The economics of the environment
From a private choice to a shared cost and a policy response.
Your route through the ideas
- Negative externality
A cost imposed on others that is not fully reflected in the decision-maker’s private costs.
- Social cost
The full cost of an activity, including private costs and external costs imposed on others.
- Carbon tax
A price imposed on greenhouse-gas emissions or their carbon content to create an incentive to reduce them.
- Emissions trading
A system in which covered emitters trade allowances under an emissions limit.
- Marginal abatement cost
The additional cost of reducing one more unit of pollution.
- Common-pool resource
A resource that is difficult to exclude people from using, but whose use reduces what remains for others.
- Environmental discounting
Using a discount rate to compare benefits and costs occurring at different times.