1 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
TEACHING CLIMATE CHANGE TO ECON 101 STUDENTS
Junaid B. Jahangir1
Abstract
There is a growing recognition that ECON 101 does not adequately prepare students to address
the pressing issues of our times including climate change. However, options such as the CORE
text are unsuitable because of information overload and the use of advanced technical concepts
and techniques. The objective in this paper is to introduce climate change to ECON 101 students
in a way that minimizes student confusion, instructor workload, and upholds Mankiw’s approach
of clarity before nuance. A new approach is delineated based on popular books, magazine
articles, a YouTube video, and simple exercises. This five-part approach consists of emphasizing
the urgency of climate change, thinking outside the box through geoengineering, the limits of
individual actions like buying local or going vegan, the comparative outlook on various policy
tools with a simple equation solving exercise, and game theory to broach the issue of
international collaboration.
Keywords: ECON 101, CORE, teaching economics, climate change
JEL Classification: A22, Q54
Introduction
There is a growing recognition that ECON 101 does not adequately prepare students to
address the pressing issues of our times including climate change, economic inequality, and the
future of work with automation (Bowles and Carlin, 2020). Among all these issues, climate
change stands out, as Krugman warns that if greenhouse gas emissions are not limited then none
of the other issues of healthcare spending, budget deficits, and inequality will matter (Krugman,
2020, p. 327). Yet, ECON 101 students are trained more to solve for equilibrium, calculate
elasticities, and determine the profit maximizing solution, than addressing contemporary issues.
For instance, I use the Mankiw, Kneebone, and McKenzie (2020a) textbook to teach ECON 101,
where economic inequality does not appear until Chapter 20 and climate change is subsumed in a
section on externalities that is briefly covered towards the end of term.
The objective in this paper is to explore how best to introduce climate change to ECON
101 students in a way that causes the least disruption for both instructors and students who are
engaged with the mainstream neoclassical paradigm. To this end, the motivation for this paper is
offered through a brief review of a few recent papers on teaching climate change and economics
in Section 2. This is followed by a critical evaluation of three alternatives to the Mankiw,
Kneebone, and McKenzie textbook in Section 3. Having delineated the concerns with these
substitutes, a new way of introducing climate change to ECON 101 students through a video,
articles, and exercises from other books is presented through a five-part approach in Section 4.
Concluding remarks are presented in Section 5.
1 Associate Professor of Economics, Department of Anthropology, Economics, and Political Science, MacEwan
University, 7-368, 10700 104 Ave, Edmonton, Alberta, T5J 4S2, Canada
2 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
Motivation
In their review of teaching climate change and ECON 101, Liu, Bauman, and Chuang
(2019) indicate that for most textbooks, climate change is subsumed in the chapters on
externalities or environmental economics. Therefore, they suggest addressing the topic more
broadly beyond the externality framework. They are concerned that the way climate change is
presented may lead students to think of it as a “minor aberration” and allow instructors to skip
the topic altogether due to its location in the textbook. Additionally, they mention that despite the
consensus position among climate scientists that human beings are largely responsible for global
warming, some textbooks eschew that scientific consensus. Finally, they state that while all
textbooks emphasize the key message that incentive-based mechanisms are better than
command-and-control regulations, most textbooks do not delve into a preference between a cap-
and-trade program and carbon taxes.
Lewis and Wichman (2021) indicate that instructors are increasingly teaching climate
change content because of demand from economics students. Based on their survey of various
courses, they mention that while externalities are usually taught in depth, topics like tipping
points and geoengineering are now being included in some courses. Gonzales-Ramirez, Caviglia-
Harris, and Whitehead (2021) confirm that the most common topic is how incentive-based
approaches (permits and taxes) to addressing externalities are more efficient than command-and-
control policies (standards). They survey the literature to showcase a multitude of games that
have been designed for pedagogical purposes. Several of these games are quite time intensive,
with a few being semester long with weekly discussions.
These games include Corrigan (2011), which delves into illustrating the relative strengths
of various market-based approaches to addressing externalities, as textbooks don’t generally
address this comparison. However, this game assumes prior economic knowledge on marginal
analysis and externalities. Duke and Sassoon (2017) also present a game but mention that the
literature indicates that while students recall more of the acquired knowledge, the evidence of
improved learning through such activities is modest. Even in the game designed by Caviglia-
Harris and Melstrom (2015) where prior economic knowledge on marginal analysis and
externalities is not required and which only takes 20 minutes of class time, there are concerns.
