Uncertainty about the Severity of Environmental Problems and What Solutions to Undertake

Introduction

On the political stage, environmental issues are usually placed at odds with economic issues. This is because environmental goods, such as clean air and clean water, are commonly viewed as priceless and not subject to economic consideration. However, the relationship between economics and the environment could not be more natural. In its purest form, economics is the study of human choice. Because of this, economics sheds light on the choices that individual consumers and producers make with respect to numerous goods, services, and activities, including choices made with respect to environmental quality. Economics is able not only to identify the reasons that individuals choose to degrade the environment beyond what is most beneficial to society, but also to assist policy makers in developing environmental policy that will provide an efficient level of environmental quality.

Because environmental economics is interdisciplinary in nature, its scope is far-reaching. Environmental economists research topics ranging from energy to biodiversity and from invasive species to climate change. However, despite the breadth of the topics covered by the community of environmental economic researchers, a reliance on sound economic principles remains the constant. This paper outlines the basic concepts in environmental economics, including the ways in which environmental economists might estimate the value society holds for the natural environment. Further, the corrective instruments that environmental economists can employ to correct for situations in which markets fail to achieve an efficient outcome are closely examined. This paper also stresses the important role economic analysis plays in today's most pressing environmental issues.

Theory

Environmental goods are those aspects of the natural environment that hold value for individuals in society. Just as consumers value a jar of peanut butter or a can of soup, consumers of environmental goods value clean air, clean water, or even peace and quiet. The trouble with these types of goods is that though they are valuable to most individuals, there is not usually a market through which someone can acquire more of an environmental good. This lack of a market makes it difficult to determine the value that environmental goods hold for society; although the market price of a jar of peanut butter or a can of soup signals the value they hold for consumers, there is no price attached to environmental goods that can provide such a signal.

To some, it may seem unethical to try to place a dollar value on the natural environment. However, there are plenty of cases in which ethics demands just that. Indeed, in cases of extreme environmental damage, such as the 1989 Exxon Valdez oil spill, an unwillingness to apply a value to environmental loss could be considered equivalent to stating that environmental loss represents no loss to society at all. Because of this, the assessment of appropriate damages, fines, or both, in cases such as this often depends on the careful valuation of varying aspects of the environment.

In the case of environmental policy development, insufficient evidence pertaining to the benefit that environmental ...