Climate change economics

Via Evonomics, Steve Keen critiques Norhaus’s model for predicting economic damage per degree of average temperature rise….nerdy, and includes graphs and math, but worth a look.

By Steve Keen

This piece is part of a series from Steve Keen, Climate Change and the Nobel Prize in Economics: The Age of Rebellion. In the previous post, Keen noted the contrast between the urgency that Extinction Rebellion sees about limiting global warming to no more than 1.5 degrees, and Nordhaus’s conclusion that the gap between the benefits of mitigating global warming and the costs is maximized at a 4 degree increase in global temperature. In this post, he delves into DICE itself.

DICE stands for “Dynamic Integrated model of Climate and the Economy”. It’s the mathematical model from which Nordhaus derives the results noted in the previous figures.

DICE is based on the Neoclassical long term growth model devised by the mathematical prodigy Frank Ramsey in 1928 {Ramsey, 1928 #5029}. This is the same foundation as the mainstream RBC (“Real Business Cycle”) and DSGE (“Dynamic Stochastic General Equilibrium”) macroeconomic models that completely failed to anticipate the 2008 Global Financial Crisis.

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Nordhaus’s Damage Function is the first substantive graphic in the DICE manual, and one look at it (see Figure 8) should give anyone—even Climate Change Deniers (CCDs)—cause for concern. Even if Anthropogenic Global Warming were a myth, even if the temperature rise was being caused by the Sun, would it really be true that a 5 degree increase in the average temperature of the globe would only reduce global GDP by 5 percent?