Chapter 13 evaluates the challenges of SDG 12: Responsible Consumption and Production, which aims to reduce economies’ material footprints and related waste emissions to support a shift toward more environmentally responsible practices. Global trends in material resource extraction and waste emissions are reviewed, highlighting increasing per capita resource use, rising resource intensity, and escalating waste emissions. Water, land, and air pollution can impose significant economic costs due to their impacts on human health and well-being and degradation of the stock of natural capital, including ecosystems. Policy options for reducing waste emissions are compared and contrasted. Market-based mechanisms, like taxes or tradable permits, offer cost-effectiveness but may not ensure sufficient environmental protection in uncertain conditions. Conversely, regulations enforced by penalties may be necessary for meeting standards, particularly for hazardous waste, although they can introduce uncertainty about producer costs. Other strategies, such as liability for compensation and environmental assurance bonds, aim to encourage waste reduction, reuse, and recycling.

Chapter 3 explores how economics approaches the problem of allocating and distributing scarce environmental goods and services between competing ends. It examines the trade-offs the decision-makers involved in consuming and producing these goods and services face. In a model of the market allocation of a single environmental good or service, two building blocks are established: consumer demand and producer supply. Demand is the willingness of consumers to purchase specific quantities at different prices over a given period, which depends on the economic value they place on that environmental good or service. Supply is the willingness of producers to provide specific quantities to the market at different prices over a given period, which depends on the cost of inputs needed to provide that environmental good or service. Buyers and sellers interact in a market to determine the quantity and the price of an environmental good or service being exchanged and respond to a shortage or surplus. The economically efficient and optimal allocation of an environmental good or service is established in the marketplace, which has economic welfare, sustainability, and social equity implications.

Chapter 4 examines when the efficient and optimal allocation of marketed goods may not apply to environmental goods and services. Market failures can cause environmental misuse and overuse due to the lack of a fully functioning market or when the markets do not function under perfectly competitive conditions necessary for an economically efficient outcome. For example, due to environmental externalities, user costs, open access, public goods, imperfect market structures and power. When the market is not at its socially optimal equilibrium, there is a deadweight loss that reflects the inefficiency occurring and represents a loss of total welfare to society, along with implications for environmental sustainability and social equity. Government policy failures, such as poor-quality institutions and governance, unintended policy impacts, and failure to correct pervasive market failures, also contribute to environmental misuse. Correcting market and policy failures is critical for economic efficiency, environmental sustainability, and social equity.

Chapter 11 evaluates the challenges of SDG 14: Life Below Water, which aims to conserve and sustainably use the oceans, seas, and marine resources for sustainable development. The ocean ecosystem can be treated as a stock of natural capital providing many goods and services, including fish, minerals, oil, recreational activities, transportation, and climate regulation. Marine capital is under stress and facing scarcity due to the overharvesting of fish, pollution, higher water temperatures from climate change, and the loss of coastal and ocean habitats. Fish are a renewable natural resource, and the properties of their natural growth function and the impact of harvest levels on fish stocks are explained. An economic model is established to determine efficient fishery management, contrasting with open-access conditions that can lead to fishery collapse. Sustainable ocean management policies include removing subsidies, regulating fisheries, using taxation and transferable quotas, and creating marine protected areas. Businesses and governments can help bridge the funding gap for the conservation and sustainable management of ocean resources.

Chapter 5 explains “economic value,” the worth an individual assigns to an environmental good or service, reflecting what they are willing to pay (or accept) for more (or less) of it. Environmental goods and services not traded in markets are often seen as “free” or having “zero” economic value, leading to degradation and depletion. Assigning a “dollar value” to nature is important for pricing, policy design, project assessment, and compensation determination. Understanding the various types of economic benefits is essential for estimating the economic value of environmental goods and services, categorized by the “total economic value” framework. There are various approaches to estimating economic values when market data is lacking, such as the travel cost approach, hedonic pricing, contingent valuation, and the environment as an input approach. Non-market valuation techniques can be applied to estimate the value of statistical life and support the benefits transfer method. Case study examples of these valuation approaches explore their application to real-world environmental problems and assess some challenges they face.

Chapter 8 evaluates the challenges of SDG 6: Clean Water and Sanitation, which aims to ensure the availability and sustainable management of scarce water supplies and provide sanitation for all. Water crises and stress, including drought, are critical global risks facing society today in terms of economic impact. The future demand for water needs to be balanced against safeguarding the environmental demands, especially for critical ecological and hydrological functions. Meeting future clean water and sanitation needs requires correcting current mismanagement, which results in the over-extraction of groundwater and contamination of freshwater supplies. A comprehensive strategy is required to “bend the curve” on global water use and reduce the economic challenges of water crises and stress. This consists of ending the underpricing of water by removing existing policy distortions and encouraging greater and more efficient use of water markets and trade. Correcting the underlying market failures and creating opportunities for government investment in water-saving technologies and more efficient water distribution systems are also required.

Chapter 2 explores economic views of sustainability, defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987). This implies the current population’s needs are met, and future generations have access to at least the same economic opportunities and well-being as today. The systems approach to sustainability optimizes goals across environmental, economic, and social systems. The economists’ capital approach treats nature as capital. Natural, physical, and human capital form a portfolio of assets representing an economy’s wealth, which determines economic opportunities and human welfare. “Weak” sustainability assumes that maintaining and enhancing the overall stock of all capital is sufficient to achieve sustainable development. “Strong” sustainability asserts that preserving essential, irreplaceable, and non-substitutable natural capital is also necessary. The “resource curse” hypothesis and the environmental “Kuznet’s curve” hypothesis (EKC) are explained. Achieving sustainable development requires addressing extreme poverty, inequality, and unsustainable resource use.

Chapter 14 evaluates the challenges of SDG 13: Climate Action, which emphasizes the urgent need to combat climate change and its impacts. Two global pollution problems are compared: chemical emissions deplete the ozone layer, which shields us from harmful ultraviolet radiation, and greenhouse gases trap heat, contributing to global climate change. International cooperation and action effectively addressed the emission of ozone-depleting substances. In contrast, current policies to reduce human greenhouse gas emissions are inadequate for limiting global warming to below 2°C, threatening a significant reduction in economic welfare and well-being, especially in developing regions. The social cost of carbon measures future damages associated with a ton of greenhouse gas emissions, discounted to present value, which can inform how much we should “pay” to reduce emissions today. The various policy options for combating climate change, including removing existing policy distortions and addressing prevailing market failures, are explained, and the costs and benefits of reducing greenhouse gas emissions through technology- and nature-based solutions are discussed.

Chapter 1 explains how economics plays a crucial role in sustainable development, affecting the well-being of current and future generations. Economics explores how scarce resources are allocated and distributed and analyzes the trade-offs in decision-making. The stock of capital assets, or economic wealth, in an economy determines economic opportunities and individuals’ standard of living and prosperity. Economics recognizes that the economy is embedded in nature and that natural capital contributes to economic welfare in three ways: natural resources provide inputs to production, the environment assimilates waste and pollution, and ecosystems provide essential goods and services. A pessimistic view is that environmental scarcity will limit economic growth, leading to economic collapse. An optimistic perspective is that human creativity, innovation, and technological advancements can avert environmental scarcity, allowing economies to prosper. Economics can help guide society toward a more optimistic development path by creating incentives and safeguards for sustainable use of the environment.