Ecological economics views the economy as a subsystem within society and the finite biosphere, whereas environmental economics applies conventional economics to environmental problems. Environmental economics mainly corrects markets; ecological economics questions whether continued growth is compatible with ecological limits.
This is HL-only content from HL.b Environmental economics.
The Reasoning
Environmental economics begins with the existing market economy. Environmental damage is market failure when costs such as air pollution fall on third parties instead of being included in market prices. Carbon taxes, tradeable permits and the polluter-pays principle internalize those costs.
Ecological economics starts with a systems model: economic activity takes energy and materials from the biosphere and returns waste. Since the biosphere is finite, it emphasizes planetary boundaries, resilience and limits to growth. It may support degrowth, zero growth or slow growth, especially in high-income countries.
| Feature | Environmental economics | Ecological economics |
|---|---|---|
| Model | Environment interacts with the economy | Economy is nested within society and the biosphere |
| Main problem | Market failure and unpriced costs | Economic scale exceeding ecological limits |
| Typical response | Taxes, quotas, permits and environmental accounting | Degrowth, circular economy and doughnut economics |
| Valuation | Often monetizes ecosystem services | Recognizes intrinsic and non-use values alongside monetary values |
| Growth | May support growth with reduced damage | More likely to question sustainable growth |
For example, the EU Emissions Trading System prices carbon emissions, reflecting environmental economics. Amsterdam's use of reflects ecological economics by seeking to meet social needs within ecological limits. Both approaches can support sustainability and environmental justice, but their assumptions about markets and growth differ.
