Department of International Economics
Academic year 2014 - 2015
International Environmental Economics and
Policy
EI027 - Spring - 6 ECTS
Course Description
This course will present an introduction to how
economics can be used to understand problems of
environmental degradation and to how environmental
regulation can be designed to address international
environmental issues. It will start with a review of the
welfare theorems, the definition of market failures, as
well as theory and evidence on the provision of public
goods. We’ll then study the theory of externalities,
and the different regulatory interventions to correct
this particular type of market failure (standards, taxes,
emission trading). The course will continue by
covering a selection of topics - innovation and
diffusion of clean technologies, environmental
regulation and competitiveness, linkages between
trade and the environment
– with an emphasis on
empirical evidence and policy relevance.
PROFESSORS
Bruno LanzBruno.lanz @graduateinstitute.ch
Office : MdP-P1-815 Phone : +41 22 908 62 27
Joelle Noailly
Joelle.noailly @graduateinstitute.ch
Office : MdP-P1-815
Phone : +41 22 908 62 22 Office hours : Tue 14.00-16.00
Syllabus
Course objectives
The main objective of the course is to provide students with an understanding of economic theory related to environmental policy issues. We will build on the theory of market failures and externalities to develop an understanding of public policy interventions. The course will describe how different policy instruments can be applied to address environmental problems and discuss a range of practical issues.
trading schemes to address climate change, trade and the environment and the international diffusion of clean technologies.
Textbook
The course will be mainly be based on the book by Charles Kolstad “Intermediate Environmental Economics” (2nd edition, Oxford U Press 2011). Although we will not be following the textbook closely,
the material in the required chapters will be considered as known for the examination. For most sessions of the course, the text book will be supplemented by journal articles.
Grading
Problem set (20%): For the first part of the course, we will distribute a problem set with questions and exercises based on material taught in class.
Summary of papers (10%): In class discussions of papers work much better when people have read the papers. For a subset of papers (chosen by you) of the second part of the course, you will be asked to submit a 1-page paper summary before class.
In-class discussions (10%)– A few policy debates (e.g. green industrial policies, developing countries and access to clean technologies, COP Paris 2015) will be organized after some key concepts and results have been discussed in class. You will be asked to read a few supplementary materials and to prepare arguments for the in-class discussions. Grading will be based on active participation during the class.
Final exam (60%): The final exam will cover material from both Part 1 and Part 2 of the course.
Course outline and readings
Readings will be made available to students in due time. Those marked with an asterisk (*) are required.
PART 1: INTERNATIONAL ENVIRONMENTAL ECONOMICS: CONCEPTUAL FRAMEWORK (Dr. Bruno Lanz)
I. Pareto optimality, welfare theorems, market failures, and public goods (lecture 1-2)
The course will start with a reminder about Pareto optimality, the first and second welfare theorems, and introduce the notion of market failures. We will then review the theory and experimental evidence about the incentives that shape the contributions to public goods.
*Varian, A., Intermediate Microeconomics: A Modern Approach, Norton, Chap 36 Textbook Kolstad, Chap 1-4
*Textbook Kolstad, Chap 5
Applications”, in M. Dewatripont, L. Hansen and St. Turnovsky (Eds.), Advances in Economics and Econometrics – 8th World Congress, Econometric Society Monographs, Cambridge
University Press
II. Theory of externalities (lectures 3-4)
The theory of externalities is central to the issue of environmental degradation, and we will see how policy intervention can be used to address this specific form of market failure. We will also discuss the Coase theorem, which highlights the role of property rights.
*Varian, A., Intermediate Microeconomics: A Modern Approach, Norton, Chap 34 *Textbook Kolstad, Chap 11-14
Baumol, W.J., and Oates W.E. (1988), The theory of environmental policy, Cambridge, Chap 2-3 Coase, R. (1960), “The problem of social cost”, Journal of Law and Economics
III. Instruments for environmental regulation (lectures 5-6)
These lectures will focus on the different policy instruments to internalize environmental externalities (standards, carbon taxes, tradable emission permits) and how they compare under alternative assumptions and practical settings.
*Metcalf, G.E. (2009), “Market-based Policy Options to Control U.S. Greenhouse Gas Emissions”, Journal of Economic Perspectives
*Goulder L.H., and W.H. Parry, (2008) “Instrument choice in environmental policy”, Review of Environmental Economics and Policy
Hahn, R.W. (1984), “Market Power and Transferable Property Rights”, Quarterly Journal of Economics
Roberts, M.J. and Spence, M. (1976) “Effluent charges and licenses under uncertainty”, Journal of Public Economics
Weitzman, M. (1974) “Prices vs. Quantities”, Review of Economic Studies
PART 2: INTERNATIONAL ENVIRONMENTAL ECONOMICS: TOPICS (Dr. Joëlle Noailly)
IV. Technological innovation and the environment (lecture 7)
*Popp, D., Newell, R. G., & Jaffe, A. B. (2010). Energy, the environment, and technological change. Handbook of the Economics of Innovation, 2, 873-937 (PART 1: pages 1-23)
Acemoglu, D., P. Aghion, L. Bursztyn, and D. Hemous. (2012) The Environment and Directed Technical Change. American Economic Review, 102(1): 131-66.