The issues include excessive time and preparation required of instructors for seemingly low level
of improved learning results. Other concerns are about relatively weaker students getting
embroiled with the logistics of games or failing to act rationally and getting results contrary to
what the instructor expected to show. Thus, such a situation could lead to both student confusion
and instructor frustration despite spending so much time and effort.
Just as there are concerns with using games as pedagogical tools, there are issues with
including extra reading material to teaching climate change. Basu (2021) opines that while it is
important to remain updated with material beyond the textbook, instructors must be mindful of
assigning additional reading that yield diminishing returns if students find them overwhelming
and too much work. Likewise, with large class sizes and without proper help on grading,
instructors may find their workload burdensome as well. Similarly, innovations in teaching
pedagogy like Decker (2020), which uses isoquants and isocosts to compare emission taxes and
subsidies, are not necessarily suitable for ECON 101 students who get lost in technical logistics
instead of learning the basic results. All such innovations in teaching climate change, take us
back to Mankiw, who argues that the capacity of students to absorb information does not expand
just because economic knowledge does (Mankiw, 2020b), that we must avoid information
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overload and that less is more (Mankiw, 2020c). In short, Mankiw remains a proponent of clarity
before nuance.
To recapitulate, the brief literature review shows that it is increasingly important to teach
climate change and emphasize that human beings have been responsible for global warming. It
underscores topics like tipping points, geoengineering, and the comparative outlook on policy
tools. However, it shows the limits in using innovations in teaching pedagogy like games,
advanced tools like isoquants, or extraneous readings, as students may get confused by logistical
details and instructors may get frustrated with increased workload only to achieve modest
improved learning results. Therefore, it is important that before we start piling up ECON 101
with more detail, we ensure clarity and avoid information overload. It is this principle of clarity
before nuance that should guide our initiatives on teaching climate change to ECON 101
students.
Alternatives
While Mankiw highlights the principle of clarity before nuance, it is also true that the
treatment of climate change in his textbook is inadequate. This is because climate change is
subsumed in a section on externalities and is not presented as an urgent issue to be discussed.
Additionally, topics including tipping points, geoengineering, individual actions, and
international collaboration are starkly missing. The various policy tools on climate change are
also not adequately compared. This necessitates investigating alternatives to the Mankiw,
Kneebone, and MacKenzie textbook to find the most effective way of teaching climate change to
ECON 101 students. Three disparate options including the CORE text for introduction to
economics, the microeconomics principles textbook by Ragan (2020), and the chapter on climate
change in the Tietenberg and Lewis (2015) textbook on environmental and resource economics
are reviewed below.
CORE: The Economy
The first option is the CORE text, which has recently been promoted by Bowles and
Carlin (2020) in the Journal of Economic Literature. They mention that the CORE text
emphasizes feasible sets, indifference curves and Nash equilibrium, and concede that on the
complexity of language, the CORE text is “somewhat more complex than Mankiw’s.” The
CORE textbook is freely available online and blends both micro and macro topics in the same
chapters. While it introduces the issue of the environment early on, it is only in the capstone
Chapter 20 that it delves into details on the economics of the environment. Divided into ten
sections, this chapter makes use of intermediate microeconomics concepts like the marginal rate
of transformation and the marginal rate of substitution, to offer a technical discussion with the
use of graphs on the environment-consumption frontier and indifference curves. This allows to
capture the trade-off and citizen preferences between the environment and consumption.
Section 5 of the chapter provides the more conventional graph on marginal abatement
costs and highlights the problems of the cap-and-trade approach including oversupply of permits
and falling prices, which reduce the incentives to abate emissions. However, Section 7 returns to
intermediate microeconomics concepts of income and substitution effects in the context of an
environment tax. Section 8 illustrates a tipping point as an unstable equilibrium at which
environmental degradation is irreversible. Any uncertainty on the tipping point substantiates the
use of prudential policy like a cap-and-trade program, as opposed to a tax, for it can guarantee
4 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
the emission level. Finally, Section 9 focuses on why addressing climate change is difficult by
alluding to the difficulty in international collaboration through the Prisoner’s Dilemma.
Overall, it seems that in trying to do too much, the CORE text disrupts the sequential
introduction of economic concepts in favour of an eclectic approach. It links to various
extraneous reports and articles and uses exercises involving present value calculations and scatter
plots. As such, the problem of information overload becomes overwhelming. Moreover, it zig-
zags between intermediate and principles level concepts, and adequately addresses the topic far
later in Chapter 20. Thus, the use of advanced technical concepts and the late location of the
topic do not facilitate using the CORE text as a viable alternative to the Mankiw, Kneebone, and
MacKenzie textbook to teach climate change to ECON 101 students.
