CLIMATE CHANGE ECONOMICS: THEORY, METHODS AND APPLICATIONS

The course will give students a methodological background in environmental and climate change economics, providing insights on (i) the economic theory of market failures and environmental externalities, (ii) project appraisal and environmental valuation; (iii) policy instruments for climate change management and regulation. The course contributes to achieve the main objectives of the PhD Programme in Science and Management of Climate Change. It will teach students to: understand, synthesize and communicate the problem of climate change as an economic problem; understand and apply different economic methods to analyze and design innovative climate policy solutions.

Students are expected to understand, synthesize and communicate the economic nature of the climate change problem. They are expect to have a good understanding of how economic methods can be used to design and evaluate climate change impacts and policies.

Undergraduate-level notions of calculus, statistics, and basic notions of microeconomics, macroeconomics.

Week 1- Why do we need environmental economics?
Welfare economics and basic concepts.
LECTURE 1 – Economic efficiency and economic concepts
LECTURE 2 – Public goods
ACTIVITY and homeworks: Hands on EKC and Kaya identity using R. Perpare a short discussion of your results based on the Kaya exercise
Week 2 - Why do we need environmental policies?
LECTURE 3 – Externalities and policy instruments (Standards, taxes, subsidies
LECTURE 4 – Policy instruments (Tradable permits),
ACTIVITY and homeworks: Hands on the EPS database. Read and prepare a short discussion of Schmalensee and Stavins vs Ellerman et al.
Week 3 - How can we decide about the implementation of environmental policies?
Environmental pollution: policy instrument design, overlapping regulations, environmental policy and innovation, the political economy of energy innovation.
LECTURE 5 – Policy instruments, innovation, institutions
LECTURE 6 – Introduction to IAMs and the debate on discounting
ACTIVITY: Students presentations of EPS analysis and Schmalensee and Stavins vs Ellerman et al. papers
Week 4 - How can we decide about the implementation of climate change policies? Role of models
Climate change as an economic, environmental problem. Focus on economy-wide modelling tools.
LECTURE 7 – Hands on GAMS and discussion on models
LECTURE 8– How to measures climate change costs and benefits
ACTIVITY: Simple DICE in GAMS

Perman R., Ma Y., McGilvray J. and Common M., (2003), Natural Resource and Environmental Economics, Pearson (3rd Edition). Further readings will be assigned during the course. The Core Economy – Available at https://core-econ.org/the-economy/book/ . This textbook is more suitable for students without an economic background.
Required readings:
Schmalensee and Stavins, The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment
Ellerman, D., C. Marcantonini, Aleksandar Zaklan; The European Union Emissions Trading System: Ten Years and Counting, Review of Environmental Economics and Policy, Volume 10, Issue 1, 1 January 2016, Pages 89–107, https://doi.org/10.1093/reep/rev014
Botta E. and Kozluk T. (2014), “Measuring Environmental Policy Stringency in OECD Countries: A Composite Index Approach”, OECD Economics Department Working Papers,No. 1177, OECD Publishing. http://dx.doi.org/10.1787/5jxrjnc45gvg-en
Ameli, N., Brandt, N., & Pascal, A. (2014). What Impedes Household Investment in Energy Efficiency and Renewable Energy ?, 101–138. https://doi.org/10.1561/101.00000067
Jaffe, A. B., & Stavins, R. N. (1994). The energy-efficiency gap What does it mean ?, 22(10), 804–810.
Dasgupta S., De Cian E. and Verdolini E. (2016), The Political Economy of Energy Innovation, in “The Political Economy of Clean Energy Transitions”, (eds) D. Arent, C. Arndt, M. Miller, F. Tarp, O. Zinaman, Oxford University Press and Nota di Lavoro 35.2016, Milan, Italy: Fondazione Eni Enrico Mattei
van Vuuren, D.P., 2015. Integrated Assessment: Back to the Future. Utrecht University.
Stern, N., 2008. The economics of climate change. American Economic Review: Papers and Proceedings 98 (2), 1_37.
Nordhaus, W. D., 1991. To slow or not to slow: the economics of the greenhouse effect. Economic Journal 101 (407), 920_937.
Nordhaus, WD (1993). Rolling the DICE: An Optimal Transition Path for Controlling Greenhouse Gases, Resource and Energy Economics, 15, 27-50.
Dellink, R (2004). GAMS for environmental-economic modeling, Wageningen University. Available from the instructor.
Weyant, J. (2017). Contributions of Integrated Assessment Models. Review of Environmental Economics and Policy, Volume 11, Issue 1, 1 January 2017, Pages 115–137, https://doi.org/10.1093/reep/rew018
Metcalf and Stock (2017). Integrated Assessment Models and the Social Cost of Carbon: A Review and Assessment of U.S. Experience. Review of Environmental Economics and Policy, Volume 11, Issue 1, 1 January 2017, Pages 80–99, https://doi.org/10.1093/reep/rew014

Further readings will be assigned in class.

During the course students will be asked to participate to in-class activities (exercises and discussions) and to deliver assignments. In-class activities and assignments will count to 50% for the final grade. A final take-home essay will contribute to the remainder 50% of the final grade. All students are expected to read all the assigned readings, to participate in class discussions and write critiques when required. Participation to in-class activities and discussions will contribute significantly to the final grade. The in-class activities and assignments are meant to evaluate students’ ability to 1) understand the economic principles applied to climate change, 2) understand the implementation of climate policy, 3) analyze the main issues related to the implementation of climate policies. The final essay will evaluate students’ ability to use economic tools to analyze climate change issues and policies.

Each lecture will combine a frontal lecture with in-class activities (hands-on sessions, students’ presentations). Activities and assignments will allow students to become familiar with the methods and tools introduced in the course and to use the concepts, methods and tools in the analysis of issues related to climate change policies – their implementation and assessment. Activities will include hand-on sessions on the software GAMS, R, relevant databases, as well as group discussions of controversial issues in the climate-economy debate. Presentations will give students the possibility to strengthen their communication skills.

Details about readings, in-class activities, assignments, and the final essay will be communicated at the beginning of the course.

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This subject deals with topics related to the macro-area "Climate change and energy" and contributes to the achievement of one or more goals of U. N. Agenda for Sustainable Development