Environmental Economics

Cap and trade is a system that limits total pollution and lets firms buy and sell permits to emit within that cap.

A carbon tax is a fee on the carbon content of fuels, designed to make polluters pay for the external cost of emissions.

A common-pool resource is rival but non-excludable, one person's use reduces what's left, but it's hard to stop anyone from using it.

Sustainable development is economic growth that meets present needs without compromising the ability of future generations to meet theirs.

A renewable resource is one that replenishes naturally over time, like solar energy, wind, timber, or fish stocks.

An ecological footprint measures the demand human activity places on nature, in terms of the land and resources needed to support it.

Marginal abatement cost is the cost of reducing pollution by one additional unit, and it typically rises as more pollution is cut.

Hotelling's rule states that, for efficient extraction of a nonrenewable resource, its net price (price minus marginal extraction cost) should rise over time at the rate of interest.

The environmental Kuznets curve hypothesizes an inverted-U relationship in which pollution rises with income at low levels of development, then falls once income passes a threshold.

Emissions trading is a system where a regulator caps total pollution, issues permits equal to that cap, and lets firms buy and sell them.

The social cost of carbon is an estimate of the total dollar damage caused by emitting one more ton of carbon dioxide, expressed in present value.

A nonrenewable resource has a fixed stock that does not regenerate on a human timescale, so every unit used today is one fewer unit available later.

Green GDP is conventional GDP adjusted downward for the value of environmental damage and the depletion of natural resources caused by producing that output.

Existence value is what people are willing to pay just to know something exists, such as a species or wilderness, even if they never use or see it.

Contingent valuation is a survey method that values a nonmarket good by asking people what they would pay for it in a described hypothetical situation.

Command-and-control regulation controls pollution by direct mandate, ordering each source to meet an emissions limit or install a required technology.

A marketable permit is a tradable allowance to emit a set quantity of pollution, issued under a cap, that a firm can buy or sell instead of abating.