Economics of Climate Change


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 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

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 'Kyoto' and 'Paris' despite the high
stakes? Does trade harm the environment? Will our industry move abroad
if we take a leading role and 'go it alone'?

The lectures cover the following topics (provisional scheme)
- Introduction: Externalities and environmental policy
- Economic impacts of climate change
- Climate change policy making: instruments and costs
- The economics of acidification and ozone depletion
- International environmental agreements
- Trade the environment: pollution havens and carbon leakage

The first 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?
The last six classes are on the issue of international agreements, and
on carbon leakage. 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. 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. We analyse 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.

Teaching Methods

This course consists 6 contact hours per week for 6 weeks, and is
composed of 15 lectures and 3 tutorial classes. The course will make use
of advanced teaching methods, including 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

take home exam

Entry Requirements



- Richard Tol, Climate Economics: Economic Analysis of Climate, Climate
Change and Climate Policy, Edward Elgar Publishing, 29 aug. 2014, 208
- Copeland and Taylor, Trade and the Environment, Princeton University
Press, 2003

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 Literature, American Economic
Association, vol. 42(1), pages 7-71, March.
- Hoel, Michael & Shapiro, Perry, 2003. "Population mobility and
transboundary environmental problems," Journal of Public Economics,
Elsevier, vol. 87(5-6), pages 1013-1024, May.
- 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)
- 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.
- Poelhekke, S. and F. van der Ploeg, (2015). "Green havens and
pollution havens", The World Economy, 38(7), 1159–1178.
- 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.

General Information

Course Code E_STR_ECC
Credits 6 EC
Period P2
Course Level 400
Language of Tuition English
Faculty School of Business and Economics
Course Coordinator dr. S. Poelhekke
Examiner dr. S. Poelhekke
Teaching Staff dr. S. Poelhekke
prof. dr. R.S.J. Tol

Practical Information

You need to register for this course yourself

Last-minute registration is available for this course.

Teaching Methods Lecture
Target audiences

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