Economics of Climate Change


Course Objective

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'?

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

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

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 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), but what are the
incentives for countries to actually join
the coalition? And what is the role of trade sanctions therein?

Teaching Methods

This course consists 6 contact hours per week for 6 weeks, and is
composed of 15 lectures and 3 tutorial classes.
For the lectures you are expected to read the relevant material in
advance. For the tutorials attendance is required.

Method of Assessment

take home exam

Entry Requirements



- 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-
- 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.

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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