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In addressing and considering issues related to energy and environment from the perspective of development economics, it is very difficult for anyone to remain objective. The questions are complex, the decisions are difficult, and the answers are crucial. The questions are complex, the decisions are difficult, and the answers are crucial. It is upon these answers that the future welfare of our entire species and planet hangs; if we do not act swiftly and decisively now, we jeopardise both the present generations fundamental rights and, more importantly, those of our future generations.

Energy and environmental issues have, perhaps more than any other recent economic  topic, stretched the computational and analytical capacities of economists. In this article, I may address the economic dimension of the energy environment relationship. Here we discuss different economic approaches to the energy problem, the concerns addressed by energy economics and environmental economics, general economic approaches to energy problem and the economic aspects of energy in relation to sustainable development.


Energy is the key factor in the economic development of a nation. The primary consideration for developing countries is increasing their rate of economic growth, as economic growth depends on a number of factors like, increasing consumption, investment, trade, physical resources, labour, technology etc. So the economics of energy and environment is closely linked with development . Most important, within the field of development, especially when environmental and energy issues are under considerations, is the still stricter criteria of sustainable development.

As energy is the capacity to do work, e.g., lifting, running, producing electricity etc. In economic terminology, energy includes all energy resources and energy commodities, commodities or resources that embody significant amounts of physical energy and thus offer the ability to perform work.

Energy resources are obtained from nature and can be harvested to produce energy commodities. Example are crude oil, natural gas, biomass etc. Energy commodities are used to provide energy services, such as, space heating, water heating, CNG, hydrogen etc.

The roles of alternative market and regulatory structures on these activities, economic distributional impacts, and environmental consequences fall in the purview of energy economics. Energy economics studies economically efficient provision and the use of energy commodities and resources and factors that lead away from economic efficiency.

By definition, energy economics concerns itself with any sort of energy that is used in the world economy. However, at this juncture in our history, oil continues to be the predominant source of energy globally. Oil is used and traded in world markets to such an extent that any discussion of energy economics still focuses nearly exclusively on oil.

Environmental economics is a rather new field, essentially the creation of the present generation of economics. It is a subfield of economics concerned with environmental economics.

Environmental issues in general had never really been considered important until the latter half of the twentieth century. This was because the industrial production for long enough to justify such concerns. The key problem in environmental economics is that the earth has a very finite capacity to assimilate residual products  of industrial production. In determining the level to which the capacity should be pushed, it must be realised that business and/ or consumers themselves will have little to no motivation to either keep the environment clean through their own actions or paying others unless national governments decide that keeping a clean environment is their foremost priority.

Economic approach to the energy problem:

Energy is indispensable for modern life, and the oil price shock of the seventies has prompted serious studies on the economics of energy. Energy consumption is closely related to the environmental degradation. In creasing awareness about clearer environment and sustainable  development  has provided incentives for understanding the economics of environmental pollution.

Energy is, and will remain, a crucial traded commodity in the international economy. Many countries, however, have unrealised energy potentials when renewable energy options are taken into account. Thus, quite apart from the critical issues related to the supply of fossil fuels, the political, social, and economic institutions dealing with energy are facing a series of new challenges in energy production, distribution and use. New issues associates with energy are also emerging.


The economics of energy and environment is closely linked with development. Energy economics concern itself with the study of human utilisation of energy resources and energy commodities and the consequences of that utilisation. In economic terminology, energy includes all energy resources and energy commodities. Energy resources are obtained from nature and can be harvested to produce energy commodities.

Energy economics is concerned with energy demand and its response to price, the connection between energy and other factors of production and the response of the aggregate economy to input price changes or shocks. Environmental economics undertakes theoretical or empirical studies of the economic effects of national and local environmental policies around the world.

There are two principal economic approaches to the energy problem. The demand side end use-oriented, energy-services approach and the supply side approach. The former stresses the end users preference for service, quality, affordability, safety, impact on the environment, etc considering factors such as demography and economic growth.


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