The Economics Of Environmental Degradation: A Cost- Benefit Analysis

Abstract

Environmental degradation is a major economic and ecological dilemma in the entire world that results in great losses on health, agriculture and services on ecology. This paper would discuss the economics of environmental degradation taking the paradigm, which is a cost benefit analysis (CBA) of the economic cost of degradation and the economic feasibility of mitigation policies. Secondary data obtained in international reports and in the academic literature were used to make the estimate of the annual cost of environmental damage and to assess the benefit cost ratios (BCR) of the major interventions including renewable energy, afforestation, wetland restoration and improving the air quality. It has been found out that environmental degradation costs more than USD 10 trillion per annum around the world and the leading sources of this degradation are air pollution and climate change. The analysis showed robust economical payoffs in all the mitigation efforts especially the nature-based solutions with the BCRs values being 3.0 to 5.0. Sensitivity analysis also exemplified the importance of discount values in long run project evaluation. The findings can be explained by the hypothesis of the Environmental Kuznets Curve (EKC), which specifies that degradation can decline with the growth of an economy in a long-term perspective, and active environmental investments are crucially important. This study highlights the economic case behind early intervention and provides policy implications on incorporation of sustainability in development strategies.