Human beings depend on nature for their survival. For instance, they use the energy and raw materials to produce various goods and consume the resources provided by nature like water and air. As any production activity generates some waste, humans depend on nature for disposing not only the waste arising out of production but also arising out of different human activities. The human dependence on nature is sustainable as long as we donot disturb the natural balance or in other words we are within the carrying capacity of the nature.
Economies in the world are growing with the help of goods and services provided by nature but without consideration of the limits set by nature. Not only is the society exhausting its capital but is also increasing some unwanted substances (bads) into the nature through its production which can have impact not only on human health and well-being but also on the ecological well-being on which the entire human survival depends. Earlier fresh air and water are free goods but now they involve a price. For example, people travel far to breathe some fresh air and buy mineral water to avoid drinking contaminated water. We have emitted so much carbon-dioxide, methane etc. into the atmosphere that the earth is heating up and can have adverse impacts on human beings. These bads from production is termed as "Pollution". The problem of pollution is aggravated due to increased population, industrial growth and increasing demand for energy and materials. With the trade liberalization, the impact on environment due to trade is adverse. This stresses the need for more efficient and sustainable resource and environmental management.
The reason why we face serious problems due to environmental pollution and resource scarcity is because of the fact that till a decade back we have laid more importance to production ignoring its impact on environment. In the words of Schumacher, "The most fateful errors of our age is the belief that the problem of production has been solved. This illusion is mainly due to our inability to recognize that the modern industrial system, with all its intellectual sophistication, consumes the very basis on which it has been erected. To use the language of the economist, it lives on irreplaceable capital which it cheerfully treats as income". (Schumacher, 1975 page 20).
Several economists saw pollution and over-exploitation as a consequence of the lack of well-established market processes and property rights for some the resources like Air, Water, Forests, Biodiversity etc. Various macroeconomic policies, sectoral policies also effect the environment apart from human actions. At some stage, proper stage has to be set for managing our environment, which needs different policy instruments for pollution control. As most of the natural and environmental resources cannot have well-established markets, appropriate valuation techniques have to be identified. These values can be used to assess costs versus benefits of different environmental policies. Another important issue in this regard is that not only does trade effect the environment but the effect of environmental regulations also has an impact on trade.
The importance of these issues has led to the evolution of a new branch in the field of economics called
Some of the important issues addressed under Environmental Economics are :