"Environmental Economics" deals with the impact of the economy on the environment, the significance of the economy to the environment, and the appropriate way of regulating economic activity so that balance is achieved among environmental, economic and other social goals.
Although the field of environmental economics probably dates back to the late 1950s and early 1960s, its roots are in the externality theories of Marshall and Pigou, the public goods theories of Wicksell and Bowen, the general equilibrium theory of Walras, and the applied field of benefit-cost analysis, foreshadowed by Dupuit but cultivated to maturity by economists in the water resource agencies of the US Government. The 1990s has seen the influence of environmental policy. Marketable permits for pollution control are now widely embraced and valuation has become an integral part of environmental economics.
Environmental economics involves adapting concepts developed in other branches of economics (particularly Public finance and Industrial organization) and applying them to environmental problems. But there are some aspects of environmental economics like non-market valuation, which are unique to this field but have the potential to be applied in other branches of economics. Non-market valuation involves developing methods of measuring the demand for goods for which there is no market, for example, measuring the value of the ecosystem service that a forest provides is a non-market valuation. The markets for this service do not exist but it provides benefit to the ecosystem and hence a value is placed on this service.
The field is often divided into different areas, partly due to the respective historical development. For instance, economic environmental research took "pigouvian" taxes and subsidies for the correction of negative external effects as its starting point. Another early branch 'natural resource economics' examined the exploitation of limited natural resources over time. Similarly, social cost-benefit calculus began to be applied to environmental problems in the 1960s. Pigovian taxes are treated as one of many economic measures, comparable to deposits, "tradable permits", damages, and insurance.