Final Syllabus. Course Description

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Environmental Economics and Policy Analysis

Spring 2015

Copenhagen

3 Credits

Faculty: David Possen & Nina Torm

Emails:

DIS Contacts: Susanne Goul Hovmand, Program Director for Global Economics,

Will Sherman, Program Assistant for Global Economics,

Class meetings: Monday and Thursday, 16.25-17.45, V23-401

Course Description

This course introduces students to the understanding and application of economic theory and the tools of

policy analysis in the context of modern environmental issues.

The course introduces basic analytical concepts and relevant economic theory concerning market failures in

order to understand the causes of many environmental problems. Moreover, we discuss specific

environmental policy areas such as climate change, and look at various tools of economic policy analysis—

above all, the effect of alternative policies on firms and individuals.

Learning Objectives

The objectives of the course are (1) to give you a broad understanding of the causes and alternative solutions

to modern environmental problems from an economic perspective, and (2) to apply insights derived from

economic theory in designing and evaluating policy solutions to a variety of environmental issues.

You will learn to understand the role of economics in environmental issues and in the formation of

environmental policy. You will learn that economic objectives do not necessarily conflict with environmental

goals, and that markets can be used to improve environmental quality.

By the end of this course, you will be able to express an informed view on the role, contribution, and

limitations of economic tools in providing policy guidance on environmental issues.

Course Requirements

This course presupposes at least one introductory economics course, preferably microeconomics. This means

that you are expected to be comfortable handling basic supply and demand analysis both graphically and

algebraically (i.e. with equations). If you are unsure you can fulfil this expectation, please contact one of the

instructors as soon as possible.

Readings

Required reading assignments from course books will be made available online, along with (optional)

supplementary articles. The course outline will be posted on DIS Forum, listing the required readings for each

lecture. Check the course outline frequently for updates.

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The assigned readings for each lecture should be read prior to the lecture. Students will often be randomly

asked to answer questions about the assigned readings. Here is a suggestion: as you prepare for class, write

down 2 or 3 things that strike you about the day’s reading, such as some key findings, interesting arguments,

etc. This will help you be prepared to answer questions in such instances. Sometimes, you will also be given

specific questions to answer ahead of time, in order to focus your reading. You are also encouraged to

participate actively in class by asking questions, making comments, sharing ideas, etc.

Grading

In addition to the readings and through active participation in class, a variety of small written and oral

assignments will be used to develop your understanding of the tools of environmental economics and

analytical skills in general. Preparation for and participation in these in-class assignments will also contribute

to your participation grade.

There will be one final closed book, in-class, written exam at the end of the course.

The grading allocation will be as follows:

Participation: 25%

Homework/Assignments: 40% (2 x 20%)

Final Exam: 35%

Computer policy: Laptop computers are allowed in class ONLY for note-taking purposes. Any other use will

have a negative impact on your final grade. Furthermore, any student violating this policy will not be allowed

to continue using their laptop in class for the remainder of the semester.

Academic Honesty: Plagiarism and Violating the Rules of an Assignment - DIS expects that students abide by

the highest standards of intellectual honesty in all academic work. DIS assumes that all students do their own

work and credit all work or thought taken from others. Academic dishonesty will result in a final course grade

of “F” and can result in dismissal. The students’ home universities will be notified. DIS reserves the right to

request that written student assignments be turned in electronic form for submission to plagiarism detection

software. See the Academic Handbook for more information, or ask your instructor if you have questions.

Attendance: You are expected to attend all DIS classes when scheduled. If you miss multiple classes, the

Director of Teaching and Learning and Director of Student Affairs will be notified and they will follow up with

you to make sure that all is well. Absences will jeopardize your grade and your standing at DIS. Allowances

will be made in cases of illness, but in the case of multiple absences you will need to provide a doctor’s note.

Disability and Resource Statement: Any student who has a need for accommodation based on the impact of

a disability should contact Sean Green () to coordinate this. In order to receive accommodations, students

should inform the instructor of approved DIS accommodations within the first two weeks of classes.

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Environmental Economics Lecture Outline

Session Date

Topics & Instructor(s)

Readings — to be read prior to the session

(all readings are found on Forum)

1 Thursday, August 20

Topics:

• Brief introduction to the course

• Personal introductions — you’ll get to know us, and we’ll get to know you

• Team formation

• Team reflection exercise: (i) What is the economy? (ii) What is the environment? (iii) How do/should they interact? • Syllabus Q & A

• Social Event after class

Instructors: Nina Torm and David Possen

First homework assignment published on Forum

No advance reading!

