Economics of Environmental Sustainability

How do human economic systems interact with environmental systems? Our work proposes ways in which those interactions can be managed to deliver environmental and economic improvements in a cost-effective way.

Over the last 30 years, economics has been paying more attention to the importance of the natural environment for productivity and well-being. Theoretical and methodological advances have meant that economists are now ideally positioned to contribute to solving some of the most challenging problems facing humanity, such as climate change.

Our research approach takes the natural world as a central focus and uncovers how humanity can interact with nature in a productive, economically efficient, and sustainable way. If we help nature regain its health, it will repay us with cleaner air and water, with maintaining plant and animal communities, and will provide us with healthy and plentiful food, energy and other natural resources.

The goal is to attain a sustainable balance between humanity and the environment, where healthy and economically prosperous people can live on a healthy planet.

One of the main causes of environmental degradation is that economic institutions generally have not been designed with the natural world in mind. For example, we rely on price mechanisms in our daily lives to make everyday decisions about what we eat, wear, watch, listen to, or where we visit.

But the price mechanism as it is does not factor in the natural world, simply because much of the environment does not have a price associated with it. While there is a clear value that humanity derives from nature, the use of the environment is often not reflected through a ‘cost’ in our economic decision making, leading to overuse and environmental degradation.

Economists are now devising ways to overcome this problem, by using economic forces to signal the value of the natural world to humanity and to reflect that value in our everyday life. 

Examples of successful implementation of global economic mechanisms for large scale environmental improvements include substantial reductions in air pollution occurring in countries that have implemented tradable permit schemes for pollution reduction, increasing use of renewable energy worldwide due to economic incentive programs, and improved water quality through the use of market based instruments (e.g. control of salinity in the Hunter River in NSW).

Our work in the School of Economics is at the forefront of the advances to understand and harness economic forces to deliver environmental benefits. We research energy markets, the role of renewables, energy consumption, the use of plastic bags, the effect of climate change on agricultural prices, policies to reduce the emissions of greenhouse gasses, and water policies.

The findings from our research inform policies implemented by the government as well as the actions of corporations leading to environmentally conscious practices and behaviours, contributing to the efforts towards a healthy environment, economy, and society.