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Full-Text Articles in Economics
Policies, Projections, And The Social Cost Of Carbon: Results From The Dice-2023 Model, Lint Barrage, William D. Nordhaus
Policies, Projections, And The Social Cost Of Carbon: Results From The Dice-2023 Model, Lint Barrage, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study examines the assumptions, modeling structure, and preliminary results of DICE-2023, the revised Dynamic Integrated Model of Climate and the Economy (DICE), updated to 2023. The revision contains major changes in the carbon and climate modules, the treatment of non-industrial greenhouse gases, discount rates, as well as updates on all the major components. The major changes are a significant reduction in the target for the optimal (cost-beneficial) temperature path, a lower cost of reaching the 2 °C target, an analysis of the impact of the Paris Accord, and a major increase in the estimated social cost of carbon.
Climate Change Around The World, Per Krusell, Anthony A. Smith Jr.
Climate Change Around The World, Per Krusell, Anthony A. Smith Jr.
Cowles Foundation Discussion Papers
The economic effects of climate change vary across both time and space. To study these effects, this paper builds a global economy-climate model featuring a high degree of geographic resolution. Carbon emissions from the use of energy in production increase the Earth's (average) temperature and local, or regional, temperatures respond more or less sensitively to this increase. Each of the approximately 19,000 regions makes optimal consumption-savings and energy-use decisions as its climate (or regional temperature) and, consequently, its productivity change over time. The relationship between regional temperature and regional productivity has an inverted U-shape, calibrated so that the high-resolution model …
Trade, Leakage, And The Design Of A Carbon Tax, David A. Weisbach, Samuel Kortum, Michael Wang, Yujia Yao
Trade, Leakage, And The Design Of A Carbon Tax, David A. Weisbach, Samuel Kortum, Michael Wang, Yujia Yao
Cowles Foundation Discussion Papers
Climate policies vary widely across countries, with some countries imposing stringent emissions policies and others doing very little. When climate policies vary across countries, energy-intensive industries have an incentive to relocate to places with few or no emissions restrictions, an effect known as leakage. Relocated industries would continue to pollute but would be operating in a less desirable location. We consider solutions to the leakage problem in a simple setting where one region of the world imposes a climate policy and the rest of the world is passive. We solve the model analytically and also calibrate and simulate the model. …
Optimal Unilateral Carbon Policy, Samuel Kortum, David A. Weisbach
Optimal Unilateral Carbon Policy, Samuel Kortum, David A. Weisbach
Cowles Foundation Discussion Papers
We derive the optimal unilateral policy in a general equilibrium model of trade and climate change where one region of the world imposes a climate policy and the rest of the world does not. A climate policy in one region shifts activities—extraction, production, and consumption—in the other region. The optimal policy trades off the costs of these distortions. The optimal policy can be implemented through: (i) a nominal tax on extraction at a rate equal to the global marginal harm from emissions, (ii) a tax on imports of energy and goods, and a rebate of taxes on exports of energy …
Climate Club Futures: On The Effectiveness Of Future Climate Clubs, William D. Nordhaus
Climate Club Futures: On The Effectiveness Of Future Climate Clubs, William D. Nordhaus
Cowles Foundation Discussion Papers
A proposal to combat free-riding in international climate agreements is the notion of a “climate club” or coalition of countries to encourage high levels of participation. Empirical models of climate clubs in the early stages relied on the analysis of single-period coalition formation. The results suggested that there were limits on the potential strength of clubs and that it would be difficult to have deep abatement strategies in the club framework. The current work extends the single-period approach to many periods and develops an approach analyzing “supportable policies” to analyze multi-period clubs. The major surprise of the study is the …
Global Unanimity Equilibrium On The Carbon Budget, Humberto Llavador, John E. Roemer
Global Unanimity Equilibrium On The Carbon Budget, Humberto Llavador, John E. Roemer
Cowles Foundation Discussion Papers
Carbon budgets are a useful way to frame the climate mitigation challenge and much easier to agree upon than the allocation of emissions. We propose a mechanism with countries agreeing on the global carbon budget, while the decision to emit is decentralized at the country level. The revenue is collected in a global fund and allocated according to endogenously defined weights proportional to the marginal cost of climate change. The proposal features a unanimous agreement of the national citizenries of the world and global Pareto efficiency. We run a simulation in the spirit of the Paris Agreement, with zero emissions …
Global Melting? The Economics Of Disintegration Of The Greenland Ice Sheet, William D. Nordhaus
Global Melting? The Economics Of Disintegration Of The Greenland Ice Sheet, William D. Nordhaus
Cowles Foundation Discussion Papers
Concerns about the impact on large-scale earth systems have taken center stage in the scientific and economic analysis of climate change. The present study analyzes the economic impact of a potential disintegration of the Greenland Ice Sheet (GIS). The method is to combine a small geophysical model of the GIS with the DICE integrated assessment model. The result shows that the GIS is likely to disappear over the next millennium or so without climate policy, but an active climate policy may prevent the GIS from crossing the threshold of irreversibility. Additionally, the study estimates the impact of the GIS on …
A Survey Of Global Impacts Of Climate Change: Replication, Survey Methods, And A Statistical Analysis, William D. Nordhaus, Andrew Moffat
A Survey Of Global Impacts Of Climate Change: Replication, Survey Methods, And A Statistical Analysis, William D. Nordhaus, Andrew Moffat
