Economics of Climate Change

ENE426 Economics of Climate Change

Autumn 2018

Spring 2019
  • Topics

    Economics is about the meeting of individual and social aspirations and goals, as well as the role played by firms, markets, and institutions. In environmental economics, we deal with those social goals that are broadly termed ¿environmental,¿ and in this course, we deal with the theory and the practical reality of climate change. We analyze how climate policy affects firms and industries, how governments act, and the space and choice left for individuals and firms.

    Four issues which make the challenge of climate change special amongst environmental problems are:

    • The intergenerational time horizon in climate change, and how it complicates the cost-benefit analysis;
    • The diverse interests of countries, and the difficulties in cooperative efforts;
    • The political economy and the difficulties of commitment in government;
    • Investment and the firm under uncertainty of future climate policy.

  • Learning outcome


    The student is able to:

    • Understand, briefly, the present status of climate research and its implications, especially how it is relevant to policy debates and policy formation.
    • Have an understanding of the free-rider problem, a Nash equilibrium, a cooperative game, a commitment problem.
    • Possess theoretical and practical understanding of how climate change and policy affect business - as well as how business sectors respond - examples being the transport and energy sectors.
    • Have an overview of present policies at national, European, and global levels 


    The student is able to:

    • Demonstrate the use of economic analysis for challenging problems, such as climate change, at several levels, such as business, policy, and individual.
    • Utilize tools of policy analysis, drawing on i) public finance, ii) game theory, iii) institutional economics, and iv) political science.
    • Analyze investment under climate and policy uncertainty.
    • Apply case studies and illustrative examples, e.g., from the transport and energy sectors, to demonstrate how those have been affected by climate change and policy.


    The student is able to:

    • Analyze problems of cooperation. The use of game theory applied to cooperation problems can be also used in other areas.
    • Analyze problems of new science, dispute, doubt, and uncertainty: an essential part of the long-term climate problem, and many others.
    • Apply tools of policy analysis, and in particular for how individuals, firms, sectors, rich and poor, now and later, are affected.

  • Teaching

    Lectures and exercises. Active student participation is required, in exercises as well as project work. Guest lecturers will take selective segments.

  • Requirements for course approval

    Two home assignments in English, two pages and 600 words each, has to be approved. The student can decide to have one of the assignments done in a group of up to 4 students, but, if so, the other assignment should be done individually.

  • Assessment

    The assesment is based on an individually written term paper (duration approximately 14 days) of around six pages (2500 words).

  • Grading Scale

    A - F

  • Literature

    Literature: (to be revised and supplemented later)

    - The Stern Review

    - IPCCs fourth assessment report

    - William Nordhaus (Journal of Economic Literature)

    - Scott Barrett: Environment and Statecraft, Why cooperate

    - Selected articles and book chapters


ECTS Credits
Teaching language


Course responsible

Professor Gunnar S. Eskeland, Department of Business and Management Science