The Economics of Climate Policy

The Economics of Climate Policy is an introductory course into the economics of climate change mitigation and adaptation policies. Essentially, the mitigation of climate change is a global public good, posing policy challenges both at the national level (within countries) as well as at the international level (between countries). In the course, concepts such as market failures, externalities, and Pigouvian taxes are developed and applied to climate change. Game theory will be introduced to understand the challenges in international climate negotiations. The history and status quo of international negotiations will be reviewed, as well as implementation policies such as the EU ETS and Germany’s Energiewende. Since these concepts can be applied to many public policy problems, the course is also an introduction into allocation theory, environmental economics, public finance and game theory.

The course consists of a lecture and a tutorial. The lecture provides reasoning, theory, and the narrative. The tutorial provides analytical concepts, formal models, and mathematical techniques.

Topics:
Starting from the perspective of decentralized decision making and coordination, we provide a systematic overview of the relevant issues in climate change policy. This includes, inter alia:

• Climate change as a market failure: externalities and public goods, internalization options such as Pigouvian tax and cap and trade systems (prices vs. quantities), policy instrument design
• Game theory, behavioral economics and Elinor Ostrom’s approaches to govern commons
• The international politics of climate change: the history and status quo of UNFCCC climate negotiations from Rio to Kyoto and Paris, incentives for countries to reduce emissions: co-benefits, double dividend, and climate agreements
• Climate policies today: The European Union Emission Trading scheme (EU ETS), Germany’s Energiewende, and the U.S. EPA Clean Power Plan

Literature:

Obligatory readings (along with the course)

• Perman et al.: Natural Resource and Environmental Economics, Pearson.
• Stern Review, part IV – VI
• IPCC AR5 WG III, chapters 13-15
• Edenhofer et al.: The Atmosphere as a Global Common - Challenges for International Cooperation and Governance, Handbook of the Macroeconomics of Global Warming
• A number of specific articles will be distributed during the semester. Students are expected to read about one paper per week.

Recommended readings (to prepare for the course)

• Fudenberg & Tirole: Game theory, MIT Press.
• The timeline of UNFCCC climate negotiations.

Time & venue:
Lectures: Fridays, 14:00-16:00 (starting on 22.10.2021); online (via Zoom)
Tutorials: Mondays, 10:00-12:00 (starting on 18.10.2021); online (via Zoom)

Exam:
Students will be graded based on weekly problem sets (homework assignments) and a mid-term exam (date to be announced); there is no final exam. Make sure you attend the course from the beginning on, as we start with assignments immediately. Ph.D. students will be asked to take an oral exam in addition to the assignments and the mid-term exam.

Please submit your contact details here to receive relevant information: Registration. Once you have registered, we will put you on our email list. Course material, such as slides and assignments, will be provided via the Information System for Instructors and Students (ISIS) of the TU Berlin. Assignments can be submitted electronically or handed in in class.