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Economics of Climate Change (E-807)
- Instructor Name: Dr. Muhammad Faisal Ali Dr. Anjeela Khurram
- Credit Hours: 03
- PIDE School of Economics (PSE)
- E-mail: [email protected], [email protected]
- Office Hours: 08:00 AM - 04::00 PM (Monday through Friday)
Prerequisites For this Course:
None
Text Book(s):
- Anthony Owen and Nick Hanley, The Economics of Climate Change, Routledge, London, 2006 (Paperback – ISBN: 978-0-415-40642-0)
- Nordhaus, W. (2008). A question of balance: Weighing the options on global warming policies. Yale University Press.
- Stern, N. (2006). Stern Review: The economics of climate change.
- Victor, D. G. (2011). Global warming gridlock: creating more effective strategies for protecting the planet. Cambridge University Press.
- Claeys, G., Le Mouel, M., Tagliapietra, S., Wolff, G. B., & Zachmann, G. (2024). The Macroeconomics of Decarbonisation: Implications and Policies. Cambridge University Press.
Reference Book(s):
None
Course Description
This course explores the economic dimensions of climate change, combining theoretical foundations with empirical insights and policy analysis. Students will investigate how climate change affects the economies globally and nationally, with a strong focus on Pakistan. This course will cover climate modeling, externalities, mitigation and adaptation policies, carbon pricing, international climate frameworks, climate finance, and macroeconomics of decarbonization. Through a flipped classroom approach, case studies, and applied exercises, students will develop the capacity to assess climate policy, instruments, design low-carbon strategies, and evaluate institutional and market-based solutions to climate risks.
Course Objectives
By the end of this course, students will be able to:
- Grasp the interplay between the scientific and economic foundations of climate change
- Apply economic reasoning to the government intervention, externalities, and climate regulation.
- Assess the major sectors’ role in GHG emissions and vulnerability in the context of Pakistan
- Analyze climate policy frameworks at the national and international levels
- Assess climate adaptation and mitigation strategies and policy tools
- Understand and evaluate carbon-pricing tools, the emission trading system, and fiscal instruments
- Explore climate finance flows, institutions, and instruments, including green bonds and insurance mechanisms
Learning Outcomes
- Explain the link between climate science, economic models, and policy design.
- Apply concepts of externalities, public goods, and discounting to climate change.
- Use data to interpret GHG emissions and identify Pakistan’s climate vulnerabilities.
- Compare international climate negotiations and analyze their economic implications.
- Critique Pakistan’s institutional setup for climate governance and policy enforcement.
- Develop marginal abatement cost curves and evaluate mitigation trade-offs.
- Examine adaptation economics and propose context-specific strategies.
- Analyze the effectiveness of carbon pricing and emissions trading systems.
- Understand climate finance architectures and assess their application in Pakistan.
- Propose climate-informed economic solutions using real-world tools and models.
Lecture Plan
| Session | Topic | Readings | Activities | Instructor |
| Introduction to Economics of Climate Change | ||||
| 1 | The Economics of Climate Change-Why it Matters. | Excerpts from the Stern Review
IPCC Summary for Policymakers
|
“What’s your climate story?” Each student shares a personal or local observation about the impact of climate change.
Why is climate change fundamentally an economic problem? Briefly introduce course modules and expectations. |
Dr. Muhammad Faisal Ali |
| Foundations of Climate Economics and Science | ||||
| 2 | Global warming: scientific modelling & its relationship to the economic dimensions of policy | Owen & Hanley
Chapters 1 & 2 Group Discussion: “How does uncertainty in climate science affect policy design?” Why does climate change matter economically? (Class Discussion)
Students simulate different emission scenarios (SSP/RCP models) & project economic implications. |
Introduction of the basic concepts of GB & CC, & how scientific understanding forms the basis for policy discussions.