Cowles Foundation Discussion Papers
The present study has two objectives. The first is a review of studies that estimate the global economic impacts of climate change using a systematic research synthesis (SRS). In this review, we attempt to replicate the impact estimates provided by Tol (2009, 2014) and find a large number of errors and estimates that could not be replicated. The study provides revised estimates for a total of 36 usable estimates from 27 studies. A second part of the study performs a statistical analysis. While the different specifications provide alternative estimates of the damage function, there were no large discrepancies among specifications. …
Evolution Of Modeling Of The Economics Of Global Warming: Changes In The Dice Model, 1992-2017, William D. Nordhaus
Evolution Of Modeling Of The Economics Of Global Warming: Changes In The Dice Model, 1992-2017, William D. Nordhaus
Cowles Foundation Discussion Papers
Many areas of the natural and social sciences involve complex systems that link together multiple sectors. Integrated assessment models (IAMs) are approaches that integrate knowledge from two or more domains into a single framework, and these are particularly important for climate change. One of the earliest IAMs for climate change was the DICE/RICE family of models, first published in Nordhaus (1992), with the latest version in Nordhaus (2017, 2017a). A difficulty in assessing IAMs is the inability to use standard statistical tests because of the lack of a probabilistic structure. In the absence of statistical tests, the present study examines …
Projections And Uncertainties About Climate Change In An Era Of Minimal Climate Policies, William D. Nordhaus
Projections And Uncertainties About Climate Change In An Era Of Minimal Climate Policies, William D. Nordhaus
Cowles Foundation Discussion Papers
Climate change remains one of the major international environmental challenges facing nations. Yet nations have to date taken minimal policies to slow climate change. Moreover, there has been no major improvement in emissions trends as of the latest data. The current study uses the updated DICE model to present new projections and the impacts of alternative climate policies. It also presents a new set of estimates of the uncertainties about future climate change and compares the results will those of other integrated assessment models. The study confirms past estimates of likely rapid climate change over the next century if there …
Energy Prices, Pass-Through, And Incidence In U.S. Manufacturing, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Energy Prices, Pass-Through, And Incidence In U.S. Manufacturing, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Cowles Foundation Discussion Papers
This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sucient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We find that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both …
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Cowles Foundation Discussion Papers
This paper estimates how increases in production costs due to energy inputs affect consumer versus producer surplus (i.e., incidence). In doing so, we develop a general methodology to measure the incidence of changes in input costs that can account for three first-order issues: factor substitution amongst inputs used for production, incomplete pass-through of input costs, and industry competitiveness. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level output prices and input costs. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. This implies that …
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Cowles Foundation Discussion Papers
This paper studies how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e. incidence). In doing so, we develop a partial equilibrium methodology to estimate the incidence of input taxes that can simultaneously account for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and factor substitution amongst inputs used for production. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level unit prices and input choices. We find that about 70 percent of energy …
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Cowles Foundation Discussion Papers
This paper studies how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e., incidence). In doing so, we develop a novel partial equilibrium methodology designed to estimate the incidence of input taxes. This method simultaneously accounts for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and substitution amongst inputs used for production. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level unit prices and input choices. We find that about 70 percent of …
Modeling Uncertainty In Climate Change: A Multi‐Model Comparison, Kenneth Gillingham, William D. Nordhaus, David Anthoff, Geoffrey Blanford, Valentina Bosetti, Peter Christensen, Haewon Mcjeon
Modeling Uncertainty In Climate Change: A Multi‐Model Comparison, Kenneth Gillingham, William D. Nordhaus, David Anthoff, Geoffrey Blanford, Valentina Bosetti, Peter Christensen, Haewon Mcjeon
Cowles Foundation Discussion Papers
The economics of climate change involves a vast array of uncertainties, complicating both the analysis and development of climate policy. This study presents the results of the first comprehensive study of uncertainty in climate change using multiple integrated assessment models. The study looks at model and parametric uncertainties for population, total factor productivity, and climate sensitivity. It estimates the pdfs of key output variables, including CO 2 concentrations, temperature, damages, and the social cost of carbon (SCC). One key finding is that parametric uncertainty is more important than uncertainty in model structure. Our resulting pdfs also provide insights on tail …
Emissions, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Emissions, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Cowles Foundation Discussion Papers
Mankind must cooperate to reduce GHG emissions to prevent a catastrophic rise in global temperature. How can the necessary costs of reducing GHG emissions be allocated across regions of the world, within the next few generations, and simultaneously address growth expectations and economic development? We postulate a two-region world and, based on sustainability and egalitarian criteria, calculate optimal paths in which a South, like China, and a North, like the United States, converge in welfare per capita to a path of sustained growth of 1% per year by 2080, while global CO2 emissions are restricted to the Representative Concentration Pathway …