Aghion, P., A. Dechezlepretre, D. Hemous, R. Martin and J. Van Reenen (2014) Carbon Taxes, Path Dependency and Directed Technical Change: Evidence from the Auto Industry. Journal of Political Economy, forthcoming
V. Diffusion of clean technologies (lecture 8)
*Popp, D., Newell, R. G., & Jaffe, A. B. (2010). Energy, the environment, and technological change. Handbook of the Economics of Innovation, 2, 873-937 (PART 2: pages 23-39)
*Jaffe, A. B., & Stavins, R. N. (1995). Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion. Journal of Environmental Economics and Management, 29(3), S43–S63.
Popp, D (2006). International Innovation And Diffusion Of Air Pollution Control Technologies: The Effects Of NOx And SO2 Regulation In The US, Japan, And Germany, Journal of Environmental Economics and Management, v51(1,Jan), 46-71.
Gilligham, K. and M. Graziano (2015) Spatial Patterns of Solar Photovoltaic System Adoption: The Influence of Neighbors and the Built Environment. Journal of Economic Geography, forthcoming Dechezlepretre, A., M. Glachant and Y. Meniere (2013) What Drives the International Transfer of Climate Change Mitigation Technologies? Empirical Evidence from Patent Data (2013),
Environmental & Resource Economics, 54(2): 161-178.
VI. The energy-efficiency gap (lecture 9)
*Gillingham, K. and K. Palmer (2014) Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Analysis. Review of Environmental Economics & Policy, 8(1): 18-38 Allcott, H., and M. Greenstone (2012). Is There an Energy Efficiency Gap? Journal of Economic Perspectives, Vol. 26, No. 1 (Winter), pages 3-28.
*Allcott, Hunt (2011) Social Norms and Energy Conservation. Journal of Public Economics, Vol. 95, No 9-10 (October), pages 1082-1095.
Jessoe, K., and D. Rapson. 2014. "Knowledge Is (Less) Power: Experimental Evidence from Residential Energy Use. American Economic Review, 104(4): 1417-38.
Allcott, Hunt, and Nathan Wozny (2012). Gasoline Prices, Fuel Economy, and the Energy Paradox. Forthcoming, Review of Economics and Statistics.
VII. Environmental regulation and competitiveness: the Porter’s hypothesis (lecture 10)
Textbook Kolstad, Section Productivity growth and technological change, pp 417-424
Porter, Michael E. and van de Linde, (1995) Toward a New Conception of the Environment- Competitiveness Relationship. Journal of Economic Perspectives, 9:97-118.
*Greenstone, M.; J. List and C. Syverson (2012) ,The effects of environmental regulation on the competitiveness of US manufacturing , National Bureau of Economic Research.
List, J. A., Millimet, D. L., Fredriksson, P. G., & McHone, W. W. (2003). Effects of environmental regulations on manufacturing plant births: evidence from a propensity score matching estimator. Review of Economics and Statistics, 85(4), 944-952.
Oberndorfer, U., Schmidt, P., Wagner, M., & Ziegler, A. (2013). Does the stock market value the inclusion in a sustainability stock index? An event study analysis for German firms. Journal of Environmental Economics and Management, 66(3), 497-509.
VIII. Is free trade good or bad for the environment ? (lecture 11)
*Grossman, G. M., & Krueger, A. B. (1991). Environmental impacts of a North American free trade agreement (No. w3914). National Bureau of Economic Research.
Copeland B.R., Taylor M.S., Trade, Growth and the Environment, Journal of Economic Literature, Vol. XLI, March, (2004).
*Antweiler, Werner, Brian R. Copeland, and Scott M. Taylor, Is Free Trade Good for Environment? American Economic Review, 91(4):877-908, September 2001.
Levinson, Arik. 2009. Technology, International Trade, and Pollution from US Manufacturing. American Economic Review, 99(5): 2177-92.
Cristea, A., Hummels, D., Puzzello, L., & Avetisyan, M. (2013). Trade and the greenhouse gas
emissions from international freight transport. Journal of Environmental Economics and Management, 65(1), 153-173.
IX. Globalization and the environment (lecture 12)
*Levinson, A., & Taylor, M. S. (2008). Unmasking the pollution haven effect. International economic review, 49(1), 223-254.
Hanna, R. (2010). US environmental regulation and FDI: evidence from a panel of US-based multinational firms. American Economic Journal: Applied Economics, 2(3), 158-189.
Textbook Kolstad, chapter on Transboundary pollution, pp 400-403.
*Barrett, S. (2011). Rethinking climate change governance and its relationship to the world trading system. The World Economy, 34(11), 1863-1882.