To explore why CC presents significant economic challenges and set the stage for understanding the role of economics in climate policy debates |
Dr. Anjeela Khurram
|
| 3 | Foundations of Climate Economics– Externalities & Public Goods | Stern Review (2006)
Chapters 1& 2 Nordhaus (2008) Chapter 1 (Class Discussion: Pigouvian tax vs. cap‑and‑trade)
|
To introduce the key economic concepts of externalities & public goods in the context of climate change and understand their relevance to environmental policy design.
To compare market-based policy instruments—Pigouvian taxes and cap-and-trade systems—as tools for addressing climate externalities, & leading critical discussion on their practical strengths & limitations. Students act as regulators, polluters, and citizens to understand Pigouvian tax vs. cap-and-trade (Environmental Policy Simulation Game)
|
Dr. Anjeela Khurram |
| Political Economy, Diplomacy & Governance | ||||
| 4+5 | The Political Economy of Climate Policy
|
Global climate negotiations and agreements (UNFCCC, Paris Agreement, CoP).
Climate justice, equity, and burden-sharing (Global South Vs Global North)
Explaining diplomatic gridlock: what went wrong? Climate change and world order: implications for the UN, industry, diplomacy, and the great powers |
UN Climate Negotiation: Students represent Global North/South countries to negotiate emission targets and financial commitments.
Mini-debate: “Is climate justice compatible with economic sovereignty?” Short Policy Memo: Write a 1-page memo advising Pakistan’s negotiators for the CoP-30
|
Dr. Muhammad Faisal Ali
|
| Climate Change in the Pakistani Context | ||||
| 6 | Pakistan GHG Emission Profile
Economy-wide impacts of selected physical climate risks
Aggregated impact of climate & environmental risks |
Pakistan Country Climate and Development Report (CCDR)
https://climateknowledgeportal.worldbank.org/country/pakistan |
Students will analyze Pakistan’s GHG emission profile from CCDR and World Bank portal, then present/discuss sector-specific insights.
Students will assess the economy-wide impacts of physical climate risks (floods, heatwaves, & water stress) on key sectors, & evaluate aggregated climate & environmental risks outlined in the Pakistan CCDR.
|
Dr. Anjeela Khurram |
| 7 | Climate Change Policy, Institutions & Regulatory Framework (Pakistan) | CCDR Pakistan (World Bank)
Nordhaus (2008) Chapter 4 Owen & Henley (2004) Chapter 3 From negotiation to implementation |
Students will identify & map national climate-related institutions & their mandates (Institutional Mapping Workshop)
Students will be able to write a 1-page critique of a current Pakistani climate policy
|
Dr. Anjeela Khurram |
| 8 | Climate Reporting to UNFCCC and Pakistan | Enhanced Transparency Framework Capacity Assessment Tool (ETFCAT)
Pakistan Biennial Transparency Report BTR Pakistan’s Third National Communication on climate change |
Presentation-Class discussion
Mock BTR Submission: Divide students into groups; each prepares a section of a hypothetical Biennial Transparency Report for a selected province. Infographic: Create an infographic that visualizes Pakistan’s emission reporting architecture.
|
Dr. Muhammad Faisal Ali |
| 9- MIDTERM EXAM/TERM PAPER | ||||
| Climate Finance, Instruments & Markets | ||||
| 10 | Financing Climate Action (Global and Domestic) | Climate Policy Initiative (CPI) Reports
Climate Policy Initiative – Climate Finance Reports
|
Students will analyze the structure, sources, & flows of climate finance at global & domestic levels, with emphasis on the roles of public, private, & multilateral actors.
They will evaluate the effectiveness of current climate finance mechanisms and identify gaps and opportunities for improving the mobilization and allocation of funds, especially in developing countries like Pakistan. |
Dr. Anjeela Khurram |
| 11 | The Macroeconomics of Decarbonization | Public Finances and Decarbonisation-
The role of fiscal policy The Role of Capital Markets in Decarbonisation: The Potential for Green Banking and Finance Instruments, Such as Green Bonds. |
Students will explore how fiscal policy tools (taxation, subsidies, & public investment) can support a macroeconomic transition toward a low-carbon economy.
