The economics of carbon pricing (TEACHING NOTES) 2008-78.2

According to the Stern Review, “climate change is the greatest market failure ever seen”. Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change could be equivalent to losing at least 5 percent of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20 percent of GDP or more. A number of issues in the economics of carbon abatement exist, but can be viewed through the same framework to understand what is arguably the major public policy issue facing the world. These tools may also be applied to other situations.

This teaching note provides supplementary material to assist in the teaching of the case study 2008-78.1 It consists of: focus questions to stimulate discussion and test learning outcomes; a list of taped interviews (some video, some audio) along with the typical questions that were asked in the interviews; a list of references for further reading on the economics of climate change.