Environmental economics dates back to the 1800s.  Economists who study the environment are primarily concerned with the concept of externalities, scarce natural resources, and with the issue of common ownership of the environment.

Externalities are costs that fall not upon the producer of a good, but upon society as a whole.  Economists seek to internalize externalities to maximize efficiency. In other words, they would like to see these costs included in the price of the product and thus fully borne by the consumer rather than by society in general.

One important tool used by environmental economists is cost-benefit analysis.  This allows economists to put a monetary value on the costs and benefits to society of a given act of public policy.

In determining costs and benefits, economists use risk assessment.  This tells them the likelihood of a problem occurring, allowing them to accurately estimate the cost that should be associated with the problem.  Risk assessment indicates what problems should be focused on most, and is employed by both governments and businesses.

Once economists and government decision makers have determined the most advantageous level of environmental damage, they must act take measures to force companies to limit themselves to that level.

This can be done through pollution maximums, telling companies exactly how much they are allowed to pollute.  The government can also tax companies for polluting beyond a certain level.  However, the free-market solution is to use emission permits.

Many environmentalists criticize environmental economics for a variety of reasons.  For example, they say that economic growth is not an inherently positive thing.  They also point out that natural resources are limited, meaning growth cannot continue indefinitely.

Environmental economists study how natural resources are used in the economy.  Their findings continue to provide data useful in building public policy.