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Centre for Development, Environment and Policy (CeDEP)

Introduction to Environmental Economics and Policy

Course Code:
P570
Unit value:

The module is designed to provide an introduction and comprehensive overview of concepts of environmental economics and policy to students who are not specialists in economics. The module introduces environmental economics as a sub discipline of economics focusing on the inter-relationships between the environment and the economy. It explains how the concept of economic efficiency in the allocation of scarce resources underpins cost-benefit analysis and decision making in environmental management. Basic concepts in economic theory are first introduced, so that understanding is developed of how markets are supposed to achieve economically efficient allocations and why, when they fail to do so, the result is environmental pollution and degradation. Understanding the failure of markets involves the key concept of the property rights regime. Much of environmental economics is concerned with identifying when, and under what circumstances, failures in property rights and in markets are likely to occur and how best to correct them.

Building on this initial understanding of concepts the module proceeds to explain the theory and economics of pollution as the leading example of environmental degradation. It introduces core models for understanding how governments might intervene to control pollution, and goes on to examine and evaluate the instruments of environmental policy from command-and-control instruments to economic or incentive-based instruments often advocated by economists. It deals with the implementation of policy instruments, including the important issues of how to target and enforce environmental policy. Reading material with the module will refer to political decision-making processes and how these affect the outcomes of environmental policy. Political factors may cause policies to diverge from those advocated on the grounds of economic efficiency. Public participation can also play an important role in policy making, and effective and genuine participation can lead to more effective and fairer policies.

The module also explores why economists attach importance to the monetary valuation of environmental goods and services, and introduces a number of techniques for doing so. It provides a critical overview of current methods and their applications. It examines the main criticisms of the approaches that are available for environmental valuation.

Finally in order to set the concepts and theories introduced in the context of current concerns relating to sustainable development the module examines the relationship between environmental policy making and the concept of sustainable development. It introduces core concepts of ‘sustainability’ and considers the policy implications of applying these.

Objectives and learning outcomes of the course

Students will be able:

  • To understand microeconomic theory that underpins environmental economics.
  • To understand the key concepts and methods of environmental economics.
  • To be able to analyse and critically explain forms of environmental degradation such as pollution in microeconomic terms, looking specifically at the concept of market failure.
  • To acquire the knowledge of the components of environmental policy and criteria for its design and assessment.
  • To acquire an appreciation of the difficulties of solving environmental problems.
  • To gain knowledge of a range of approaches for non-market valuation of environmental goods and services, and of their strengths, weaknesses and methods of application.
  • To acquire a critical appreciation of the relevance of environmental economics to notions of sustainable development.

Scope and syllabus

Unit 1: An introduction to environmental economics and economic concepts
Unit 2: Diagnosing environmental problems
Unit 3: A framework for the design and evaluation of environmental policies and an evaluation of standards and taxes
Unit 4: Design and evaluation of environmental policy: subsidies and marketable permits
Unit 5: Implementing environmental policy: liability, targeting and enforcement
Unit 6: Attaching monetary values to the environment
Unit 7: Non-demand curve and revealed preference methods
Unit 8: Stated preference methods and using values in practice
Unit 9: Environmental valuation in practice
Unit 10: Assessing Sustainable Development

Module sample

P570 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: