Environmental economics is the area of economics that addresses the impacts of economic activity on the environment and how to develop economic solutions to environmental problems. Environmental economics is a methodology to reconcile economic development with environmental conservation - it puts impacts into economic terms in order to promote decisions that are ecologically sustainable along with being financially sustainable.

At the fundamental level, environmental economics recognizes that our natural resources are finite; clean air, clean water, forests, minerals are all limited. Human beings and businesses treat natural resources (especially if we are not accountable for costs of our actions) as if they are infinite. This leads to pollution, climate change, deforestation, loss of biodiversity, and a host of other problems. Environmental economics asks how we can be efficient users of resources, who is going to pay for damages to the environment, and how we can motivate people and industries to act in a more environmentally friendly way.

Another fundamental tenet of environmental economics is the idea of externalities, which are costs or benefits related to actions, which impact others who are not involved in a decision. For example, a factory might pollute a river or lake which diminishes the quality of life for nearby community members or for wildlife living in the body of water. Environmental economists are interested in policy design that would achieve a more optimal externality outcome such as a tax, fine, or subsidy, etc., in order to mitigate the impact to strengthen the public good.

This area also examines what roles governments and markets can play in working together to resolve issues, like carbon emissions or waste. Examples of market based solutions to climate change and to stimulate clean-energy innovation with in-kind trade-offs could be carbon pricing, green subsidies, and tradable pollution permits. 

Environmental economics is important because it demonstrates the health of the planet in perspective as we make decisions as a business, government or as individuals with everyday choices. The environmental component of economics provides an economic basis for us to pass along to future generations, a strong economy that has critical contributors to, and, a world that is viable in an economic, quality-of-life, and resource context. Environmental economics is in fact economic mindsets built on the resources around the stewardship of the Earth, as Earth is the shared resource that we share, and the resources contained in it may be the most important shared resources that we have.