The Ragan Textbook
While the CORE text offers an unorthodox approach, the Ragan (2020) textbook
provides a more conventional approach to the topic of climate change that is suitable for ECON
101 students. While it also introduces the topic later in Chapter 17, it does offer more detail than
the Mankiw, Kneebone, and MacKenzie textbook. Ragan expressly states the consensus amongst
scientists that human beings are contributing to climate change through greenhouse gas
emissions. He confirms climate change as the mother of all externalities and alludes to the
consequences of the loss of fresh water supplies, displacement of people with rising sea levels,
extinction of some species, destruction of wildlife habitat, reduced food yields, and increased
intensity of storms and volatility of weather.
Ragan emphasizes that some environmental damage is inevitable with the production of
goods and services. Although, he also states that several European countries have achieved
emission reductions along with continued growth in GDP. Focusing on pollution abatement, he
confirms the main point that market-based policies (taxes and permits) are more efficient than
command-and-control regulation because they are cost effective and incentivize innovation.
Moreover, in underscoring the problems with both emission taxes and cap-and-trade systems, he
chiefly emphasizes the issue of measuring pollution with accuracy. Similarly, on renewable
energy, he mentions the issues of scarcity of sites for hydro energy, safe storage for nuclear
energy, and capital costs for solar and wind energy. Finally, he emphasizes that significant
reduction in emissions will not result from individual small actions in our daily lives.
Overall, while simpler than the CORE text, Ragan (2020) offers more detail and presses
the urgency of climate change compared to the Mankiw, Kneebone, and MacKenzie textbook.
However, it has several issues of its own. First, it does not consider topics like tipping points and
geoengineering. Second, the comparison of various policies on abatement is effectively lost in
the wordy text. Third, students may find the graphical presentation confusing as the letter Q is
used to denote both quantities of goods and pollution abatement. Fourth, the graphical analysis
does not use the marginal abatement and marginal damage framework, which is usually used in
environmental economics courses. Finally, climate change is a small section of the chapter,
which is situated late in the book. This necessitates looking at another option to the Mankiw,
Kneebone, and MacKenzie textbook to teach climate change to ECON 101 students.
The Tietenberg and Lewis Chapter
The benefit of considering a chapter from the Tietenberg and Lewis (2015) textbook on
environmental and resource economics is that it directly focuses on climate change instead of
embedding the topic in a chapter on externalities. The authors state outrightly that it is extremely
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likely that human beings have been the dominant cause of global warming and that we need to
act now despite limited information to avoid acting under future emergency conditions. They
briefly mention geoengineering and indicate how game theory helps explain the difficulties in
international collaboration. While they mention the Prisoner’s Dilemma to explain lack of
collaboration and showcase how cooperation can be achieved by linking climate change with
other issues like international debt, trade agreements or sharing R&D, they do not illustrate these
ideas with specific games.
Similarly, in addressing carbon taxes and emission trading systems (ETS), they do not
use the graphical model with marginal abatement costs and marginal damages. The authors
indicate that carbon taxes and emission trading are more effective at reducing emissions than
renewable resource subsidies and regulation. However, they express concerns with both taxes
and permits. Specifically, they state that emission trading markets are susceptible to market
power and price manipulation and that there have been issues of over allocation of permits in the
EU ETS. Likewise, they mention that countries like Norway have had reported increases in
emission because of extensive exemptions on the carbon tax.
Overall, the benefit of using the chapter from Tietenberg and Lewis (2015) is that it
directly addresses climate change instead of a sub-topic under externalities, and that the material
comes from a course in environmental and resource economics. However, the treatment of topics
like geoengineering and tipping points are inadequate. Similarly, the use of visual illustrations
through graphs and games is starkly lacking. Moreover, it does not offer a thorough comparative
discussion on taxes and permits. Therefore, this chapter is inadequate as a supplementary
resource to the Mankiw, Kneebone, and MacKenzie textbook to teach climate change to ECON
101 students.
