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Integrated Assessment Models of Climate Change A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Nordhaus, William Article Integrated assessment models of climate change NBER Reporter Provided in Cooperation with: National Bureau of Economic Research (NBER), Cambridge, Mass. Suggested Citation: Nordhaus, William (2017) : Integrated assessment models of climate change, NBER Reporter, National Bureau of Economic Research (NBER), Cambridge, MA, Iss. 3, pp. 16-20 This Version is available at: http://hdl.handle.net/10419/178753 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Integrated Assessment Models of Climate Change William Nordhaus Many areas of the natural and lenge to natural and social scien- social sciences involve complex tists, who must incorporate a wide systems that link multiple areas variety of geophysical, economic, and disciplines. This is particu- and political disciplines into their larly true for the science, econom- diagnoses and prescriptions. ics, and policy of climate change, Integrated assessment mod- William Nordhaus is Sterling Professor of which involve a wide variety of els of climate change grew organi- Economics at Yale University and a research fields from atmospheric chemistry cally from energy models. One of associate in four NBER Programs: Economic to game theory.1 As understand- the earliest careful comparisons of Fluctuations and Growth; Environment and ing progresses across the differ- energy models was the Modeling Energy Economics; Productivity, Innovation, ent fronts, it is increasingly neces- Resource Group (MRG) analysis of and Entrepreneurship; and Public Economics. sary to link the different areas to the 1970s.2 This project, chaired He is a pioneer in analyzing economic conse- develop models and policies that by Nobel Prize-winning economist quences of climate change and one of the lead- reflect the complex interactions. Tjalling Koopmans, analyzed sev- ing global authorities on climate policy. A full analysis would reflect that eral energy models that projected Nordhaus developed the DICE and RICE economic activity drives emissions, energy demands and technologies models of the economics of climate change, which affect atmospheric concen- over a long time horizon. The ear- which are widely used in research on climate- trations, thence climate and the lier work of Koopmans on the lin- change economics and policies. He also has hydrological cycle, which in turn ear programming approach to pro- studied a range of additional topics in both affect human and natural systems, duction, as well as the Samuelson micro- and macroeconomics, including wage which ultimately contribute to the principle of “markets as maximiza- and price behavior, health economics, aug- determination of climate policies. tion,” formed the intellectual core mented national accounting, the political busi- Integrated assessment analyses of much of the energy modeling ness cycle, and the dynamics of productivity. He and models play a key role in put- starting at that time and proceed- is the author of three treatises on climate pol- ting the pieces together. Integrated ing to the present.3 icy, The Climate Casino, Managing the Global assessment models (IAMs) can be The first IAMs in climate Commons, and Warming the World, and is a co- defined as approaches that inte- change were basically energy models author, with the late Paul Samuelson, of the clas- grate knowledge from two or more with an emissions model included, sic textbook, Economics. domains into a single framework. and later with other modules such Nordhaus served as president of the These are sometimes theoreti- as a carbon cycle model and a small American Economic Association (AEA) in 2015. cal but are increasingly comput- climate model. My early approaches He is a member of the National Academy of erized, empirical, dynamic, non- were partial equilibrium energy Sciences and a Fellow of the American Academy linear models of varying levels of models with exogenous output.4 of Arts and Sciences, as well as a Distinguished complexity. A. S. Manne’s model, the first to Fellow of the AEA. He also has been a mem- The challenge of coping with imbed an energy system in a full ber of the President’s Council of Economic global warming is particularly economic-growth model, was an Advisers (1977–9), provost of Yale University daunting, because it spans many important landmark.5 The earliest (1986–8), a member of the Brookings Panel on disciplines and parts of society. versions of my models adopted a Economic Activity since 1972, and a director Ecologists may see it as a threat to growth-theoretic framework simi- and chair (2013–14) of the board of directors of ecosystems, marine biologists as a lar to Manne’s and extended it to the Federal Reserve Bank of Boston. problem leading to ocean acidifi- geophysical variables.6 A native of Albuquerque, New Mexico, who cation, and coastal communities as IAMs are increasingly used in received his B.A. from Yale and his Ph.D. from a lottery with intense hurricanes, analyses by national governments MIT, Nordhaus lives in New Haven with his while ski resorts may view it as and in international assessments. wife, Barbara, who works at the Yale Child Study a mortal danger to their already Among the most important appli- Center. short seasons. It also poses a chal- cations are: 16 NBER Reporter • No. 3, September 2017 • Making projections that Climate and the Economy (RICE) specified using the Negishi approach, have consistent inputs and out- models have gone through several in which regions are aggregated using puts of the different components revisions since their initial develop- time- and region-specific weights sub- of the system so that, for example, ment around 1990. The latest pub- ject to budget constraints. the GDP projections are consistent lished versions are the RICE-2010 This sketch of a pair of IAMs in with the emissions projections. and DICE-2016R2 models. The latest the DICE and RICE models makes it • Calculating the impacts of DICE model is available in GAMS, clear that they are highly simplified alternative assumptions on impor- a fine mathematical software system, representations of complex economic tant variables such as output, emis- and a full description of the earlier and geophysical realities — what sions, temperature change, and version is available.7 might be called geo-macroeconomics. the effect of economic activity on DICE is a globally aggregated While small and comprehensive mod- climate. model. RICE is essentially the same, els have many advantages, they also • Tracing the effects of alter- except that output and abatement have major shortcomings because of native policies on all variables in a have structures for 12 regions. This their simplifications. consistent manner as well as esti- discussion will use the term “DICE A useful analogy here is to return mating the costs and benefits of model,” and for most modules the to the animal kingdom. Each model is alternative strategies. analysis applies equally to the RICE like an animal that has its fruitful niche • Estimating the uncertainties model. in the analytical ecosystem. Small mod- associated with alternative variables The DICE model views the eco- els can be fleet and can adapt easily to and strategies along with the value nomics of climate change from the a changing environment or new data, of research and new technologies. perspective of neoclassical economic while large models take many years to There are dozens of IAMs today, a growth theory. In this approach, mature but are able to handle much handful of which have a track record economies make investments in cap- larger and more complex tasks. of at least a decade. Models range ital, education, and technologies, from small ones like the DICE model thereby reducing consumption today Illustrative Results described below to enormous ones in order to increase consumption in that may have as many as a half-mil- the future. The DICE model extends Here are some representative results lion variables. Different IAMs are like this approach by including the “natu- using the DICE model. These results different animals in terms of com- ral capital” of the climate system as an are from the most recent version of the parative strengths and weaknesses in additional kind of capital stock. By model DICE-2016R2.8 One applica- tackling the various questions above. devoting output to emissions reduc- tion is to compare the economic and Small comprehensive models can yield tions, economies reduce consump- climate trajectories associated with dif- a full cost/benefit analysis, but are tion today but prevent economically ferent policy approaches. Here are four weak on regional or industrial detail. harmful climate change and thereby different policy options: Larger species provide great detail, but increase consumption possibilities in Baseline: No climate-change poli- may be unable to trace impacts and the future. cies are adopted. damages, are less transparent, and are The DICE model has 12 behav- Optimal: Climate-change policies unable to do full uncertainty analy- ioral equations, two variables to be maximize economic welfare, with full ses.
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