The economics of sustainability in the context of climate change: An overview

Abstract

The emerging field of sustainable business has its roots in both science and economics-in particular the fields of environmental science and the economics of sustainability. This article provides an overview to the latter field with application to environmental damage due to climate change. The aim is to provide an economic context for the papers in this special issue. The article outlines four essential elements in what has become a vast literature in the economics of sustainability in the context of climate change. First is the dilemma in valuing the distant future which concerns the vexed issue of discounting outcomes that are expected to occur over a very long time horizon. The second is the related characteristics of uncertainty and irreversibility that create an option value in taking action. The third element is the peculiarities of natural capital (arising from the natural environment) compared with reproducible capital (things we make that are used to produce goods and services). The post-neoclassical notions of social capital and knowledge capital are also briefly mentioned. The fourth element is how to manage the global "commons", the prime example of which is the climate. This article is written for the general business reader with an understanding of basic economic concepts and therefore avoids mathematics. References to more technical treatments are provided.