The Unique Role of Efficiency in Environmental Economics

 Efficiency is a vital component of environmental economics. To be efficient, resources must be used responsibly while also meeting the needs of the public. If environmental efficiency is achieved, both the needs of the environment and social welfare are met. Environmentally, efficiency is detrimental for many reasons. In addition to fostering a healthy environment, efficiency also benefits the environment by limiting resource recovery to only what is needed, which not only conserves key resources but also minimizes resource waste. It is commonly known that the less waste humans produce, the less money, time and man-power will be needed to clean up a trashy planet. While pollution is necessary to some extent, efficiency equals a much cleaner and happier world.


Efficiency is equally as fundamental for social welfare as it is for environmental welfare, and for many of the same reasons. Proper resource allocation, preservation of the environment, and protection against depleted resources target both anthropocentric and environmental interests.  Many, many moons ago, the humans that inhabited the Earth would have never dreamed that the generations ahead of them would worry about not having water to drink. The land was cared for, respected, and resources were used responsibly. As technology and the industrial age encroached on the continents, so did exploitation, pollution and greediness. The concept of only taking what is necessary was blown like dust off the map. Now, there is a threat of depleting aquifers that provide clean water, tapping out the oil reserves that were thought to be endless, and pollution that is plentiful enough to cause climate change. Efficiency could turn all of that around. For example, green energy is becoming increasingly more popular all over the world. Photovoltaics, hydropower and wind power are all responsible for increased innovation in terms of environmental welfare, responsible resource use, increased employment, and a cleaner, healthier Earth.

You’re probably sitting there thinking “efficiency seems so easy to obtain. . . so why is humankind in the beginning of a struggle to survive?” There are many probabilities, considerations, and levels of approval that have to be gone through to employ the perfect plan for efficiency.          

To determine efficiency, a system is used that weighs the benefits with the costs. Everything we do in life has a tipping point, a point in which the cost of the action will most certainly outweigh the benefit. To calculate that tipping point, the marginal cost is deducted from the marginal benefit. 
Efficiency is obtained when the benefit meets the cost. The outcome is known as the marginal analysis, or, the stopping point in which the activity is most efficient.

Supply and demand reflects this rule. If suppliers are distributing just the right amount needed to consumers, allocative efficiency is acquired. Supply represents the marginal cost, and demand represents the marginal benefit. The marginal analysis is used to determine exactly the right number of items to produce, thus inducing market equilibrium.

When choosing to invest, it is important to keep in mind that while about a million things could go right, the same number of things could go wrong. To find the expected value, the estimated probability of each outcome must be multiplied by the value of each outcome, then added together to get the expected value of that course of action.

A landfill has leaked a quantity of pollutant into the soil below the landfill. If society ignores the issue, there is a 5% chance that the pollutant will contaminate the water aquifer and local drinking water, causing 1 million dollars worth of illness in the future. There is an additional 1% chance that the pollutant will cause further contamination and 4 million dollars worth of damage and illness. If these are the only risk factors, the expected value of the damage done from the landfill is 90,000 dollars.
Estimated value of damage = (.05)($1,000,000) + (.01)($4,000,000)

Is it worth it to fix? We’re just going to hope that’s left up to the guy in charge of the environment and social welfare, and not the guy pinching pennies!

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