Economics of Climate Change

Coordinator: dr. S. Poelhekke

Lecturers: prof. dr. R.S.J. Tol, dr. S. Poelhekke

Course objective

Environmental problems can be of a local, a regional or a global nature. This course focuses on global issues. Two of the most important global environmental problems are the enhanced greenhouse effect and
the relationship between international trade and the environment. This course aims to provide the student with a deeper insight in these issues, with a focus on environmental policy making in a globalizing world.

After having completed this course, you

– 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 to theory to cases such as climate change, acidification and ozone depletion
– have sharpened your economic analysis in the group discussions and improved your presentations skills

Course content

The course consists of lecturers teaching the state- of- the- art, and students giving presentations on seminal papers in the literature.

The lectures cover the following topics (provisional scheme)

– Introduction: Externalities and environmental policy
– Trade the environment: pollution havens versus factor endowments
– International environmental agreements
– Economic impacts of climate change
– Climate change policy making: instruments and costs
– The economics of acidification and ozone depletion

The first six classes are on the relationship between trade and the environment. Common wisdom is that trade is the source of many environmental problems. One of the main reasons for this is that governments are afraid that domestic environmental policies will reduce the home economy’s international competitiveness and hence
environmental policies are set too lax. In the first four lectures we analyze to what extent this fear is correct, both theoretically and empirically. We compare how the trade- off between international competitiveness and the environment depends on the type of pollutant (local pollutants such as PM10, or transboundary pollutants, such as SO2) as well as on the size of the domestic economy. In lectures 5 and 6 we turn to the issue of international agreements. Writing down a protocol which requires countries to reduce their emissions of CO2 or SO2 is easy (see for example the Kyoto Protocol and the Sofia Protocol), but what are the incentives for countries to actually join the coalition? And what is the role of trade sanctions therein?

The last eight lectures are on the economics of climate change and climate policy, and also on the problems of acidification and ozone depletion. 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 lessons do acidification and ozone policy hold for climate policy? What is optimal and equitable climate policy? How likely is this in reality? Are there effective and acceptable alternatives to optimal climate policy?

Course reading

– Perman et al., Natural Resource and Environmetal Economics, Addison Wesley, 4th edition, 2011.
– Richard Tol, Climate Economics: Economic Analysis of Climate, Climate Change and Climate Policy, Edward Elgar Publishing, 29 aug. 2014
– 208 pagina’s
– Copeland and Taylor, Trade and the Environment, Princeton University Press, 2003

Articles (tbd):
– Nordhaus, William D & Yang, Zili, 1996. “A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies,” American Economic Review, vol. 86(4), pages 741-65.
– Hoel, Michael & Shapiro, Perry, 2003. “Population mobility and transboundary environmental problems,” Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1013-1024, May.
– Scott Barrett, Self-Enforcing International Environmental Agreements, Oxford Economic Papers , New Series, Vol. 46, Special Issue on Environmental Economics (Oct., 1994), pp. 878-894.
– Santiago J. Rubio & Alistair Ulph, 2006. “Self-enforcing international environmental agreements revisited,” Oxford Economic Papers, Oxford University Press, vol. 58(2), pages 233-263, April.
– de Zeeuw, Aart, 2008. “Dynamic effects on the stability of international environmental agreements,” Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 163-174, March.
– Levinson, Arik. 2009. “Technology, International Trade, and Pollution from US Manufacturing.” American Economic Review, 99(5): 2177-92.
– Wolfgang Keller and Arik 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.
– Steven Poelhekke and Frederick van der Ploeg, “Green havens and pollution havens”, The World Economy, forthcoming.

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