Economics of Climate Change

URL study guide

https://studiegids.vu.nl/en/courses/2024-2025/E_STR_ECC

Course Objective

After having completed this course, you will know the answers to the above questions and be able to enter into the economic policy debate well informed. Moreover, you will:
- have a deep understanding of the fundamental difficulties and complexities of environmental policy making in an international context;
- have gained insights in the economics of international agreements and international trade;
- are able to apply theory informed by empirical evidence;
- have sharpened your economic analysis in the group work.

Course Content

This course focuses on climate change: one of the greatest challenges of our time. What can the science of economics teach us about its causes and potential solutions? What are the costs and benefits of climate change? Should we tax carbon, cap-and-trade emission rights, or subsidize solar and wind power? Why is it so difficult to sign environmental agreements such as 'Paris' despite the high stakes? Does trade harm the environment? Will our industry move abroad if we take a leading role and tax carbon ourselves? The lectures cover the following topics (provisional scheme)
- Introduction: Externalities, scenarios and costs
- Valuation of the environment
- Economic impacts of climate change
- Optimal policy to limit climate change, equity and uncertainty
- International environmental agreements
- Trade the environment: pollution havens and carbon leakage The following subjects are analysed. What is climate change, and what are its causes and consequences? What are the economic impacts of climate change? What are the costs of emission reduction? How can emission reductions be achieved? What is optimal and equitable climate policy? How likely is this in reality? Are there effective and acceptable alternatives to optimal climate policy? Furthermore, writing down a protocol which requires countries to reduce their emissions of CO2 or SO2 is easy (see for example the Kyoto Protocol), but what are the incentives for countries to actually join the coalition? And what is the role of trade sanctions therein? Addressing carbon leakage requires an understanding of the relationship between trade and the environment. Governments are afraid that domestic environmental policies will reduce the home economy's international competitiveness and hence environmental policies are set too lax. We analyse to what extent this fear is correct, both theoretically and empirically.

Teaching Methods

This course consists 6 contact hours per week for 6 weeks, and is composed of 12 lectures and 6 tutorial classes. The course will make use of advanced teaching methods, including some online lectures. For the lectures you are expected to read the relevant material in advance and have watched the online lecture. In class we will discuss the material in depth. For the tutorials attendance is required.

Method of Assessment

essaypresentationsexam

Literature

Books:- Richard Tol, Climate Economics: Economic Analysis of Climate, ClimateChange and Climate Policy, Second Edition, Edward Elgar Publishing,2019. Articles (tbd): - Aichele, R. and G. Felbermayr. 2015. Kyoto and Carbon Leakage: An Empirical Analysis of the Carbon Content of Bilateral Trade. Review of Economics and Statistics. March 2015, Vol. 97, No. 1, Pages 104-115 - Barrett, S. (1994). Self-Enforcing International Environmental Agreements, Oxford Economic Papers , New Series, Vol. 46, Special Issue on Environmental Economics (Oct., 1994), pp. 878-894. - Copeland, B.R. and M.S. Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic , American Economic Association, vol. 42(1), pages 7-71, March. - Keller, W. and A. Levinson, “Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States”, The Review of Economics and Statistics, 2002, vol. 84, issue 4, pages 691-703. - Levinson, Arik. 2009. "Technology, International Trade, and Pollution from US Manufacturing." American Economic Review, 99(5): 2177-92. - Martin, R., M. Muûls en U.J. Wagner (2016) The impact of the European Union emissions trading scheme on regulated firms: what is the evidence after ten years? Review of Environmental Economics and Policy 10(1) 129-148.
- Nordhaus, William (2015). "Climate Clubs: Overcoming Free-Riding in International Climate Policy." American Economic Review, 105 (4): 1339-70.
- Hsiang, Solomon, and Robert E. Kopp. 2018. "An Economist's Guide to Climate Change Science." Journal of Economic Perspectives, 32 (4): 3-32.

Entry Requirements

Microeconomics.