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Carbon has been part of the Earth since its beginning, and the carbon cycle is well understood. However, its abundance in the atmosphere has become a problem. Those who propose solutions in decentralized market economies often prefer economic incentives to direct government regulation. Carbon cap-and-trade programs and carbon tax programs are the prime candidates to rein in emissions by altering the economic conditions under which producers and consumers make decisions. Under ideal conditions with full information, they can seamlessly remove the distortion caused by the negative externality and increase a society’s welfare. This distortion is caused by overproduction and underpricing of carbon-related goods and services. The ideal level of emissions would be set under cap-and-trade, or be the outcome of an ideally set carbon tax. The ideal price of carbon permits would result from demand generated by government decree meeting an ideal fixed supply set by the government. The economic benefit of using the ideal carbon tax or the ideal permit price occurs because heterogeneous decision-makers will conceptually reduce emissions to the level that equates their marginal (incremental) emissions-reduction cost to the tax or permit price. When applying the theory to the real world, ideal conditions with full information do not exist. The economically efficient levels of emissions, the carbon tax, and the permit price cannot be categorically determined. The targeted level of emissions is often proposed by non-economists. The spatial extent and time span of the emissions target need to be considered. The carbon tax is bound to be somewhat speculative, which does not bode well for private-sector decision-makers who have to adjust their behavior, and for the achievement of a particular emissions target. The permit price depends on how permits are initially distributed and how well the permit market is designed. The effectiveness of either program is tied to monitoring and enforcement. Social justice considerations in the operation of tax programs often include the condition that they be revenue-neutral. This is more complicated in the permit scheme as much activity after the initial phase is among the emitters themselves. Based on global measurement of greenhouse gases, several models have been created that attempt to explain how emissions transform into concentrations, how concentrations imply radiative forcing and global warming potential, how the latter cause ecological and economic impacts, and how mitigation and/or adaptation can influence these impacts. Scenarios of the uncertain future continue to be generated under myriad assumptions in the quest for the most reliable. Several institutions have worked to engender sustained cooperation among the parties of the “global commons.” The balance of theory and empirical observation is intended to generate normative and positive policy recommendations. Cap-and-trade and carbon tax programs have been designed and/or implemented by various countries and subnational jurisdictions with the hope of reducing carbon-related emissions. Many analysts have declared that the global human society will reach a “tipping point” in the 21st century, with irreversible trends that will alter life on Earth in significant ways.

Climate change is already having a significant impact on agriculture through greater weather variability and the increasing frequency of extreme events. International policy is rightly focused on adapting and transforming agricultural and food production systems to reduce vulnerability. But agriculture also has a role in terms of climate change mitigation. The agricultural sector accounts for approximately a third of global anthropogenic greenhouse gas emissions, including related emissions from land-use change and deforestation. Farmers and land managers have a significant role to play because emissions reduction measures can be taken to increase soil carbon sequestration, manage fertilizer application, and improve ruminant nutrition and waste. There is also potential to improve overall productivity in some systems, thereby reducing emissions per unit of product. The global significance of such actions should not be underestimated. Existing research shows that some of these measures are low cost relative to the costs of reducing emissions in other sectors such as energy or heavy industry. Some measures are apparently cost-negative or win–win, in that they have the potential to reduce emissions and save production costs. However, the mitigation potential is also hindered by the biophysical complexity of agricultural systems and institutional and behavioral barriers limiting the adoption of these measures in developed and developing countries. This includes formal agreement on how agricultural mitigation should be treated in national obligations, commitments or targets, and the nature of policy incentives that can be deployed in different farming systems and along food chains beyond the farm gate. These challenges also overlap growing concern about global food security, which highlights additional stressors, including demographic change, natural resource scarcity, and economic convergence in consumption preferences, particularly for livestock products. The focus on reducing emissions through modified food consumption and reduced waste is a recent agenda that is proving more controversial than dealing with emissions related to production.

