximately 1.8 global hactares (gha) per capita. U.S. - 9.0 gha, Switzerland - 5.6 gha and China - 1.8 gha


The WWF claims that the human footprint has exceeded the Biocapacity (the available supply of natural resources) of the planet by 20%, this situation is called Ecological Overshoot  

Ecological Overshoot

Ecological Overshoot occurs when a population’s demand on an ecosystem exceeds the capacity of that ecosystem to regenerate the resources it consumes and to absorb its carbon dioxide emissions. This creates Ecological Deficits with Footprints larger than their own biological capacity.

The global hectare (gha) is a common unit that quantifies the biocapacity of the earth.

One global hectare measures the average productivity of all biologically productive areas (measured in hectares) on earth in a given year. Examples of biologically productive areas include cropland, forests, and fishing grounds; they do not include desertsglaciers, and the open ocean.

"Global hectare per person" refers to the amount of biologically productive land and water available per person on the planet. e.g., in 2005 there were 13.4 billion hectares of biologically productive land and water available and 6.5 billion people on the planet. This is an average of 2.1 global hectares per person. Due to rapid population growth, this figure is decreasing.

How is an Ecological Footprint calculated?

The Ecological Footprint of a person is calculated by considering all of the biological materials consumed and all of the carbon dioxide emissions generated by that person in a given year.

All these materials and emissions are then individually translated into an equivalent number of global hectares.

Amount of material consumed by that person (tonnes per year) is divided by the yield of the specific land or sea area (annual tonnes per hectare) from which it was harvested, or where its waste material was absorbed. The number of hectares that result from this calculation are then converted to global hectares using yield and equivalence factors.

  Carbon Footprint

A measure of the total amount of carbon dioxide and methane emissions of a defined population, system or activity, considering all relevant sources, sinks and storage within the spatial and temporal boundary of the population, system or activity of interest

The Carbon footprints include all the possible sources of GHG emission by a person. It is calculated as carbon dioxide equivalent using the relevant 100-year global warming potential 

  Water Footprint

The Water Footprint of a product is the volume of freshwater appropriated to produce the product, taking into account the volumes of water consumed and polluted in the different steps of the supply chain

Water use is measured in terms of the volume of water consumed or evaporated and/or polluted, per unit of time. A water footprint can be split into three elements:

Blue Water Footprint: refers to the volume of surface water and ground water consumed (i.e. evaporated or incorporated into the product) during production processes;

Green Water Footprint: refers to the volume of rainwater consumed (i.e. evaporated or incorporated into the product) by the product; and

Grey Water Footprint: refers to the amount of freshwater required to mix pollutants and maintain water quality according to agreed water quality standards


  Social Footprint

The Social Footprint Method (SFM) is a context-based approach to measurement and reporting that expresses the social sustainability performance of an organization

Unlike the Ecological Footprint, however, which measures a population's use of and impacts on natural resources (i.e., natural capital), the SFM deals with impacts on what we call anthro capital (consisting of human, social and constructed, or built, capital)

The social footprint tells the sustainability of a society.

Unlike natural or ecological capital, which is limited and which humans do not create, most forms of anthro capital are produced by people and can be grown virtually at will. What really differentiates the SFM from other sustainability reporting tools is the manner in which it measures performance against standards of performance assigned to specific organizations (i.e., for impacts on anthro capitals). Such standards are set by reference to whom an organization’s stakeholders are, and what its duties and obligations are to each of them to have impact (or not) on anthro capitals of vital importance to their well-being.