Considering the importance of environment and its services in the economic system, the need for maintaining the environmental quality becomes obvious. What is meant by environmental quality? Environmental quality can be defined as the “level and composition of the stream of all the environmental services, except the waste receptor services. In principle, the ultimate measure of environmental quality is the value that people place on these non-waste receptor services or their willingness to pay.“
Since many of the environmental services comprising environmental quality do not pass through markets, prices or values for them could not be recorded. This does not mean that environment does not have values; nor does it mean that people will not be willing to pay money to obtain better environmental quality. The fact that the prices are not recorded for environmental services, and as such the people do not pay for these services reflects the failure of the market system.
However, we confine our discussion of environmental quality to mean the willingness of the people to pay for the existing level of environmental quality. The willingness to pay for non-waste receptor environmental services constitutes the demand for or the benefits of environmental quality. It is the measure of the non- monetary income or welfare accruing to the individuals due to the presence of environmental services. This non-monetary income forms the welfare aspect of the people who are willing to maintain it by paying on the pollution control programme that lowers their income and consumption, but increases the flow of environmental quality.
Environmental quality is circumscribed in Economics by the pollution problem. According to economic term, pollution connotes reduction in environmental quality caused by the disposal of residuals. Whenever there is discharge of residuals, causing damage to life and property or impairing the quality and quantity of environmental services, there exists pollution and this leads to the discussion of pollution costs. These costs are measured by the value of non-waste receptor environmental services foregone due to the disposal of residuals.
For example, if an act of residual disposal reduces the value of environmental services, say, by Rs. One million, this is the cost of, or the damages of pollution. Thus, pollution costs are opportunity costs.
It should be understood that pollution is not synonymous with residual discharge. If the little quality of discharge is assimilated by the environment, which causes no measurable change in the environment, then, it is not pollution. Environmental quality is maximized when no pollution costs are generated by residuals being returned to the environment.
Environmental quality also has an opportunity cost; the foregone waste-receptor services of the environment. Higher environmental quality envisages higher costs for managing the residual flow from the economy.