This revised and expanded edition shows how principles of thermodynamics and ecology govern the sustainability of environmental capital. Environmental Economics is illustrated as a way of informing policy by recognising the salience of these principles and modifying economics concepts and methods accordingly. Conceptual premises advanced in the text are supported by empirical evidence and illustrations. The discussion of microeconomics illustrates how acknowledging nature as capital that must be sustained would lead to significant revisions to the benchmark of perfect competition and to theories of consumption and production. Unlike most standard texts in Environmental Economics, this text contains extensive treatment of Environmental Macroeconomics. It demonstrates how standard approaches in macroeconomics and trade, when revised to the reality of nature-capital, would lead to significantly distinct policy outcomes. Fittingly, the valuation of environmental goods and services is dealt with at both microeconomic and macroeconomic levels.The content and organisation of the text is such that different sequences of chapters can be nominated for course delivery at both basic (undergraduate) and advanced (graduate) levels. New chapters: Economics of Non-Renewable Resources with Renewable Services Market Organisation and the Environment Environmental Macroeconomics: Short-Run Analysis II Environmental Macroeconomics: Long-Run Analysis International Trade and Globalisation Valuation of Environmental Capital: Microeconomics Basis Valuation of Environmental Capital: Macroeconomics Basis Environmental Policies