The Economics of Climate Change

Course content

The course investigates the economic aspects of climate change and the economics of climate policy in a global perspective – under the assumption that students are already familiar with the scientific models for climate change. The course starts with a brief introduction to the concept of efficiency and optimality in welfare economics. It then defines the concepts of externalities, public goods, property rights, and market failure. Pollution control instruments are first described in general terms and then with particular focus on the use of tax incentives and marketable permits to control emissions of greenhouse gases. The presentation of control instruments involves issues associated with international environmental problems including game theory. In this context the provisions of the Kyoto protocol are addressed along with current climate policy proposals. The analysis of policy frameworks also includes considerations regarding uncertainty and technological progress. The overall mitigation problem is addressed using the methodological framework provided by cost effectiveness and cost-benefit analysis. In this context the issue of choosing the appropriate social discount rate is discussed. The final part of the course addresses specific issues related to global climate change: the role of energy prices, transition to renewable energy and the situation and role of developing countries. The latter includes ethical principles underlying equity and environmental justice considerations in a North-South perspective. The course concludes with a brief assessment of recent and current climate policy events.


MSc Programme in Climate Change
MSc Programme in Agriculture

Learning outcome

The aim of the course is to provide a good understanding of the economic aspects of climate change and the economics of policy measures to control climate change. After completing the course the student should be able to:


- Describe the basic concepts of market failure, (global) externalities and the rationale for public intervention to control externalities.

- Describe the relevant instruments to control the emission of GHG.

- Describe the economic principles and problems associated with global climate change agreements.

- Summarise the magnitudes of global costs and benefits associate with the control of climate change.

- Summarise the existing international climate change agreements and the instruments applied.

- Reflect on the ethical aspects of environmental justice and burden sharing in international climate policy.



- Identify relevant approaches to economic analysis of GHG emissions and climate change.

- Select relevant instruments to control GHG emissions.

- Identify economic obstacles to global climate change agreements.

- Identify economic approaches to remove obstacles to global climate agreement.


- Incorporate economic considerations in scientific and political analyses of climate change issues.

- Evaluate the different policy instruments available to control GHG emissions.

- Explain the relevance and limitations of economic approaches to the control of climate change.

- Assess the economic aspects of (current) climate policy negotiations and the relevance of the policy instruments suggested to realise the targets.

Teaching comprises lectures and exercises including written course assignments where the students analyse the economic aspects of specific climate change issues. The assignments are organized as group work.

It is highly recommended that students have acquired basic competences in micro economics (e.g. LOJB10259 or similar courses).

7,5 ECTS
Type of assessment
Written examination, 4 hours under invigilation
The written exam is in the course literature specified as "Curriculum for exam". The course has been selected for ITX exam at Peter Bangs Vej.
All aids allowed

NB: If the exam is held at the ITX, the ITX will provide you a computer. Private computer, tablet or mobile phone CANNOT be brought along to the exam. Books and notes should be brought on paper or saved on a USB key.

Marking scale
7-point grading scale
Censorship form
External censorship
Criteria for exam assessment

Please refer to course description and learning goals

Single subject courses (day)

  • Category
  • Hours
  • Lectures
  • 42
  • Exercises
  • 24
  • Preparation
  • 136
  • Exam
  • 4
  • English
  • 206