To recapitulate, while the Mankiw, Kneebone, and MacKenzie textbook does not present
climate change as a pressing issue to be effectively addressed, each of the alternatives are not
suitable either. The CORE text has been recently promoted in the Journal of Economic
Literature, as a call to change the way we teach Economics. However, it is fraught with
information overload and advanced technical concepts and techniques. The Ragan textbook
offers more detail through a conventional approach, but it seems wordy and offers graphical
analysis that is not consistent with the approach usually used in environmental economics
courses. Similarly, borrowing a chapter from the Tietenberg and Lewis textbook is inadequate as
it is bereft of graphical analysis despite addressing climate change directly. This necessitates
charting a new approach to teaching climate change to ECON 101 students.
Presenting Climate Change to ECON 101 Students
In developing an effective way to teach climate change to ECON 101 students, it is
important to avoid information overload and ensure that any pedagogical tools like games,
assigned readings, and exercises are sequentially introduced at a level that ECON 101 students
can connect with without being overwhelmed by workload and logistical details. To this end, I
have compiled material from the Pindyck and Rubinfeld (2018) intermediate microeconomics
textbook, the Field and Olewiler (2011) environmental economics textbook, popular books Super
Freakonomics (2009) and When to Rob a Bank (2015) by Levitt and Dubner, a couple of articles
from the magazine Alberta Views, and a video from Dhruv Rathee’s educational channel on
YouTube. Both the textbooks utilize much easier games and graphical analysis than those
presented in the educational literature and the CORE text. The chapters from Super
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Freakonomics and How to Rob a Bank help instructors retain student interest. The Alberta Views
articles advance student understanding through the currency of issues.
Rathee’s video in Hindi but subtitled in English is structured, succinct, and shows the
point that people outside the western world are also deeply concerned about climate change.
Finally, keeping in mind Mankiw’s point on clarity before nuance, these supplementary
resources are introduced systematically through a five-part approach, which consists of
emphasizing the urgency of climate change, thinking outside the box through geoengineering,
the limits of individual actions like buying local or going vegan, the comparative outlook on
various policy tools with a simple equation solving exercise, and game theory to broach the issue
of international collaboration. The idea in the following presentation is not to reinvent the wheel
on various concepts but to showcase how the five topics can be broached through a simple and
engaged manner with supplementary resources.
The Urgency of Climate Change
ECON 101 textbooks usually focus on addressing externalities and view climate change
as just another issue for discussion. They usually do not address tipping points. On the other
hand, the CORE text illustrates a tipping point using an “S” shaped graph that shows an unstable
equilibrium at which environmental degradation becomes irreversible. However, instead of
delving into the details of this graph, the key point is to simply emphasize the implication that we
need to act prudently now before it is too late to rectify irreversible damage to the environment.
This is because if we reach the tipping point, then additional efforts to curb climate change
would not amount to much, as global warming is related to the stock (as opposed to the flow) of
carbon emissions in the atmosphere.
In this regard, Dhruv Rathee’s video “Extreme heat wave in Canada” is helpful as it
allows students to visually understand the urgency of the issue (Figure 1). The video indicates
that 50 degrees Celsius observed in July 2021 in Lytton, British Columbia is a temperature that is
not even expected in places like New Delhi, India. It shows that some places like Canada are
experiencing global warming more than average and highlights the danger of even 35 degrees
Celsius at much higher humidity levels. With heat wave related fatalities, the video emphasizes
that individual solutions of keeping the thermostat lower or biking instead of driving may not be
enough to arrest this change and that governments will have to take a strong stand on ending
fossil fuel subsidies and imposing a carbon tax. The video can also engender a discussion on
which government policies (regulation, taxes, and permits) would be most effective against
climate change.
7 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
Figure 1: Dhruv Rathee’s Video “Extreme Heat Wave in Canada”
Image Source: https://i.ytimg.com/vi/o-TMOeCDeus/maxresdefault.jpg
Video: https://www.youtube.com/watch?v=o-TMOeCDeus
Thinking Outside the Box: Geoengineering
Another topic that is usually not considered in ECON 101 is that of geoengineering,
which offers a more hopeful outlook based on human ingenuity and innovation. Thus, the
pessimism evoked by tipping points can be balanced by the optimism created by geoengineering.
In this regard, Chapter 5 from Super Freakonomics by Levitt and Dubner (2009) and the Alberta
Views magazine article “Can Climate Change Be Reversed?” by Kopecky (2019) are suitable.
These resources are more suitable for ECON 101 students than the more formal reports referred
to in the CORE text.