2 Monday, August 24

Topics:

• Environmental economics and/vs. ecological economics

• Discussion: Fullerton and Stavins’ four “myths” about how economists treat environmental issues • We’ll watch and discuss the Ecological Economics “CRASH COURSE” video by Prof. Jon Erickson (University of Vermont) – you can take a look here:

https://www.youtube.com/watch?v=d05jEprJxtE

Instructor: David Possen

Fullerton and Stavins, How Economists See the Environment, Nature 395 (October 1, 1998), pp. 433-434.

3 Wednesday, August 26

FIELD STUDY – 8.30-12.30

Windmill tour, Avedøre Holme, Hvidovre Instructors: Nina Torm and David Possen; guest lecture by Erik Frølund-Thomsen, chairman, Hvidovre Vindmøllelaug

4 Thursday, August 27

Topics:

• Basic supply and demand theory: a discussion designed to bring those with little background in econ onto the same page as those with more • Introduction to the concept of scarcity Instructor: David Possen

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5 Monday, August 31

Topics:

• Introduction to externalities

• Internalizing externalities: the case of pollution • Pigovian tax (the “polluter pays principle”) • The need to “value” the environment: how? • Introduction to valuation methods

Harris, ch. 3, pp. 31-49

Thomas Helbling, “Externalities: Prices Do Not Capture All Costs” (International Monetary Fund website, posted March 28, 2012) (3 pages)

TEEB Report, ch. 5, pages 14 and 25 6 Thursday,

September 03

Topics:

•Marginal abatement and damage cost curves •Aggregating MAC curves

•Total costs

Instructor: Nina Torm

Field, chapter 5, pp.83-99

McKinsey and Company (2008), Greenhouse gas abatement opportunities in Sweden, report

September 07-12

Core Course Week

No Class

7 Monday,

September 14

Topics:

•Efficient level of emissions •Enforcement of costs •Equimarginal principle Instructor: Nina Torm

Field, chapter 5, pp.99-107 8 Thursday, September 17 Topics: • Cost/Benefit Analysis • Discounting • Willingness to pay/accept Instructor: Nina Torm

Field, chapter 6 (pp. 116-128), chapter 7 (pp. 133-155) and chapter 8

9 Monday,

September 21

Topics:

• Policy evaluatrion criteria • Incentive compatibility • Principal-Agent problem •Instructor: Nina Torm

Field, chapter 9 Siebert, chapter 8

10 Thursday, September 24

Topics:

• Command & Control policy approach • Uniform standards

• Perverse incentives

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11 Monday,

October 5 Topics: _{•Taxes & Subsidies} •Deposit-refund system •Double dividend •Instructor: Nina Torm

Field, chapter 12

12 Thursday, October 8

Topic:

• Guest lecture on valuation methods

Instructors: Guest lecturer Jette Bredahl Jacobsen, University of Copenhagen; David Possen & Nina Torm

First homework assignment due on Forum

Lundhede et al. (2014) Jacobsen and Thorsen (2010)

13 Monday,

October 12 Topics: _{•Voluntary agreements and differences to} traditional regulation

•Incentives

•Negotiation and cooperation Instructor: David Possen

Croci, The economics of environmental voluntary agreements, Handbook of Environmental Voluntary Agreements.

Topic:

• Pigovian taxation

• The “Polluter Pays Principle” Instructor: David Possen

Harris, ch. 3, pp. 50-61

October 17-25 _{Long tour/ Break week 2} 15 Monday,

October 26

Topics:

The Ronald Coase revolution, Part 1

• The relationship between private and social costs • Why transaction costs matter

Second homework assignment published on Forum

R. H. Coase, “The Problem of Social Cost,” The Journal of Law & Economics 3 (October 1960) 1-44, sections I-VII (pp. 1-28) James Surowiecki, “Climate Trades,” The New

Yorker (October 13, 2014) (1 page)

16 Wednesday, October 28

FIELD STUDY – 13.00-17.00

European Environmental Agency (EEA) Instructors: Nina Torm and David Possen

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Topics:

