Climate Finance: An Economic and Financial Approach to Climate Change

Catalog description

This class will examine the science and economics of climate change. We rely heavily on financial models to understand the linkages between the risk of climate change which may become manifest over the very long term and the behavior of today’s stock market, as well as how various economic policies might impact climate change (and then reflected in current asset prices), and how agents might use asset allocation choices or financial contracts to hedge their exposure to climate change risk. The course divides naturally into several major themes – the science of climate change, the economics of climate change, policy responses to climate change, portfolio choices and tools to mitigate climate risks. Common economic examples of externalities and regulation will be used to frame the analysis. From this point of view, portfolio choices and asset prices will be examined. The short run and long run costs of divesting fossil fuel stocks will be considered. Discount rates play a key role and will be discussed in detail. Students will be required to prepare a write-up for one article from each week’s required readings. The course may include invited speakers and short videos. A short quiz, a final exam and class participation are also inputs to the final grade.