The chapter from Levitt and Dubner (2009) offers a controversial picture of
geoengineering but one that is important to consider in the worst-case scenario of catastrophic
outcomes with global warming. The authors refer to a U.S. private company, Intellectual
Ventures, according to which global warming solutions including conservation efforts,
alternative energy like wind power, and cap-and-trade programs are too little, too late, and too
optimistic (p. 186-187). Intellectual Ventures supports a Budyko’s blanket, which is about
injecting SO2 to the stratosphere that would wrap the planet in a protective layer, reduce global
temperature and possibly reverse global warming (p. 193-197). However, a Budyko’s blanket
could make people complacent and increase the incentive to pollute (p. 197).
In a similar vein, Kopecky (2019) states that climate risk remains even if we stop all
carbon emissions today and that it is impossible to achieve a 1.5 degrees Celsius warming target
without negative emissions technology. In this regard, he mentions Direct Air Capture (DAC),
which is about taking more CO2 from the atmosphere than we release to it, and Air to Fuels
(ATF), which is about adding hydrogen to CO2 to create carbon neutral synthetic fuels to replace
fossil fuels. However, he cautions that such carbon engineering should be carefully considered
due to side effects. Similarly, Tietenberg and Lewis (2015) state that generally such approaches
https://i.ytimg.com/vi/o-TMOeCDeus/maxresdefault.jpg
https://www.youtube.com/watch?v=o-TMOeCDeus
8 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
are fraught with uncertainties and may have possible adverse effects. This opens room for
discussion with students on topics of risk and unintended consequences associated with
geoengineering, as a colder Earth would be more hostile to life than a warmer Earth.2
Nonetheless, including geoengineering as a discussion topic helps students think outside the box
(the usual standards, taxes, and permits) to address climate change.
The Limits of Individual Small Actions
As mentioned earlier, Ragan (2020) emphasizes that significant reduction in emissions
will not result from individual small actions in our daily lives. This point can be substantiated
through Chapter 7 from When to Rob a Bank by Levitt and Dubner (2015). The authors provide a
very interesting observation that greenhouse gas (GHG) emissions from walking 1.5 miles and
replacing those calories by drinking milk are equivalent to those from simply driving the same
distance (p. 167). The reason is that GHG emissions are connected to milk, as methane, which is
a more potent GHG than CO2, is released due to cow farts in a dairy farm. Therefore, the authors
suggest that instead of jumping on the “buy local” bandwagon, turning to a vegan diet would be
more effective in tackling climate change (p. 179).
However, Van Tighem (2020) states in his Alberta Views magazine article, “An
Environmentalist’s Case for Beef” that big corporations that promote “beyond meat” products
profit by mass producing plant commodities. This is problematic, as genetically modified crops
are grown on depleted soil that is supplemented by chemical fertilizers and pesticides, which kill
native vegetation, destroy wildlife habitat, imperil biodiversity of wildlife and fish, and facilitate
more emissions, as carbon cannot be safely stored in depleted soil. Therefore, instead of a vegan
diet, he suggests grass fed beef, as it sustains biodiversity and living soil, which effectively stores
carbon. Thus, introducing ECON 101 students to the ideas propounded by Levitt and Dubner
(2015) and Van Tighem (2020) helps them understand that arresting climate change is not as
simple as walking, buying local, or going vegan. On the other hand, individual small actions
contribute to the overall public morality on climate change. This is important, as civic virtue
facilitates the implementation of effective government policies on climate change (Field and
Olewiler, 2011, p. 176).
Comparative Analysis of Policy Tools
Since individual efforts are not sufficient, governments will have to take a strong stand
on climate change through policy tools that include standards, carbon taxes, and cap-and-trade
programs. In contrast to the topics on tipping points, geoengineering, and individual small
actions, much of this discussion is already contained in ECON 101 textbooks in the chapters on
externalities or the economics of the environment. However, as noted earlier, Liu, Bauman, and
Chuang (2019) indicate that while all textbooks emphasize that market-based mechanisms (taxes,
permits) are better than standards, most textbooks do not delve into a preference between a cap-
and-trade program and carbon taxes. In this regard, material from various chapters of Field and
Olewiler (2011) can be stitched together to evaluate the policies comparatively. Additionally, in
contrast to the more advanced tools used in the CORE text, this textbook also facilitates a simple
numerical exercise that helps with the comparative evaluation of policies.
Table 1, which is based on material from Chapters 11, 12, and 13 of Field and Olewiler
(2011), offers a comparative outlook on standards, taxes, and permits by showcasing the issues
pertaining to each of the policy tools. This is a more effective way of presenting detailed
2 I am grateful to the anonymous referee for this point.
9 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
information than wordy text. Additionally, this tabulated information is more comprehensive
than that presented in each of the three alternatives discussed in Section 3.
