Environmental economics

Environmental economics studies how economic activity affects environmental resources and pollution, and how policies can account for those effects.

Externality: A cost or benefit of an activity that falls on people outside the transaction causing it. Pollution is a negative externality when its costs fall on others rather than polluters.
Cost-benefit analysis: A decision method that compares the monetary value of a policy's expected benefits and costs. Environmental policies often use it to weigh damages avoided against resources spent.
Welfare economics: The study of how resource allocation affects social well-being. Environmental policy analysis often evaluates changes in social welfare, not output alone.
Ecological economics: An interdisciplinary field that treats economies as embedded within ecosystems and emphasizes biophysical limits. It challenges environmental economics to give ecological scale and limits a more central role.
Discounting: The practice of assigning lower present value to costs or benefits that occur in the future. Choosing a discount rate can change how climate damages across generations are valued.
Pigouvian tax: A tax set to reflect the external cost of an activity. It can make polluters face the social cost of emissions.
Carbon pricing: Policies that assign a monetary cost to greenhouse-gas emissions through taxes or tradable permits. It applies economic incentives to reduce emissions across many sectors.
Public goods: Goods that are non-rival in consumption and difficult to exclude people from using. Climate stability and some ecosystem benefits have public-good characteristics.
Command-and-control regulation: Regulation that specifies required technologies, practices, or pollution limits rather than relying mainly on prices. It offers a direct alternative to taxes and tradable permits.
Integrated assessment model: A model that links human systems, economic activity, and environmental processes to study policy outcomes. Its assumptions shape estimates of climate damages and the benefits of mitigation.

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