As a university professor, March ought to be a pleasure. There are no classes and few meetings. It is, though, a bittersweet month. Students who have become an integral part of the fabric and rhythm of my life are graduating. Most of the names and faces will fade, but many will be remembered, and a few will be truly missed.
Not surprisingly, one of the greatest joys of teaching comes from former students who keep in touch. Watching them develop careers is always a pleasure, especially when they choose professions in environment and law that overlap with my own. Some even become professional colleagues, offering insights into shared areas of interest.
Recently, I asked a former student to give me the lowdown on environmental economics, a blossoming field of scholarship. Since all aspects of production, consumption, trade and waste are essentially both economic and environmental issues, environmental policy cannot be made uninformed of economic policy, and vice versa. Inevitably, as economic and environmental policymaking have become increasingly complex and intertwined, the two have been joined in a marriage of necessity.
American Lester Brown, a top environment-policy analyst, highlights the importance of one aspect of this coupling in his new book, “Eco-Economy.” Brown believes that the integration of economics into ecology is “the only approach that reflects reality.”
“Today’s global economy has been shaped by market forces, not by the principles of ecology,” Brown explains. “Unfortunately, by failing to reflect the full costs of goods and services, the market provides misleading information to economic decision-makers at all levels. This has created a distorted economy that is out of sync with the Earth’s ecosystem — an economy that is destroying its natural support systems.”
Whether talking about an “eco-economy” or an “environmentally sustainable economy,” the integration of environment and economics will be called upon to answer many of the most pressing questions facing us in this century. Wanting to know more about this union of disciplines, I contacted former student Yoshifumi Konishi.
Konishi graduated from the Chuo University law faculty, then worked for a year as an intern at an international NGO in Tokyo. He then entered the University of Pittsburgh, Graduate School of Public and International Affairs, where he received an M.A. in Policy Analysis.
Returning to Tokyo, Konishi took a job as a financial analyst in the Investment Research Department of Goldman Sachs (Japan) Ltd. This year, he will return to the U.S. to begin a Ph.D. in Applied Economics with a major in environmental- and natural-resource economics. He has been offered a Fulbright grant to pursue his research.
This column and the next (April 11) will touch on some of the highlights of our talk.
Asked to define environmental economics, Konishi admitted that many people are bewildered by the term. “Many students,” he said, “when first introduced to environmental economics, may be confused by misleading definitions, such as, ‘Environmental economics is the study of the interaction and interdependence of the economy and the environment.’ To make matters worse, many courses of this kind at Japanese universities are titled ‘Economy and the Environment’ rather than ‘Environmental Economics.’ “
The definition Konishi prefers is that of Barry C. Field, a professor at the University of Massachusetts at Amherst. Field says, “Environmental economics is the study of environmental problems with the perspective and analytical ideas of economics . . . Economics is the study of how and why ‘people,’ whether they are consumers, firms, non-profit organizations, or government agencies, make decisions about the use of valuable resources . . . [Environmental economics] focuses primarily on how and why people make decisions that have environmental consequences.”
Konishi breaks this down into three main points. First, environmental economics draws on analytical tools and concepts used and developed in economics (microeconomics, macroeconomics and econometrics). Second, it studies public and private decisions that have environmental consequences. And third, it offers analytical frameworks for making more informed decisions about environmental problems.
This, however, is only the first layer of the onion, according to Konishi. Environmental economics can also be divided into three sub-disciplinary fields: resource economics, environmental economics (in a narrower sense), and ecological economics. “Resource economics,” he says, “focuses primarily on the inflow of materials or natural resources from the environment to the economy. Often, the focus is on how people can optimally use resources, such as water, fisheries, forests, soil, coal and oil.
“Environmental economics (in its narrow sense) focuses on the outflow of byproducts or residuals from the economy to the environment. Hence, it is, in a sense, the study of economic ‘bads,’ such as pollutants and solid wastes — how and why these ‘bads’ are produced and how people can optimally control them. Ecological economics came from a slightly different stream; it was developed in the field of ecology, drawing on the analytical tools of economics, while resource and environmental economics evolved in the field of applied economics.”
Konishi poses the next question himself: “So why do we need environmental economics?” His answer echoes Field. “The best way to address an environmental problem is to know how and why it occurs. Environmental economics studies how and why people make decisions that have environmental consequences. Natural sciences teach you how and why an environmental problem occurs scientifically, but do not tell you how and why they occur socially and economically.”
“Another important reason for environmental economics is the existence of ‘costs’ associated with environmental decision-making, for example, an environmental tax on carbon dioxide emissions,” explains Konishi. “We know, with some degree of uncertainty, that climate change may in the future result in adverse social, economic and ecological effects. By enforcing a tax on [these] emissions, we would, theoretically, benefit from reducing the amount of carbon dioxide emissions from our economic activities.
“One question, however, is how much tax is appropriate. We need to recognize that a tax on [these] emissions brings ‘costs’ as well as ‘benefits’ to our society. The tax would decrease investment capital that might have been used to generate other economic activity, or for dealing with other social problems. Thus, a tax increase could result in decreased investment and income, an increase in unemployment and a reduction in social services. Who would bear these costs? Environmental economics helps consider environmental problems in a cost-benefit context.”