Climate economics for dummies

The economics of climate change pose complex challenges. Explore the difficulty of the climate issue, the expectations of international agreements and the pioneering role of European climate policy. Discover measures in key sectors such as energy, industry, buildings and transport. Our overview highlights the crucial issues of this economic transition.

Climate question: what makes things difficult

The climate question

What matters to an economist?
Sources: IPCC (2023), Nordhaus and Stern review.
IPCC 2023
• Nordhaus W. (2013b). The climate casino. Yale
University Press.
•Stern, N. (2008). The economics of climate change.
The American Economic Review, Papers and Proceedings, 98, 2-37.

La question climatique​

The 5 crucial relationships

  1. Human behavior is the cause of additional greenhouse GHG emissions:
    • Distorted carbon cycle on Earth
    • mainly in the form of CO2 (75% of the problem) but also methane, NO and HFCs.
  2. GHGs accumulate in the atmosphere
  3. The increase in concentration (degradation 0.5%/year) traps heat and generates global warming
  4. Global warming generates climate change (time frame 20-50 years)
  5. Climate change causes damage

All these relationships are uncertain.

GHG concentration over time

What makes climate change difficult a problem for the world?

5 properties

First property

The effects are complex and UNCERTAIN and differ by region.

Second property

The effects are DELAYED by 1 or 2 generations.

Third property

This is a CUMULATIVE pollution problem: every ton emitted will accumulate and generate effects over the next hundreds of years.

Fourth property

It is a GLOBAL pollutant: every tonne, wherever emitted, will affect the climate worldwide.

Fifth property

This is not an easy solution: it remains COSTLY to reduce emissions quickly.

What can we expect from international agreements?

Why is it so difficult to reach an effective international agreement?

Why do we see so many international agreements signed?

International agreements play a central role in the collective response to the climate crisis. In exploring this crucial dimension, we take a close look at the expectations and implications of these global agreements. How do these initiatives impact national policies and efforts to mitigate climate change? Through in-depth analysis, we will seek to understand the true scope of international commitments and assess their potential impact on the global economy of climate change.

European climate policy as a precursor

European climate policy is emerging as a pioneering model in the fight against climate change. Looking at key sectors such as energy, industry and buildings, as well as transport, this chapter takes a close look at the European Union’s innovative initiatives.

We will analyze the policies and regulations put in place to reduce greenhouse gas emissions and promote a transition to more sustainable practices. By highlighting the successes and challenges encountered, this chapter will highlight Europe’s essential role as a pioneer in formulating forward-thinking climate strategies that can inspire other regions of the world.

Energy, Industry and Buildings sector

In the fields of energy, industry and buildings, the impact of climate change generates major imperatives in terms of economic transformation. This chapter explores the innovations and adaptations needed in these vital sectors to meet climate challenges.

We will examine emerging energy strategies, industry changes aimed at reducing carbon footprints, and transformations in building design and management. By analyzing these crucial aspects, we will unveil the innovative initiatives shaping the economics of climate change in these strategic sectors.

Transport sector

The transport sector, at the heart of the challenges of the climate change economy, occupies a central place in the transition towards a more sustainable society. In this chapter, we will delve into the specific challenges this sector faces and the innovative initiatives implemented to mitigate its environmental impact.

From finding alternative energy sources to promoting greener modes of transportation, we will examine emerging strategies aimed at radically transforming the transportation landscape.

By analyzing current trends and future prospects, we will explore the opportunities and obstacles shaping the evolution of the transport sector in the crucial context of combating climate change.


In this final chapter, we will look at the far-reaching economic implications of climate change, exploring concrete measures being implemented to mitigate its impact. We will examine lessons learned from the challenges discussed above, while highlighting emerging opportunities in this economic transition.

Additionally, we will assess the implications of European climate policy as a forward-thinking model, and its influence on other regions of the world. By closely analyzing key sectors such as energy, industry, buildings and transport, we will identify significant advances and obstacles to overcome.

Finally, we conclude by highlighting lessons learned and looking ahead, with a look at how nations can collaborate to shape a sustainable economy in the face of climate change.

Stef Proost

Department of Economics and Institute for Mobility KULeuven

April 3, 2023

Table of contents


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