The Ronald Coase revolution, Part 2 • The Coase theorem: beyond Pigovian tax

• A “right to pollute”? Cap-and-trade as a “Coasian” solution to carbon emissions

R. H. Coase, “The Problem of Social Cost,” The Journal of Law & Economics 3 (October 1960) 1-44, sections VIII-X (pp. 28-44) Harris, ch. 3, pp. 50-61

18 Monday, November 2

Topics:

•Cap & Trade policy instruments •Emissions trading game •Instructor: David Possen

Field, chapter 13

19 Thursday, November 5

•Guest lecture on green taxation

•Instructors: Holger Jensen (Danish Energy association) and David Possen

Field, chapter 12

Norden Report on "The Use of Economic Instruments" pp. 9-48 (up until and including section 2.4.2)

November 07-15 Travel Break

20 Monday,

November 16

Topics:

• The Tragedy of the Commons

• Common-property resources and/vs. public goods • What to do? The case of fisheries management Instructor: David Possen

Harris, ch. 4, pp. 73-87 Harris, ch. 14, pp. 314-323

Topics:

• The Prisoner’s Dilemma

• Applications to policy negotiations on climate change mitigation—we will watch and discuss the IPCC’s recent video on this, which you can find here:

https://www.youtube.com/watch?v=gDcGz1iVm6U

• Prisoner’s Dilemma Game! Instructor: David Possen

M. O. Jackson, A Brief Introduction to the Basics of Game Theory, section 1 (pp. 1-13) “Playing Games With the Planet,” The Economist

(September 27, 2007) (3 pages)

22 Monday, November 23

Topic:

• Climate change & mitigation: conventional views and proposed policy measures

Bill McKibben, “Global Warming’s Terrifying New Math,” Rolling Stone (July 19, 2012) (9 pages)

United Nations Environment Programme, “The Emissions Gap Report 2013: A UNEP Synthesis Report,” Chapters 4-6 (pp. 23-36)

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Topics:

• Climate change & mitigation: the world according to Bjørn Lomborg

• We will watch & discuss Lomborg’s appearance on Letterman (April 12, 2011), which you can find here:

https://www.youtube.com/watch?v=JcQdNSPXDPA Instructor: David Possen

Second homework assignment due on Forum

Bjørn Lomborg, “The Real State of the World,” in The Skeptical Environmentalist (Cambridge, 2001), pp. 328-342

Jonathan Ledgard, “Bjorn Lomborg is the World’s Most Optimistic Statistician,” Strategy+Business 38 (Spring 2005) (7 pages)

Mark Lynas, “Natural Bjorn Killer,” The Ecologist 33:2 (March 2003), pp. 26-29.

24 Monday, November 30

Topics:

• Recap of temporal discounting

• Lomborg vs. Peter Singer on discounting the future

• We will watch & discuss Lomborg’s reply to Raymond Pierrehumbert, December 1, 2010, which you can find here:

https://www.youtube.com/watch?v=Sif-rtMWYEo

• Debate: What discount rate is appropriate, given the scope and potential impact of climate change?

Cass R. Sunstein and David A. Weisbach, “Climate Change and Discounting the Future: A Guide for the Perplexed,” working paper (Harvard Law School), sections I and II (pp. 1-12)

Peter Singer, “Does Helping the Planet Hurt the Poor?” Wall Street Journal (January 22, 2011) (4 pages)

Bjørn Lomborg, “Does Helping the Planet Hurt the Poor?” Wall Street Journal (January 22, 2011) (4 pages)

25 Thursday, December 3

Topics:

Course wrap-up

Q&A for exam preparation

•Instructors: Nina Torm and David Possen

Schedule is subject to change if necessary with as much notice as possible.

Textbooks (these readings will be posted online, no physical copy)

Field: Barry C. Field and Martha K. Field (2006), Environmental Economics: An Introduction, 4

th

_Edition,

McGraw-Hill Irwin, 2006.

Harris: Jonathan M. Harris (2005), Environmental and Natural Resource Economics: A Contemporary

Approach, Second Edition, Houghton Mifflin, 2005.

Articles/Reports

Coase, R. H. (1960), “The Problem of Social Cost,” The Journal of Law & Economics 3: 1-44.

Croci, E. (2005), The economics of environmental voluntary agreements, Handbook of Environmental

Voluntary Agreements, 3-30 pp, Springer.

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