ABSTRACT
This chapter discusses the economics of the environment, with a particular focus on how economic activity impacts climate change and the economic policies that could be used to address it. It provides some background on how economists study environmental issues. The chapter reviews the scientific findings regarding climate change. It discusses the principles of ecological economics and environmental economics to analyze the economics of climate change. Ecological economics is the study of the interdependence between the economy and natural ecosystems, including the flow of energy and raw materials to the economy from the ecosystem’s sources and the return of wastes and pollutants from the economy to planetary sinks. Ecological economists see the economy as a subset of the natural environment, and the key to a sustainable economic system is designing economic activities that preserve natural ecosystems. The one idea backed by most economists who are concerned about climate change is the need to put a price on carbon dioxide pollution.