They will examine the role of capital markets and green financial instruments (e.g., green bonds, sustainability-linked loans) in mobilizing private investment for decarbonization efforts.
|
Dr. Muhammad Faisal Ali / Dr. Anjeela Khurram |
| 12 | Carbon Pricing Instruments | Chapter 6 The role of economic instruments Owen & Henley (2004)
Designing carbon taxes and emissions trading schemes for climate change
World Bank, “State and Trends of Carbon Pricing 2024” |
Presentation-Class discussion
In teams, students draft a carbon tax or ETS proposal for Pakistan, present it to the class “parliament.” |
Dr. Muhammad Faisal Ali |
| 13 | Carbon Markets: Potential and Challenges | Pakistan’s Policy Guidelines for Trading in the Carbon Market Carbon Credit Potential Markets: Renewable, Waste, Forestry
|
Presentation-Class discussion
Teams represent DIFFERENT sectors, evaluating whether and how to participate in carbon markets. |
Dr. Muhammad Faisal Ali |
| Mitigation, Adaptation & Technological Solutions | ||||
| 14 | Mitigation Costs & Abatement Curves | McKinsey (2009), “Pathways to a Low‑Carbon Economy”
Pindyck (2019), “The Social Cost of Carbon Reconsidered” J. Env. Econ. & Mgmt.
|
Students will understand the concept of marginal abatement cost (MAC) curves & their use in identifying cost-effective pathways for reducing greenhouse gas emissions.
They will assess the economic assumptions behind carbon pricing & the social cost of carbon, and apply these concepts by collaboratively constructing a basic abatement cost curve.
|
Dr. Anjeela Khurram |
| 15 | Policy Responses for Mitigation | Harnessing Markets for Mitigation – The Role of Taxation and Trading
Carbon Pricing and Emissions Markets in Practice Accelerating Technological Innovation |
Students pitch a low-carbon technology for Pakistan to a mock Ministry panel
Use Data to visualize the mitigation Progress of selected countries. |
Dr. Anjeela Khurram |
| 16 | Policy Responses for Adaptation |
Understanding the Economics of Adaptation Adaptation in the Developed World Adaptation in the Developing World Adaptation in Pakistan |
Respond to a hypothetical climate shock and present short-term adaptation policies. | Dr. Muhammad Faisal Ali |
| Risk & Resilience | ||||
| 17 | Climate Risk, Insurance, and Resilience
|
The Financial Cost of Natural Disasters
Disaster Risk Financing and Insurance – Tools for Financial Protection An Operational Framework for Disaster Risk Financing and Insurance Financial Protection against Natural Disasters- World Bank Report https://documents.worldbank.org/en/publication/documents-reports/documentdetail/523011468129274796 |
Guest Expert Talk: Invite an insurance sector professional to discuss risk-pooling mechanisms in Pakistan.
Potential Collaborator = NDRMF |
Dr. Muhamad Faisal Ali and Dr. Anjeela Khurram |
| Final Exam | ||||
This course is designed to go beyond theoretical understanding, embedding practical, policy-relevant, and analytical skills throughout each session.
- Through hands-on simulations, role-play negotiations, policy critique, institutional mapping, and data analysis exercises, students will learn to think like economists, policymakers, and climate negotiators.
- From designing carbon tax instruments to drafting mock sections of Pakistan’s Biennial Transparency Report, students will be actively engaged in replicating real-world tasks.
- Exposure to tools like emission scenario modelling, marginal abatement cost curves, and green finance frameworks equips them to interpret, evaluate, and contribute meaningfully to national and international climate policy processes.
- The course’s integration of local case studies (e.g., Pakistan’s GHG profile, climate institutions, and disaster risk financing) ensures relevance to Pakistan’s development context, preparing graduates to take informed positions in government, think tanks, development organizations, and climate financing institutions.
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