Integrated Economic And Climate Modeling, William D. Nordhaus
Integrated Economic And Climate Modeling, William D. Nordhaus
Cowles Foundation Discussion Papers
This survey examines the history and current practice in integrated assessment models (IAMs) of the economics of climate change. It begins with a review of the emerging problem of climate change. The next section provides a brief sketch of the rise of IAMs in the 1970s and beyond. The subsequent section is an extended exposition of one IAM, the DICE/RICE family of models. The purpose of this description is to provide readers an example of how such a model is developed and what the major components are. The final section discusses major important open questions that continue to occupy IAM …
Estimates Of The Social Cost Of Carbon: Background And Results From The Rice-2011 Model, William D. Nordhaus
Estimates Of The Social Cost Of Carbon: Background And Results From The Rice-2011 Model, William D. Nordhaus
Cowles Foundation Discussion Papers
A new and important concept in global warming economics and policy is the social cost of carbon or SCC. This concept represents the economic cost caused by an additional ton of carbon-dioxide emissions or its equivalent. The present study describes the development of the concept as well as its analytical background. We estimate the SCC using an updated version of the RICE-2011 model. Additional concerns are uncertainty about different aspects of global warming as well as the treatment of different countries or generations. The most important results are: First, the estimated social cost of carbon for the current time (2015) …
The Mysteries Of Trend, Peter C.B. Phillips
The Mysteries Of Trend, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Trends are ubiquitous in economic discourse, play a role in much economic theory, and have been intensively studied in econometrics over the last three decades. Yet the empirical economist, forecaster, and policy maker have little guidance from theory about the source and nature of trend behavior, even less guidance about practical formulations, and are heavily reliant on a limited class of stochastic trend, deterministic drift, and structural break models to use in applications. A vast econometric literature has emerged but the nature of trend remains elusive. In spite of being the dominant characteristic in much economic data, having a role …
The Ethics Of Distribution In A Warming Planet, John E. Roemer
The Ethics Of Distribution In A Warming Planet, John E. Roemer
Cowles Foundation Discussion Papers
The discounted-utilitarian social welfare function (DU) is used by the great majority of researchers studying intergenerational resource allocation in the presence of climate change (e.g., W. Nordhaus, M. Weitzman, N. Stern, and P. Dasgupta). I present three justifications for using DU: (1) the view that the first generation’s preferences should be hegemonic, (2) the viewpoint of a utilitarian Ethical Observer who maximizes expected utility when the existence of future generations is uncertain, and (3) axiomatic justifications (as in classical social-choice theory). I argue that only justification (2) provides an ethically convincing justification, and that, only if one endorses utilitarianism as …
An Analysis Of The Dismal Theorem, William D. Nordhaus
An Analysis Of The Dismal Theorem, William D. Nordhaus
Cowles Foundation Discussion Papers
In a series of papers, Martin Weitzman has proposed a Dismal Theorem. The general idea is that, under limited conditions concerning the structure of uncertainty and preferences, society has an indefinitely large expected loss from high-consequence, low-probability events. Under such conditions, standard economic analysis cannot be applied. The present study is intended to put the Dismal Theorem in context and examine the range of its applicability, with an application to catastrophic climate change. I conclude that Weitzman makes an important point about selection of distributions in the analysis of decision-making under uncertainty. However, the conditions necessary for the Dismal Theorem …
A Dynamic Analysis Of Human Welfare In A Warming Planet, Humberto Llavador, John E. Roemer, Joaquim Silvestre
A Dynamic Analysis Of Human Welfare In A Warming Planet, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Cowles Foundation Discussion Papers
Anthropogenic greenhouse gas (GHG) emissions have caused atmospheric concentrations with no precedents in the last half a million years, inducing serious uncertainties about future climates and their effects on human welfare. Recent climate science supports the view that the climate stabilization will require very low GHG emissions in the future. We ask: Is a path of low emissions compatible with sustainable levels of human welfare? With steady growth in human quality of life? Addressing these questions requires both defining welfare criteria and empirically estimating the possible paths of the economy. We specify and calibrate a dynamic model with four intertemporal …
A Dynamic Analysis Of Human Welfare In A Warming Planet, Humberto Llavador, John E. Roemer, Joaquim Silvestre
A Dynamic Analysis Of Human Welfare In A Warming Planet, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Cowles Foundation Discussion Papers
Climate science indicates that climate stabilization requires low GHG emissions. Is this consistent with nondecreasing human welfare? Our welfare index, called quality of life (QuoL), emphasizes education, knowledge, and the environment. We construct and calibrate a multigenerational model with intertemporal links provided by education, physical capital, knowledge and the environment. We reject discounted utilitarianism and adopt, first, the Intergenerational Maximin criterion, and, second, Human Development Optimization, that maximizes the QuoL of the first generation subject to a given future rate of growth. We apply these criteria to our calibrated model via a novel algorithm inspired by the turnpike property. The …