HL.b Environmental and ecological economicsIB Environmental Systems and Societies HL: Revision notes

Economics studies how humans produce, distribute and consume goods and services, individually and collectively. Environmental economics is economics applied to the environment and environmental issues.

Market failure occurs when the allocation of goods and services by the free market imposes negative impacts on the environment, because the cost of damage is not in the price (an external cost).

When the market fails to prevent such impacts, the polluter-pays principle may be applied: the polluter bears the cost of the damage, for example through a pollution charge or tax.

Greenwashing (or green sheen) is where companies use marketing to give themselves a more environmentally friendly image than their practices justify.

The tragedy of the commons highlights the problem where property rights are not clearly delineated and no market price is attached to a common good, resulting in overexploitation. Each user gains the full benefit of taking more, while the cost is shared by all.

Examples: open-access fisheries, shared grazing land, the atmosphere as a sink for carbon dioxide.

Strategies include defined property rights, quotas, licences and community management, and legal and economic strategies can work together.

Environmental accounting is the attempt to attach economic value to natural resources and their depletion.

In some cases value can be established by use (direct uses such as timber or fish, and indirect uses such as storm protection), but this is not the case for non-use values such as existence value, bequest value (leaving it for future generations) and cultural value.

Strengths: makes ecosystem services visible in decisions and allows comparisons. Limitations: non-use values are hard to measure, values are uncertain, and reducing nature to a price raises ethical issues.

Ecological economics differs from environmental economics because it views the economy as a subsystem of Earth's larger biosphere, and the social system as a sub-component of ecology.

The economic valuation of ecosystem services is addressed by environmental economics, but ecological economics places an even greater emphasis on it.

Ecological economists support a slow, no or zero growth model, and degrowth: a planned reduction in consumption and production.

Economic growth is the change in the total market value of goods and services in a country over a period, usually measured as the annual percentage change in GDP. It is influenced by supply and demand and may be seen as a measure of prosperity, but it has impacts on environmental welfare such as resource use and pollution.

Eco-economic decoupling is the notion of separating economic growth from environmental degradation. Evidence of decoupling needs care: emissions may be moved abroad through imports, and decoupling from one pollutant does not show decoupling from resource use.

The circular economy and doughnut economics models can be seen as applications of ecological economics for sustainability.

• Circular economy: eliminate waste and pollution, circulate products and materials, regenerate nature.
• Doughnut economics: meet the needs of all people within the means of the planet.

Both challenge the idea that growth alone leads to prosperity.