Economics: Economics of Climate Change

Economic concepts are used to explain the causes, consequences and potential solutions to the climate change problem, while recognizing its long-term nature, global scope, and the heterogeneity of sources that need to be regulated. Among the policies covered are BC Carbon Tax, RGGI, the clean energy subsidies in the 2022 IRA, and the European ETS.

Open to Degree and PACE students

Global climate change is the most significant environmental challenge of the 21st century. At the current rate of greenhouse emissions (GHGs, such as CO2 and methane), the planet is expected to get warmer by 2 to 5 °C (~4 to 9 °F) by the end of this century. This would have significant and adverse impacts not just on the environment but also on our economy and society. Virtually every economic activity generates GHG (manufacturing, agriculture, transportation) and every aspect of our lives will be affected by the level of GHG mitigation efforts we choose undertake (food supply, water supply, diseases, recreation). Thus, any action or inaction regarding GHGs emissions will reverberate throughout the economy. The science of GHG generation and accumulation combined with the economic context makes climate change very difficult to address. GHGs mix globally and every country emits GHGs from fossil fuels. GHGs are stock pollutants and every country is affected by higher temperatures, though in varying ways, time frames and degrees. Further, GHG policy is subject to uncertainties, which is partly why we have limited experience thus far in addressing GHG emissions. These issues together make it imperative that we understand these economic realities to help devise economic solutions. This course introduces students to economic concepts that are essential to understanding climate change: its causes, consequences and potential solutions. We will cover a broad range of topics and analyze them from an economic perspective: mitigation, adaptation, innovation, information, inequality, uncertainty and international cooperation. Students will first be introduced to the basic principles of economics: demand, supply, equilibrium and efficiency as well as the concepts of externalities, public goods, tragedy of the global commons, prisonner's dilemma and behavioral economics. Students will learn about the concept of markets and how the interactions of consumers and producers give rise to many environmental problems including generation of greenhouse gases. These tools and concepts will be used to understand and examine the different policy tools that can be used to devise climate mitigation and adaptation strategies, encourage the development of innovative solutions, deal with uncertain and long-term impacts of action vs inaction and promote international cooperation. The students will also recognize that the challenges with addressing a global and long-term problem are best understood with discussion of spatial and inter-temporal tradeoffs as well as economy-environment tradeoffs. Students will learn the concept of the Environmental Kuznets Curve, how climate change affects economic growth and how individual firm’s competitiveness is affected by regulations. Students will learn the concept of the Social Cost of Carbon and how the choice of discount rate matters for its calculation. We will also cover several economic regulatory tools that have been applied to mitigate carbon emissions such as but not limited to: British Columbia Carbon Tax, Regional Greenhouse Gas Initiative (RGGI), the clean energy subsidies in the 2022 Inflation Reduction Act, carbon taxes in Europe, the European Emissions Trading Scheme, and some carbon trading pilot programs in China.

This is a 3-credit course. The UVM definition of a Credit Hour is one hour of classroom or direct faculty instruction and a minimum of two hours of out-of-class student work each week for approximately fifteen weeks or the equivalent amount of work over a different amount of time. At the end of the course the students will be able to 1. Use the market models to explain how producer and consumer interact and respond to incentives which give rise to environmental pollution that cause climate change; 2. Distinguish between different economic theories that explain persistence of behavior that generate greenhouse gas emissions; 3. Differentiate between different economic regulatory tools (taxes, permits, subsidies) and explain how they work using market models to influence producer and consumer behavior; 4. Discover different was that these policy tools for mitigation and adaptation have been applied in different countries and the challenges of harmonizing them across countries . 5. Describe the challenges posed by uncertainty and inequity in devising climate mitigation and adaptation strategies. 6. Define the Environmental Kuznets Curve (EKC), describe how economic growth is related to carbon emissions, explain how this relationship affects the shape of the EKC for CO2; describe how firm’s competitiveness are affected by climate change regulations; 7. Explain process of discounting and define the concept of Social Cost of Carbon and how it is related to the choice of discount rate; GenEd Designations This course meets the GC1, SU and S1 designations: GC1 courses address systems and problems that are global in scope. These courses will help students understand the nature and complexity of global phenomena. They may address cultural, political, economic, ecological, artistic, technological, human health, or other aspects of our increasingly interdependent world. They explore both the unique problems and the opportunities created by such interdependence and interconnectedness. SU courses provides undergraduate students with knowledge of the social, ecological, and economic dimensions of sustainability in the context of complex problems facing society at large; developing skills in rigorous and complex discussions about solutions; negotiating multiple values; and analyzing their own experiences and actions. S1 courses focus on how individuals, groups, and institutions affect and interact with each other. Through systematic investigation, social scientists generate explanatory frameworks for understanding human behavior, action, and social practices. Studying social science prepares students to examine past and present social problems; to think critically about individual, local, regional, and global contexts; and to improve societal well-being.

There will be many reading assignments, in-class exercises, quizzes and exams