Conventional climate change economics: a way to define the optimal policy?

Abstract

The application of cost–benefit logic to climate change has been popularized as “the economics of climate change.” The Dynamic Integrated Climate-Economy (DICE) model of William Nordhaus, which models the interrelations between the economy and climate change and indicates the “optimal” path of emission mitigation, recommends moderate action to limit warming to 3.5 °C. This is in contrast to a recent report from the Intergovernmental Panel on Climate Change (IPCC), which urges to limit it to 1.5 °C. The analyses à la Nordhaus contain several questionable assumptions, choices of methods, and parameters that are based on the value judgments of the authors, and these determine their results. The economic analysis of climate change policies should incorporate the precautionary principle and a concern for sustainability and environmental justice.