Biological diversity refers to the variety of life on Earth, in all its forms and interactions. Biological diversity, or biodiversity for short, is being lost at an unprecedented rate. The International Union for Conservation of Nature (IUCN) Red List of Threatened Species estimates that 25% of mammals, 41% of amphibians, 33% of reef building corals, and 13% of birds are threatened with extinction. These biodiversity benefits are being lost due to conversion of natural habitat, overharvesting, pollution, invasive species, and climate change. The loss of biodiversity is important because it provides many critical resources, services, and ecosystem functions, such as foods, medicines, clean air, and storm protection. Biodiversity loss and ecosystem collapse pose a major risk to human societies and economic welfare. The CBD was established in 1992 at the United Nations Conference on Environment and Development (the Rio “Earth Summit”) and enacted in 1993. The international treaty aims to conserve biodiversity and ensure the sustainable use of the components of biodiversity and the equitable sharing of the benefits derived from the use of genetic resources. The CBD has near universal global participation with 196 parties signatory to the treaty. The non-legally binding commitments established in 2010 by the CBD are known as the Aichi Targets. They include the goal of conserving at least 17% of terrestrial and inland water habitats and 10% of coastal and marine areas by 2020. Biodiversity continues to decline at an unprecedented rate and the world faces “biological annihilation” and a sixth mass extinction event. There are several underlying causes of the continuing loss of biodiversity that need to be addressed. First, the CBD Aichi Targets are not ambitious enough and should be extended to protect as much as 50% of the terrestrial realm for biodiversity. Second, it is difficult to place an economic value on the range of direct, indirect, and nonuse values of biodiversity. The failure to take into account the full economic value of biodiversity in prices, projects, and policy decisions means that biodiversity is often misused and overused. Third, biodiversity is a global public good and displays nonrival and nonexcludable characteristics. Because of this, it is difficult to raise sufficient funds for conservation and to channel these funds to cover local conservation costs. In particular, much of the world’s biodiversity is located in (mainly tropical) developing countries, and they do not have the incentive or the funds to spend the money to “save” enough biodiversity on behalf of the rest of the world. The funding for global biodiversity conservation is $4–$10 billion annually, whereas around $100 billion a year is needed to protect the Earth’s broad range of animal and plant species. This funding gap undermines CBD’s conservation efforts. Governments and international organizations have been unable to raise the investments needed to reverse the decline in biological populations and habitats on land and in oceans. There is an important role for private-sector involvement in the CBD to endorse efforts for more sustainable use of biodiversity and to contribute funds to finance conservation and habitat protection efforts.

Water scarcity has long been recognized as a key issue challenging China’s water security and sustainable development. Economically, China’s water scarcity can be characterized by the uneven distribution of limited water resources across space and time in hydrological cycles that are inconsistent with the rising demand for a sufficient, stable water supply from rapid socioeconomic development coupled with a big, growing population. The limited water availability or scarcity has led to trade-offs in water use and management across sectors and space, while negatively affecting economic growth and the environment. Meanwhile, inefficiency and unsustainability prevail in China’s water use, attributable to government failure to account for the socioeconomic nature of water and its scarcity beyond hydrology. China’s water supply comes mainly from surface water and groundwater. The nontraditional sources, wastewater reclamation and reuse in particular, have been increasingly contributing to water supply but are less explored. Modern advancement in solar and nuclear power development may help improve the potential and competitiveness of seawater desalination as an alternative water source. Nonetheless, technological measures to augment water supply can only play a limited role in addressing water scarcity, highlighting the necessity and importance of nontechnological measures and “soft” approaches for managing water. Water conservation, including improving water use efficiency, particularly in the agriculture sector, represents a reasonable strategy that has much potential but requires careful policy design. China’s water management has started to pay greater attention to market-based approaches, such as tradable water rights and water pricing, accompanied by management reforms. In the past, these approaches have largely been treated as command-and-control tools for regulation rather than as economic instruments following economic design principles. While progress has been made in promoting the market-based approaches, the institutional aspect needs to be further improved to create supporting and enabling conditions. For water markets, developing regulations and institutions, combined with clearly defining water use rights, is needed to facilitate market trading of water rights. For water pricing, appropriate design based on the full cost of water supply needs to be strengthened, and policy implementation must be enforced. An integrated approach is particularly relevant and greatly needed for China’s water management. This approach emphasizes integration and holistic consideration of water in relation to other resource management, development opportunities, and other policies across scales and sectors to achieve synergy, cost-effectiveness, multiple benefits, and eventually economic efficiency. Integrated water management has been increasingly applied, as exemplified by a national policy initiative to promote urban water resilience and sustainability. While economics can play a critical role in helping evaluate and compare alternative measures or design scenarios and in identifying multiple benefits, there is a need for economic or social cost–benefit analysis of China’s water policy or management that incorporates nonmarket costs and benefits.