Table 1: Comparison of Policy Tools
Theme Standards Carbon Tax Emission Trading
Technological
Incentives
No incentive to do better
than achieving the emission
standard
Incentivizes investment in
new technologies to limit
tax payment
Incentivizes R&D to
reduce emissions to sell
permits
Cost effectiveness
Technology standards take
away flexibility to abate
emissions at lower costs
Tax is cost-effective even
if the regulator does not
know about the marginal
abatement costs (MACs)
Like a carbon tax, MACs
are equalized
Firm behaviour
Firms engage in lobbying
and delay compliance
Firms with market power
may pass the tax cost to
consumers
Firms can exercise market
power and price
manipulation
Government
Behaviour
Governments avoid
imposing stringent
penalties to avoid economic
dislocation
Governments may provide
tax exemptions, especially
considering international
competitiveness
Governments may end up
offering too many permits
Enforcement issues
Firms may install
technology but ignore
equipment maintenance and
training of personnel
Regulator faces issues in
setting the tax rate,
monitoring performance,
and collecting tax bills
Regulator has to monitor
polluters to check if
emissions are consistent
with the number of permits
Government Revenues
No revenues are associated
with emission or
technology standards
Governments can use
revenues to offer rebates to
low-income households,
and reduce distortionary
taxes
Governments can make
revenues if permits are
auctioned instead of freely
allocated
Political feasibility
Firms only have to worry
about abatement costs
instead of taxes or buying
permits in addition to
abatement costs
Citizens are usually wary
of additional taxes
Politically easier to justify
permits than taxes
Design Issues
Information requirement is
high for cost-effective
individual standards
The regulator may have to
iterate to get the right tax
rate
If permits are freely
allocated, firms may
increase emissions to get
more permits
The policy tools can also be comparatively evaluated based on their cost effectiveness
through the help of a numerical exercise for advanced student cohorts that are more well
prepared mathematically. Chapter 14 of Field and Olewiler (2011) offers a problem that can be
simplified and adapted for ECON 101 students (p. 229). This approach, which rests on solving
simple equations, is consistent with the equilibrium solving exercise in the Mankiw, Kneebone
and MacKenzie textbook. While calculator intensive, this exercise is familiar for students, who
are already prepared to solve simultaneous equations and determine areas on graphs. This
contrasts with the advanced graphical analysis in the CORE text that rests on intermediate level
concepts of indifference curves, income and substitution effects, present value calculations, and
scatter plot diagrams.
In what follows a simple problem of comparing the firms’ compliance costs under a
uniform standard, emission tax, and tradable emission permits are compared. The basic idea is
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that the cost-effective solution arises when the marginal abatement cost (MAC), which is the cost
of abating one more unit of emission, is equalized across the firms. In this regard, consider two
firms H and L with high and low MACs that are based on emissions EH and EL respectively.
Assume that the total emissions are limited to a total of 80 units.
MACH = 100 – EH
MACL = 50 – EL
EH + EL = 80
Figure 2: Analyzing uniform standard, emission tax, and tradable emission permits
Note: Pictures are not drawn to scale.
Figure 2 indicates three graphs that showcase the impact of a uniform standard, emission
tax, and tradable emission permits respectively. In the absence of any market-based or
command-and-control regulation, firms H and L would not abate any emission, which would
mean EH = 100 and EL = 50. A uniform standard would impose a limit of EH = EL = 40 units of
emissions for each of the firms, which would necessitate firms H and L to abate 60 and 10 units
of emissions respectively. This would yield MACH = 60 and MACL = 10. Total abatement costs
(TACs) are TACH = ½ (60)(60) = 1800 (blue area) and TACL = ½ (10)(10) = 50 (black area)
with a grand total TAC = 1850.
An emission tax would be set through the principle that MACH = MACL, which would
yield the tax rate that provides the cost-effective solution. Thus, using the equation MACH =
MACL along with the condition EH + EL = 80 would allow to solve for cost-effective emission
levels of EH = 65 and EL = 15, and MACH = MACL = 35, which is also the tax rate. It becomes
clear that firms H and L would have to abate 35 units of emissions each. Total abatement costs
are TACH = TACL = ½ (35)(35) = 612.5 each (blue and black triangle areas) with a grand total
TAC = 1225. While firm H pays a tax on 65 units and firm L pays a tax on 15 units, which yield
(65)(35) = 2275 (blue rectangle area) and (15)(35) = 525 (black rectangle area) respectively with
a total of 2800, this amount is transferred to the government. The tax cost of the firm is offset by
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the revenue benefit of the government. Overall, the cost is 1225, which is lower than the 1850
with a uniform standard. Thus, an emission tax yields the cost-effective solution.
