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Environmental Economics

Updated: Jun 30, 2023

Environmental economics is a branch of #economics that focuses on the relationship between the economy and the #environment. It seeks to understand and analyse how human activities impact the natural environment and how the environment, in turn, affects economic systems.

Bioeconomy and Natural capital
Source: AM Neill et al. A Natural Capital Lens for a Sustainable Bioeconomy: Determining the Unrealised and Unrecognised Services from Nature. Sustainability, 12, 8033, 2020.

Environmental economics aims to provide insights and tools for addressing environmental challenges and achieving #sustainabledevelopment. In this blog post, we will focus on the working of sustainable #green economics with amendments emphasising the overall development of the world.

Summary map of regional, national, and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax)
Summary map of regional, national, and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax). Source: 5 years of climate leadership the world bank groups first climate action plan, 2020.

In 2000, #climatechange had not gained the attention and urgency as today. In 2023, environmental economics is focused on understanding and addressing the economic implications of climate change, including the costs of mitigation and adaptation measures, #carboncredits, and the valuation of ecosystem services affected by climate change. After so many initiatives taken by various organisations, there is still a gap in the #emissionstrading Systems (#ets) and #carbontax.

Technological advancements
Technological advancements. Source: 4 technologies that are accelerating the green hydrogen revolution, World economic forum, 2021.

However, after 13 years, there has been substantial progress in #renewableenergy generation, making it more economically viable and competitive. Technological innovations such as #solarpower, #windpower, and #energystorage have transformed the energy landscape and provided new opportunities for economic analysis and #policy interventions. With the above-shown advantages, #greenhydrogen becomes the first choice for #greenfinance and #sustainableinvesting.

Green Finance and Sustainable Investing
Green Finance and Sustainable Investing.

Moreover, environmental economics has witnessed a rise in the importance of green finance and sustainable investing in recent years, with greater emphasis on incorporating sustainable investing into financial decision-making. Environmental economics now includes the study of sustainable finance mechanisms, such as #greenbonds, #carbonmarkets, and #impactinvesting. This shift reflects a growing recognition of the economic risks associated with environmental degradation and the potential for aligning financial goals with green finance objectives.

Circular Economy and Waste Management
Circular Economy and Waste Management. Source: KR Vanapalli et al., Circular economy approach in solid waste management system to achieve UN-SDGs: Solutions for post-COVID recovery, Sci. of The Total Environment, Vol. 800, 2021, 149605.

Also, the concept of a #circulareconomy, which focuses on reducing waste and maximising resource efficiency, and #wastemanagement strategies, such as #recycling, #wastereduction, and #extendedproducerresponsibility, has gained significant traction since 2000. The economic analysis of waste management has expanded to include #lifecycleassessment, cost-benefit of recycling programs, and the evaluation of #returnoninvestment from waste reduction. Such measures enable the quantification of the economics of the environment and ensure better positive returns.

Biodiversity Conservation and Natural Capital Accounting
Biodiversity Conservation and Natural Capital Accounting. Source: J Argüello et al. Ecosystem natural capital accounting: The landscape approach at a territorial watershed scale, Quantitative Plant Biology, 3, E24, 2022.

Now environmental economists work on valuing and accounting for #naturalcapital, including #biodiversity and #ecosystem services, which were previously undervalued or ignored. This recognition has led to the development of methods for assessing the economic benefits of biodiversity conservation. Such natural capital accounting ensures the return on investment through various Special Purpose Vehicles (#spv) or Special Purpose Entity (#spe).

However, what we see, from this side of the river is different. We see hidden greed and environmental economics trying to self-balance.

The world is at a critical juncture, with environmental concerns taking center stage. As the global community grapples with cleaner energy sources, hydrogen has emerged as a promising solution. Its potential to reduce #greenhousegasemissions and provide a #sustainableenergy option has attracted significant attention, including the World Bank.

However, recognising the urgent need to address climate change and the importance of clean energy solutions, the #worldbank has recently increased its investments in hydrogen-related projects. The organisation views hydrogen as a critical element in achieving the global goal of reducing greenhouse gas emissions and transitioning to a #lowcarbonfuture. The World Bank's financial support aims to promote hydrogen technologies, encourage research and development, and foster collaboration between countries.

Forecast of the global range of levelized cost of hydrogen production for large projects through 2050.
Forecast of the global range of levelized cost of hydrogen production for large projects through 2050.

Apart from having the advantages of Hydrogen in Environmental Economics, like #carbonneutral fuel, energy storage and grid balancing, and decentralised energy production, there are hidden greed and economic gain.

Hidden greed and environmental economics
Hidden greed and environmental economics. Source:

While the World Bank's investment in hydrogen appears promising, we must acknowledge the potential drawbacks and hidden pitfalls. Developing countries may prioritise rapid industrial development over environmental sustainability, leading to economic instability in the long term. Further, these nations might overlook proper #safetyprotocols, #environmentalregulations, and adequate infrastructure.

Unintended environmental consequences
Unintended environmental consequences. Source: IB Ocko and SP Hamburg, Climate consequences of hydrogen emissions, Atmos. Chem. Phys., 22, 9349–9368, 2022.

High hydrogen production without stringent regulations can lead to unintended environmental consequences. For example, if hydrogen production relies heavily on #fossilfuels, the overall #carbonfootprint may not significantly decrease. Additionally, poor waste management practices can result in detrimental impacts on local ecosystems and #waterresources.

Balancing Environmental Objectives and Economic Gain
Limited access to clean technologies. Source: lO Babayomi et al., Affordable clean energy transition in developing countries: Pathways and technologies, iScience, Vol. 25, 5, 2022, 104178.

Moreover, the lack of expertise and resources to adopt cleaner hydrogen production methods could encourage conventional hydrogen production methods, which may involve higher greenhouse gas emissions and environmental damage.

Balancing Environmental Objectives and Economic Gain
Balancing Environmental Objectives and Economic Gain. Source: M Basheer et al. Balancing national economic policy outcomes for sustainable development. Nat Commun 13, 5041, 2022.

To avoid the potential negative consequences for sustainable development, the World Bank and other international organisations must ensure the inclusion and participation of local communities in #decisionmaking processes.

Every country is different, whether developed or developing and simply imposing generalised norms to cut carbon emissions will not solve the problem. It seems to be a good solution for the short term. But in the long run, this leads to an environmental and economic catastrophe.

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