March, 2021

Syllabus: The Climate and the Economy

John Hassler
Per Krusell
Conny Olovsson

Course purpose: obtain an understanding for the interrelation between climate change and the global economy. The course will give and understanding of the basic issues, tools to analyze them, and deliver assessments of various forms of policy, both qualitatively and quantitatively. This will all be accomplished from a joint natural-science and economics perspective. The course should be particularly valuable for (current and future) policymakers in the area of environment and climate change but also for anyone else with an interest in these areas.

Corona:  Due to the regulation against the Corona virus, classes will be held via Zoom. We encourage all students to participate with sound and video. We encourage active participation and interaction. We are optimistic this will work, but hope everyone understands this is new to most of us.

Examination: there is a final exam and there is a set of homeworks that also count toward the final grade. Your final grade is the best score of the following two: (i) the final exam score; (ii) 0.8 times the final exam score plus 0.2 times the homework score. (Both the final exam and the homework sets have a maximum score of 100.)

Readings: the main reading is a manuscript (kompendium) prepared for this course by the instructors. A preliminary version is found at This may be updated along the way of the course. For the natural science part (6 first hours) we will use the report I, Per and others wrote for SNS which now is translated Chapter 2, in particular the box starting at page 55 contains the material on climate science. The content in the compendium is very similar, but the notation is partly a little different. The SNS- report also exists in Swedish

Additional reading is:

·         An introduction to climate economics is found at or in Swedish at

·         A relatively non-technical paper on climate economics is a paper in Economic Policy.

·         Another useful text is from the recently published Handbook of Macroeconomics here.

Course content (each lecture lasts for 2 hrs):

1.       Overview (30 mins): goes over the course contents, including the two-way interaction between the economy and the climate and their effects on our citizens' welfare, “externalities" and a need for policy intervention, whether and why economics/economists are needed in this field, the RICE model, and a general aim to introduce the students to the debate on climate change. Discussion of course requirements etc.

2.        The natural science part (JH) (6 hrs): The greenhouse effects, energy budgets, the carbon cycle, climate modeling.

3.       Growth theory and empirics (PK) (3:30 hrs): the Solow model, optimal growth, exogenous and endogenous technological change, the world income distribution.

4.       Externalities in public economics (CO) (3 hrs): first welfare theorem, taxes vs. other instruments, free-riding, coordination issues across countries.

5.       Natural resource economics (CO) (3 hrs): the Hotelling rule, the Dasgupta-Heal model,technical change of various sorts, backstop technology.

6.       Endogenous technical change (CO) (2hrs): how the economy accumulates technology and chooses between different kinds of technology, energy-related and other.

7.       Measuring damages (JH) (2 hrs): how it is done (bottom-up  vs.  reduced form, damage functions).

8.       A complete model (PK) (4 hrs): putting everything together into an “integrated assessment model" in order to analyze policy and make forecasts.

9.       WRAP UP.Discussion of the Stern report and the public debate; what of relevance was not covered in the course and what is the aim of current and future research?