[skip to content]

Centre for Development, Environment and Policy (CeDEP)

Economics of Environmental Policy

Course Code:
Unit value:

This module is about the design and evaluation of governmental environmental policies. We explain how economic theory and methods are used in order to develop and analyse these environmental policies.

The objectives of this module are therefore to:

  • explain the reasoning behind government use of environmental policies
  • introduce the components of environmental policy
  • provide you with a means to evaluate environmental policies
  • help you to develop an appreciation of the difficulties in solving environmental problems in practice, both at the domestic and international levels.

We look at the theory underlying the different policy strategies and at how these strategies work in practice. Examples of existing policies are used to illustrate the difficulties of applying the theory in practice. Many of these examples are taken from the United States or the European Union but, as you work through the module, try to relate any environmental policies implemented in your country to the theory and ask yourself the following questions:

  • Why have those particular policies been introduced?
  • What are their aims?
  • Are they achieving their aims?

The module draws on a number of examples from the agricultural sector, but the theory applies to environmental policies in general.

Objectives and learning outcomes of the course

By the end of this module, students should be able to demonstrate:

  • critical understanding of the main interactions between the environment and the economy, the physical constraints that place limits on the interaction, and the practical implications for public policy
  • the ability to apply and critically interpret the results of specific methodologies so that solutions to environmental problems can be identified and implemented in practice
  • the ability to critically use the knowledge acquired to be able to effectively evaluate environmental policy that is already in practice, and the theoretical basis for this policy
  • critical understanding of the divergence between policy design in principle and the practical reality.

Scope and syllabus

The module is divided into three parts.

Part I of the module examines the role of environmental policy strategies from the viewpoint of environmental economics. We look at the way in which the economy and the environment are linked and the ways in which a market economy can solve environmental problems. We demonstrate that, by their very nature, many environmental problems cannot be solved purely by market forces, leading to the need for the introduction of governmental environmental policies.

Part II looks at the components of environmental policies and how they can be evaluated in terms of their success in achieving government objectives. At times, the theoretical analysis produces neat results, but we consider whether these results can actually be achieved when policies are implemented in practice.

Part III extends our discussions of governmental policies. We apply the theory developed in Part II to international environmental problems. If more than one government is involved in attempting to solve a problem, there is clearly an added dimension in agreeing and/or implementing policy.


Unit 1: Environmental economics as a discipline
Unit 2: Diagnosing environmental problems


Unit 3: A framework for the design and evaluation of environmental policies
Unit 4: Environmental policy instruments 1: standards and taxes
Unit 5: Environmental policy instruments 2: subsidies and marketable permit
Unit 6: Uncertainty and non-convexity
Unit 7: The targeting and enforcement of environmental policy
Unit 8: The economics of environmental liability


Unit 9: International issues in environmental policy
Unit 10: Transboundary externalities and environmental policy

Module sample

P521 module uses a core text which is specially written and will take you through your self-directed study. Exercises, assignments and other activities, such as self-assessment questions, film clips and animations are included to help you with learning. Most module study guides are now provided in electronic format on a USB flash memory stick, but can also be downloaded from the online learning environment. Click the linked image below to view a sample of our e-study guide:

Suggested reading

  • Kolstad, C.D. (2011) Intermediate Environmental Economics. International Second Edition. New York, Oxford University Press.