For simplification purposes, emission permits can be allocated equally. Therefore, EH =
EL = 40, which yields MACH = 60 and MACL = 10. This means that firm H values the permit at
60 and firm L at 10. A mutually beneficial trade can occur between them where firm L sells
permits, and firm H buys them. The way the price is set is through the same principle of MACH
= MACL. This condition along with the stipulation EH + EL = 80 yields the same permit price as
the tax rate of 35. At a permit price of 35, firm H emits 65 units and buys (65-40 = 25) permits.
Similarly, firm L emits 15 units and sells (40-15 = 25) permits. The cost and revenue of permits
(25*35 = 875) (green rectangle and dotted pink rectangle area) offset each other. This leaves the
total abatement costs as TACH = TACL = ½ (35)(35) = 612.5 each (blue and black triangle areas)
with a grand total TAC = 1225. Thus, both permits and taxes as policy tools yield the cost-
effective solution compared to uniform standards. Table 2 indicate these mathematical results in
a concise form.
Table 2: Analyzing uniform standard, emission tax, and tradable emission permits
Uniform Standard Emission Tax Tradable Emission permits
Standard imposed:
EH = EL = 40
Amount abated:
H: 100 – 40 = 60
L: 50 – 40 = 10
MACH = 100 – EH = 60
MACL = 50 – EL = 10
TACH = ½ (60)(60) = 1800 TACL
= ½ (10)(10) = 50
TAC = TACH + TACL = 1850
Solving for tax rate:
1) EH + EL = 80
2) MACH = MACL
100 – EH = 50 – EL
Solving 1 and 2:
EH = 65
EL = 15
MACH = MACL = Tax = 35
Amount abated:
H: 100 – 65 = 35
L: 50 – 15 = 35
TACH = ½ (35)(35) = 612.5
TACL = ½ (35)(35) = 612.5
TAC = TACH + TACL = 1225
Tax paid:
H: (65)(35) = 2275
L: (15)(35) = 525
Total tax paid = 2800
offset by government revenue
Permits allocated:
EH = EL = 40
Value of the permits:
MACH = 100 – EH = 60
MACL = 50 – EL = 10
Solving for permit price:
1) EH + EL = 80
2) MACH = MACL
100 – EH = 50 – EL
Solving 1 and 2:
EH = 65
EL = 15
MACH = MACL = price = 35
Amount abated:
H: 100 – 65 = 35
L: 50 – 15 = 35
TACH = ½ (35)(35) = 612.5
TACL = ½ (35)(35) = 612.5
TAC = TACH + TACL = 1225
Permits needed:
H: 65 – 40 = 25 (buys)
L: 15 – 40 = -25 (sells)
H: cost = 25*35 = 875
L: revenue = 25*35 = 875
offset each other
12 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
International Collaboration with Game Theory
Having considered topics that underscore the urgency of climate change, thinking outside
the box, the limits of individual actions, and the issues of various policy tools, it is also important
to highlight concerns on international collaboration. This is because addressing climate change
requires concerted international action. Tietenberg and Lewis (2015) allude to the free rider
problem, that is, that countries incur the marginal costs of abating emissions but receive only a
fraction of the marginal benefits of their actions, which incentivizes them to free ride on the
efforts of others. Additionally, according to Ragan (2020), there are concerns that developed
countries want equal participation, as they don’t want developing countries free riding. However,
developing countries indicate that the primary responsibility should fall on the developed
countries that are responsible for the bulk of the GHG emissions stock, and that developed
countries can help by making large financial contributions to them (Ragan, 2020, p. 425). Such
issues lead to problems in international collaboration on climate change.
However, Tietenberg and Lewis (2015) mention the strategy of issue linkage through
which cooperation of climate change can be achieved by linking climate change agreements with
economic agreements like forgiving international debt, signing free trade agreement, or sharing
R&D. While they mention the Prisoner’s Dilemma to explain lack of collaboration and highlight
the strategy of issue linkage in game theory, they do not visually illustrate these ideas with
specific games. Since ECON 101 students are introduced to the Prisoner’s Dilemma and the
strategy of issue linkage is a minor addition through a bargaining strategy game, pay off matrices
for these games can be constructed by borrowing and adapting from Chapter 13 of the Pindyck
and Rubinfeld (2018) textbook (p. 500-501). This approach is much simpler than those in the
literature reviewed in Section 2 that are time intensive, require too much preparation, and where
relatively weaker students get confused with the logistics of games.
