Climate change is caused by greenhouse gases (carbon dioxide, methane and others) being emitted into the atmosphere. The fact that such emissions are not priced is “the greatest market failure that the world has seen”, as Lord Nicholas Stern put it. In addition, emissions of local pollutants (SOX, NOx, particular matter) rank high on the list of most pressing policy problems in many parts of the world, in particular in many of the megacities in fast-growing developing and emerging economies. Economists have long advocated for putting a price tag on emissions as an efficient means to address emissions. However, putting emissions pricing into practice has turned out to be difficult. The purpose of this class is to understand why and how robust emission pricing policies ought to be designed.
This class provides a comprehensive overview of the theory and, more importantly, the political practice of pricing emissions. This is an advanced course that provides a deep-dive in a narrow but technical and complex topic. The objective of this class is to equip students with the analytical and empirical understanding needed to implement, assess and advance carbon pricing schemes in governments, companies and civil society.
First of all, students will be introduced to the environmental economic theory of externalities, such as climate change. We will discuss the two principal types of pricing externalities, taxation and cap-and-trade. Then, we will turn to specific topics of real-world emissions pricing: The intertemporal nature of trading schemes that requires governments to earn investors’ trust, the political economy of initial allowance allocation and revenue recycling, international and inter-sectoral carbon leakage, and the (im)possibility of implementing sensible national emission policies for countries that are part of international trading schemes. During the last third of the course, we will study concrete emission pricing policies, most importantly the EU Emission Trading Scheme.
This course is for 2nd year MIA and MPP students only.
Find out more