75577 - Economics of Climate Change

Learning outcomes

The purpose of the course is to present the economics of climate change in a way that integrates climate, the economy, and the policy issues that emerge in the course of attempts by countries to address global warming. The objective is to enable students to understand the drivers of climate change, the methods to analyse them, and the ways used in order to design climate change policies in theory and practice. The main focus of the course is the presentation of a unified framework of climate and the economy, along with their interactions, which is used to show how climate change policies are derived. Emphasis is also given to introducing students to the new macroeconomics of climate change. Mathematical methods which are used in climate change economics will be reviewed if necessary.

Course contents

The purpose of the course is to present the economics of climate change in a way that integrates climate, the economy, and the policy issues that emerge in the course of attempts by countries to address global warming. The objective is to enable students to understand the drivers of climate change, the methods to analyse them, and the ways used in order to design climate change policies in theory and practice. The main focus of the course is the presentation of a unified framework of climate and the economy, along with their interactions, which is used to show how climate change policies are derived.

Emphasis is also given to introducing students to the  macroeconomics of climate change, issues related to risk and uncertainty, the financial risks of climate change and climate policy in practice.

Course Contents

The Economics of Climate Change

1. Climate Change: The Physical Evidence: Global Warming and Climate Change; Mechanisms and Evidence; Climate Change and Reasons for Concern; Drivers of Climate Change; Impacts of Climate Change; Possible Climate Futures; Carbon Budget.

2. Modeling Climate Change: Energy Balance; A Global Energy Balance Climate Model; The Greenhouse Effect; Cumulative Emissions and Temperature: A Linear Relationship; Climate and the Economy; Carbon Emissions and the Economy; Spatial Energy Balance Climate Models.

3. Economic Considerations: Climate Change and Economic Science; Climate Change: A Global Externality; Regulating Externalities; Characteristics of the Climate Change Externality

4. Modeling the Economics of Climate Change: An Introduction to Integrated Assessment Models; The Utility Function and the Social Welfare Function; The Damage Function; Simple Analytic IAMs

5. Integrated Assessment Models: Types of Integrated Assessment Models; 5.2. Overview of Integrated Assessment Models; DICE-2023; RICE-2011: Regional Integrated Model of Climate and the Economy; Criticism of IAMs

6. Discounting Climate Change: Discounting; The Social Discount Rate; The SDR under Risk;

Declining Social Discount Rates

7. Risk, Uncertainty and Climate Change: Sources of Uncertainty; Uncertainty and Integrated Assessment Models; The IPCC Approach; Tail events and Climate Science; Deep Uncertainty; Climate Change Economics under Deep Uncertainty; Tipping Points

8. The Financial Risks of Climate Change: Climate Change and Financial Stability; Physical and Transition Risks; Climate Risks and Risk Premia; Green Bonds; Environmental Social Governance; Climate Change and Monetary Policy

9. International Environmental Agreements: The Conceptual Issue; The Theoretical Framework; International Environmental Agreements and Climate Change

10. Climate Policy: Climate Change Policies; Mitigation (Emission Trading systems; The EU-ETS; Carbon taxes and effective carbon rates; Performance standards; Carbon Capture and Storage, REDD+, Information-based and technology-push instruments); Adaptation (Private and Public Adaptation, the Adaptation gap); Solar Radiation Management

Readings/Bibliography

Reading Materials

• Lectures in the form of slide presentations will be provided during the course.
• A. Xepapadeas, Lectures in the Economics of Climate Change, 2025, Scientific Publishing, forthcoming
  
• IPCC AR6_WGIII Climate Change 2022, Summary for Policymakers

Additional Readings

Brock, W. and A. Xepapadeas, 2018, Modelling Coupled Climate, Ecosystems and Economic Systems, in Dasgupta, P., Pattanayak, S. and V. Kerry Smith (eds), Handbook of Environmental Economics, Vol. 4, Elsevier

Cai, Y., Brock, W. and Xepapadeas, A., 2023. Climate change impact on economic growth: Regional climate policy under cooperation and noncooperation. Journal of the Association of Environmental and Resource Economists, 10(3), pp.569-605.

Hassler, J. and P. Krusell, 2018, Environmental Macroeconomics: The Case of Climate Change, in Dasgupta, P., Pattanayak, S. and V. Kerry Smith (eds), Handbook of Environmental Economics, Vol. 4, Elsevier

Hassler J., P. Krussel and T. Smith (2016). Environmental Macroeconomics. In Taylor, J. and H. Uhlig (eds) Handbook of Macroeconomics, Vol. 2b, 1893.2008, North Holland.

W. Nordhaus, 2017, Revisiting the social cost of carbon, PNAS, Available atwww.pnas.org/cgi/doi/10.1073/pnas.1609244114.

W. Nordhaus and P. Sztorc, 2013, DICE2013 Introduction and User’s Manual, Available at dicemodel.net.

Report of the High-Level Commission on Carbon Prices, 2017, Carbon Pricing Leadership Coalition

N. Stern, 2006. The Economics of Climate Change: The Stern Review. Cambridge University Press, Cambridge.

Teaching methods

Lectures with slide presentations

Assessment methods

There will be a final exam consisting of two questions, both of which must be answered. There is also an optional assignment. For students who complete the optional assignment the grade of the assignment counts for 20% of the final grade and the final exam counts for 80%. For students who do not complete the optional assignment the final exam counts 100% of the final grade.

In case online exams will be envisaged by the University of Bologna, the structure of the written exam is the same. The exam will be run through Zoom or MS Teams and Exams Online (EOL). Detailed instructions on how to manage and hand in the online exam are available on the course page on the VIRTUALE platform.

The maximum possible score is 30 cum laude, if all answers - and the optional assignment if submitted - are correct, complete and rigorous.

The grade is graduated as follows:

<18 failed
18-23 sufficient
24-27 good
28-30 very good
30 e lode excellent

Teaching tools

Presentations and some suggested readings are available on Insegnamenti online (IOL).

Office hours

See the website of Anastasios Xepapadeas