The simple Prisoner’s Dilemma and the bargaining strategy game with the respective
pay-off matrices are illustrated in Table 3. Matrix A showcases the Prisoner’s Dilemma game to
indicate that the dominant strategy for both countries is to emit. It shows that a country incurs
abatement costs which makes it less competitive compared to others who remain competitive and
obtain benefit from the other country’s abatement. Thus, it shows that while both countries can
be better off by abating (10, 5), the incentive to free ride on the efforts of others leads them to the
inferior solution (-5, -5).
13 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
Table 3: Prisoner’s Dilemma and the Bargaining strategy games
A Country 1
Country 2
Abate Emit
Abate 10, 5 -10, 15
Emit 15, -10 -5, -5
B Developing Countries
Developed
Countries
Collaborate Don’t collaborate
Business as usual 10, 5 10, 10
Take responsibility 15, 8 5, 15
C Developing Countries
Developed
Countries
No treaty Trade agreement
No treaty 5, 5 5, 10
Trade agreement 10, 5 20, 20
Matrix B shows that the dominant strategy for developing countries is to not collaborate.
This leads to the Nash equilibrium (10,10) where there is no international collaboration, and it is
business as usual. Developed countries would prefer that developing countries collaborate for
them to justify taking equal responsibility on climate change. Thus, while the outcome is (10,
10), developed countries would prefer (15, 8). This can be achieved by issue linkage. Therefore,
consider Matrix C, which presents another game that shows that the dominant strategy for both
developed and developing countries is to enter into free trade agreements, which yields the Nash
equilibrium (20, 20). It is here, developed countries could bargain by withholding free trade
agreements, which yields the outcome (5, 10), unless the developing countries collaborated on
climate change actions in Matrix B.
If developing countries collaborate, developed countries would enter into a free trade
agreement, which would yield a total outcome of 20 + 8 = 28 for developing countries. If
developing countries don’t collaborate, developed countries would withhold the free trade
agreement, which would yield a total outcome of 10 + 10 = 20 for developing countries. Since 28
> 20, issue linkage through this bargaining strategy would facilitate international collaboration
on climate change. Thus, ECON 101 students can learn about issues of international
collaboration through game theory in a simpler way than semester long time-consuming games
and excessive assigned readings.
Concluding Remarks
The objective in this paper was to explore how to introduce climate change to ECON 101
students in a way that causes the least disruption for both instructors and students who are
engaged with the mainstream neoclassical paradigm. This is because of the growing recognition
that ECON 101 textbooks do not prepare students to address pressing contemporary issues and
because of the challenge posed by Bowles and Carlin (2020), who have promoted the CORE text
as a viable alternative to conventional textbooks like Mankiw, Kneebone, and MacKenzie
(2020a). To this end, a review of the literature on teaching climate change and economics and
three principal options to either replace or supplement the Mankiw, Kneebone, and MacKenzie
14 |JOURNAL FOR ECONOMIC EDUCATORS, 22(2), 2022
textbook was undertaken. The objective was to minimize student confusion and instructor
workload and to uphold Mankiw’s approach of clarity before nuance.
The literature review showcased games and additional readings that were time intensive,
increased instructor workload for modest improved learning results, and which could overwhelm
students by embroiling them in the logistics of techniques instead of learning the basic ideas. The
issue of information overload was also highlighted in the case of the CORE text, which was
found to be fraught with advanced technical concepts and techniques that are not suitable for
introducing climate change to ECON 101 students. Similarly, other options were not found to be
adequate either due to the wordy text or lack of visual illustrations. Thus, a new approach was
delineated based on material that comprised of popular books, magazine articles, a YouTube
video, and exercises suitable for ECON 101 students based on other textbooks.
The five-part approach consisted of emphasizing the urgency of climate change, thinking
outside the box through geoengineering, the limits of individual actions like buying local or
going vegan, the comparative outlook on various policy tools with a simple equation solving
exercise, and simple game theory to broach the issue of international collaboration. These five
topics are usually missing or inadequately presented in textbooks. Other instructors can make use
of this approach based on material specific to their respective jurisdictions. They can consider it
in its entirety or focus more on some aspects based on the background and preparation level of
their student cohort. In essence, this five-part approach offers a renewed approach to introducing
climate change to ECON 101 students.
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