ENVIRONMENTAL economics helps move us closer to sustainable development by better incorporating environmental and social concerns into conventional decision making. It involves a novel synthesis of existing economic principles and their extensions.
Historically, the development of the industrialized world focused on economic output, so, not surprisingly, the postwar model adopted by developing countries was growth dominated. But in the 1960s, the equitable growth model was developed to incorporate social issues such as poverty alleviation and income redistribution. In the 1980s, the model was broadened again to embrace the concept of sustainable development—reflecting increasing concerns about the environment.
Economic growth still overshadows the other objectives, following the example of the industrialized countries that began to tackle their environmental problems only after achieving major economic objectives. But policymakers worldwide are increasingly trying to find sustainable options. The goal is to maximize the net welfare of economic activities, while maintaining or increasing the stock of economic, ecological, and sociocultural assets over time (to ensure the sustainability of income and intragenerational equity) and providing a safety net to meet basic needs and protect the poor (thereby advancing intragenerational equity). Environmental economics contributes to this search by helping to incorporate environmental and social concerns into economic decision making. It offers policymakers both a better way of tracing environmental and social impacts, and improved decisionmaking tools.
Environmental economics as a field is not really new. Over the past two decades, existing economic principles have been built on and extended, particularly in valuing environmental and social impacts that often are not well reflected in market transactions. But it is only recently that we have begun to apply these concepts to developing countries and, in the process, influence decision making mainly at the project level. In the past few years, environmental economists have also begun to take an interest in macroeconomic policies.
While the underlying basis of this approach is economic optimization and efficient resource allocation, practitioners recognize that these concepts may not be easy to apply to some environmental and social objectives—such as preserving the dynamic resilience of ecological systems to withstand shocks, promoting public participation, or reducing conflicts. In these cases, they often rely on other techniques, such as multicriteria analysis, to facilitate trade-offs among different goals.