Instructor’s Manual to Accompany ENVIRONMENTAL ECONOMICS An Introduction

Instructor’s Manual to Accompany ENVIRONMENTAL ECONOMICS An Introduction
Chapter 1 includes updates on climate change data, specifically for exhibits on
carbon taxes and CO2 emissions. The emphasis on incentives as a key concept remains
consistent with previous editions.
Objectives
The purpose of this chapter is to whet students’ appetites, by presenting them with
some examples of the types of problems environmental economists work on and some of
the approaches they take. Most of the examples are illustrated with short exhibits to
increase their immediacy. They are meant to be sketches that are easily understandable by
students, without the need of devoting a lot of class time to their deeper interpretation.
Main Points
At this juncture, there are just two leading ideas to emphasize: (a) the critical role
of incentives in producing environmental degradation and in designing environmental
policies and (b) the importance of studying the short- and long-run benefits and costs of
environmental improvements.
Teaching Ideas
It is especially important to set a positive tone early. Most students will come to
the class as environmental advocates. With its attention to costs, trade-offs, and notions
of efficiency, environmental economics can seem for many to lead toward a weakening
of the forces of environmental advocacy and to lower aspiration levels for environmental
improvements. That is why many environmental advocacy groups look at environmental
economics with a jaundiced eye. It’s important to begin getting the message across that
this is incorrect, that, instead, the subject will prove to be very useful in such things as
designing environmental policies with more teeth than some of those we have had in the
past, getting more environmental improvement from the resources we devote to these
programs, and learning more about the real levels of environmental damages and the
values people put on improving the natural environment.
Many students will also come to the class with the simplistic notion that
environmental deterioration is primarily a result of ―capitalism,‖ where decisions are
presumably made with reference only to the bottom line and not to wider social or
ecological concerns. A critical proposition of environmental economics is that
uncontrolled markets will indeed underprice environmental pollution, which calls for
public policy and regulatory action to rectify the situation. Environmental pollution is not
a result of markets per se but of unregulated markets. An essential message is that
environmental pollution will occur in any system if the incentive system is not structured
appropriately.
One other preconception that students sometimes have is that environmental
quality issues are exclusively issues of the natural, biological, and medical sciences. In
this view, the best decisions will become manifest as a result of the application of these
sciences with enough diligence. The idea that human preferences should have anything to
do with decisions about environmental quality will very often strike them as curious, if
not downright wrong. It is never too early to start discussing this.
Answers to Discussion Questions
We have not included discussion questions for this first chapter.
Chapter 2
The Economy and the Environment
Updates for 2026 Release
Chapter 2 features a new section on the circular economy. The new topic of
natural capital is added to the section on Green GDP. The fundamental environment and
economy model and basic terminology of environmental economics continue as the
backbone of this chapter. Chapter 2 questions for further discussion remain unchanged.
Objectives
This is also an introductory chapter, the primary aim of which is to provide a
simple conceptualization of the economy in relation to the natural environment and to
establish some definitions and perspectives that will be used throughout the book.
Main Points
A leading idea presented in the chapter is the materials/energy balance
relationship; it helps to establish the basic relations between the economy and the
environment and locates some of the major ―pressure points‖ for developing
environmental policy. The ideas inherent in Figure 2.1 are closely related to the notion of
the ―circular economy,‖ an increasingly popular way of thinking about reducing
pollution. It’s important to stress that the concept refers to more than recycling. For
example, it also stresses moving to lower material intensity of production. For more
material on the circular economy, see the papers in the Journal of Industrial Ecology. The
text includes a reference to the idea of ―natural capital.‖ This refers to the stock of natural
and environmental assets, the increase or decrease of which could be used to adjust the
traditional estimate of a nation’s GDP.
Since the book is limited to environmental economics, the chapter also contains a
very brief discussion of issues in natural resource economics; the close relationship
between the two needs to be emphasized.
The materials balance model does not focus on the handling of residuals at the
end of production/consumption, so Figure 2.3 is meant to shift emphasis to this part of
the problem. It is also useful for bringing up the major problem of control: When two or
more sources contribute to a pollution problem, how much should we control each
source?

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