Integrated assessment models estimate the impact of climate change on current economic output, but not on its rate of growth. This study modifies a standard integrated assessment model to allow climate change to directly affect gross GDP growth rates. Results show that climate change significantly slows down GDP growth in poor regions but not in rich countries, with implications for the level of near-term mitigation.
Nobel Prize in Economic Sciences 2018
The 2018 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to William D. Nordhaus and Paul M. Romer for integrating climate change and technological innovations, respectively, into long-run macroeconomic analysis. In recognition of this award, we present a collection of content from Nature Research that celebrates Nordhaus’ foundational contribution to the field of climate economics.
Early efforts by Nordhaus to integrate a simple representation of the climate and carbon circulation system with a forward-looking economic model helped pave the way for what is now known as integrated assessment modelling. Two models — DICE (Dynamic Integrated model of Climate and the Economy) and RICE (Regional dynamic Integrated model of Climate and the Economy) — developed by Nordhaus in the 1990s remain in use today. His work has led to a wide-ranging debate on the social cost of carbon, how to value the future, the nature of economic damages from climate change, and optimal climate policies. His impact on the field of climate economics continues, as we reflect in this collection of Research, Reviews, News and Commentary from our journals.
Research & Reviews
This Review assesses climate change damage functions, which relate climate variables to economic losses, and how integrated information from impacts, adaptation and vulnerability research could be used to improve estimates of economic risk.
Economic productivity is shown to peak at an annual average temperature of 13 °C and decline at high temperatures, indicating that climate change is expected to lower global incomes more than 20% by 2100.
Most integrated assessment models used to estimate the long-term economic loss from current carbon emissions, and to evaluate climate policy, are deterministic. By including the risk of damage in these models, research now shows that estimates of the optimal rate of emissions abatement and carbon taxation are double the levels obtained by using the standard formulation.
Global estimates of the economic impacts of CO2 emissions may obscure regional heterogeneities. A modular framework for estimating the country-level social cost of carbon shows consistently unequal country-level costs.
A newly developed modelling approach reveals how future global climate change might severely dampen economic growth in poorer countries, while increasing the variability of growth in both poorer and richer countries.
The consequences of poverty eradication on limiting warming to 2 °C are not fully clear. Here, Hubacek et al. find that while ending extreme poverty does not jeopardize the climate target, moving everybody to a modest expenditure level increases required mitigation rate by 27%
Different estimates of the social cost of carbon make its translation to policy difficult. This Perspective evaluates past estimates of this cost and calculates a lower bound. Results show that dominant values for the social cost of carbon are gross underestimates and suggest that climate policy should be more stringent than previously proposed.
A shift away from fossil fuel subsidies to carbon pricing could generate revenues to finance progress towards the Sustainable Development Goals. This Perspective shows that in many low-income countries, as private sources of finance are limited, revenues from carbon taxes could be a particularly attractive policy option for financing the SDGs.
Global warming could trigger irreversible regime shifts—‘tipping points’—in the climate system. This study analyses climate policy in the presence of a potential domino effect resulting from the interaction of such tipping points.
Stochastic integrated assessment of climate tipping points indicates the need for strict climate policy
Analysis of the uncertainty associated with the timing of climate tipping points suggests that carbon taxes need to be increased by a minimum of 50%. If considering a rapid, high-impact tipping event, these taxes should be more than 200% higher. This implies that the discount rate to delay stochastic tipping points is much lower than that for deterministic climate damages.
News & Comment
Adaptation and geoengineering responses to climate change should be taken into account when estimating the social cost of carbon.
Efforts to forecast how Earth's future climate will affect us must consider the economic growth of both rich and poor nations. But there are doubts over the theories being used, as Quirin Schiermeier explains.
With country-specific development objectives and constraints, multiple market failures and limited international transfers, carbon prices do not need to be uniform across countries, but must be part of broader policy packages.