The Economics of Climate Change

Abstract

The course will deal with the economic analyses of climate change issue. It will be divided in three parts: introduction to climate change issue, the evaluation of its impacts and the economic policies to regulate greenhouse gas emissions.

Objective

Students will acquire a sharp knowledge on: (i) the challenges relative to the economic evaluation of climate change damage: (ii) the difficulties and the relevant economic instruments for regulating a global externality. From a technical point of view, this course intends to teach participants the main tools used in economic sciences to discuss the problem of climate change, understand its key determinants and advice policy makers.

Content

The introductory part will explain why climate change represents a main issue for our societies. It will firstly give a brief overview of the physics of climate change due to greenhouse gas (GHG) anthropogenic emissions. Then, it will detail the economic challenge raised by climate change with the notion of externality, more specifically reducing GHG emissions to lower the negative impacts of present activities on future welfare. The second part of the course will deal with the economic evaluation of climate change damage, which determines greatly the optimal effort that should be done in terms of GHG emission reduction. We will see that this economic evaluation is highly sensitive on characteristics such as the timing and uncertainty of impacts, their inegalitarian and non-monetary dimensions and the adaptation to climate change. The course will present the main economic models developed to weigh climate change damage and evaluate optimal GHG emission reduction, namely Discounting Models and Integrated Assessment Models. The third part of the course surveys the main challenges faced by climate change policies. We will present the different economic instruments for reducing GHG emissions (Pigouvian tax, cap-and-trade system, standards and abatement subsidies). We will then compare their performance with regard to several dimensions: space, time, asymmetric information, enforcement and commitment. A special focus will be devoted on welfare and distributional aspects. Finally, we will address the international cooperation issue due to the lack of worldwide policy makers.

Resources