Central to environmental economics is the concept of an externality. This means that some effects of an activity are not taken into account when it is priced. Too much pollution may occur if the producer need not take the interests of those adversely affected by the pollution into account. Too little nature conservation may occur if those who undertake such activities are not rewarded in relation to the increase in the quality of life for the general population they help to bring about. In economic terminology, these are examples of market failures, and that is an outcome which is not efficient in an economic sense.
Solutions advocated to correct such externalities include:
Another way externality applies is when globalization permits one player in a market who is unconcerned with biodiversity to undercut prices of another who is - creating a "race to the bottom" in regulations and conservation. This in turn may cause loss of natural capital with consequent erosion, water purity problems, diseases, desertification, and another outcome which is not efficient in an economic sense. This concern led to the subfield of sustainable development and its political relation, the anti-globalization movement.
The above are advocated by the specific theory of Natural Capitalism (Hawken, Lovins, Lovins) which does not include:
Environmental economics was once distinct from resource economics but is now hard to distinguish as a separate field as the two became associated with sustainable development and more radical green economists split off to work on an alternate political economy.
Environmental economics was a major influence on the theories of natural capitalism and environmental finance, which could be said to be two sub-branches of environmental economics concerned with resource conservation[?] in production, and the value of biodiversity to humans, respectively.
The more radical Green economists reject neoclassical economics in favour of a new political economy beyond capitalism or communism that gives a greater emphasis to the interaction of the human economy and the natural environment, acknowledging that "economy is three-fifths of ecology" - Mike Nickerson[?].
These more radical approaches would imply changes to money supply and likely also a bioregional democracy so that political and economic and ecological "environmental limits" were all aligned, and not subject to the arbitrage normally possible under capitalism.