The Economics of Climate Change

Abstract

After an introduction to the issue of climate change, we will see the policy instruments that can be used to mitigate it. We will then discuss the optimal level of these policies. Finally, we will analyze the political constraints that limit their implementation.

Objective

Students will acquire a general understanding of the problem faced by the society with climate change, as well as the ways and the obstacles to deal with it. 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, advise policy makers and understand the constraints of the latter.

Content

The introductory part will explain why climate change represents a main issue for our societies. We will see the anthropogenic causes (i.e. greenhouse gas (GHG) emissions), the physical mechanism and the economic consequences of climate change. Then, we will introduce economic science modeling with the notion of externality to explain the excessive GHG emissions and characterize the societal challenge raised by climate change. The second part of the course will present the different policy instruments for reducing GHG emissions (emission taxes, abatement subsidies, cap-and-trade system, standards). We will compare their performance and their distributional effects with regard to several aspects, with a special focus on the impact of uncertainty. The third part of the course will focus on the level at which climate policies should be implemented, which depends on the cost of GHG emission abatement and the benefit of climate change mitigation. We will analyze the main drivers of the optimal emission abatement level, in particular discounting. We will also detail the economic models developed to evaluate the optimal abatement, namely Integrated Assessment Models. The last part of the course will address the reasons why policy makers have only weakly implemented climate change policies up to now. We will discuss the difficulties of finding an international agreement for GHG emission reduction in a world with a large number of countries. We will also see why the time delay between GHG emissions and climate change may make society and policy makers reluctant to implement significant climate change policies.

Resources