William Nordhaus, father of climate change economics, wins Frontiers of Knowledge Award
Economist William Nordhaus received the BBVA Foundation Frontiers of Knowledge Award in Climate Change for developing the first model capable of integrating economic and environmental data to identify the most efficient policies against global warming.
According to the jury’s decision, Nordhaus, a professor at Yale University became the father of climate change economics by “pioneering a framework that integrates climate science, technology and economics to address the critical question: What should the world do to limit climate change?”
Nordhaus began studying the economic impact of climate change in 1975, just as climate scientists were issuing their first, tentative warnings about a rise in global temperatures due to greenhouse gas emissions caused by the burning of fossil fuels. Due to the complexity of the challenge, it took Nordhaus over 15 years to develop his model. By then, an active community of climate researchers was already in existence, but the climate change issue had yet to garner the attention of economists.
Today, Nordhaus’s DICE (Dynamic Integrated model of Climate and the Economy) model, and its regional variant RICE (Regional Dynamic Integrated Model of Climate and the Economy), have become tools that are widely used on a global scale to estimate the costs and benefits of curbing emissions.
These models represent all the key linkages between economics and climate in the simplest possible manner.
As Nordhaus himself explained yesterday after hearing of the award, his work “is an an attempt to represent all the key linkages between economics and climate in the simplest possible manner: variables like population, GDP, use of carbon fuels and climate change.” Through equations, these models “represent the linkage between, say, population and economic growth, on the one hand, and emissions, on the other, and then on to climate change.”
Putting a price on carbon in order to hold back climate change
For Nordhaus, the crux of the matter is to set a realistic price on carbon. This, in his opinion, is the right way to go about limiting climate change: “The key insight of my work was to put a price on carbon in order to hold back climate change. The main recipe to alleviate climate change is to make sure governments, corporations and households face a high price on their carbon emissions. Today it is virtually zero. If the price were higher, people would have other choices, like renewable energies.”
The main recipe to alleviate climate change is to make sure governments, corporations and households place a high price on their carbon emissions
Nordhaus has his reservations about the effectiveness of the Paris Agreement:“For a start, the price put on carbon emissions is far too low, I would guess just 10% of what is needed right now if we want to curb emissions. The Paris effort is worthwhile because it is a good thing to bring countries together, but is much too little to reach the goal of reducing emissions to contain temperature rises at under 2ºC.”
In carbon emission rights trading in the European Union, the price of carbon is around 7.5 euros per ton, when according to Nordhaus it should really stand in the interval of 30 to 40 euros.
He said the skeptics who still cast doubts on the science of climate change are “like the people decades back who refused to accept the evidence that smoking causes cancer. But today all the evidence suggests that climate change, like smoking, is dangerous in the extreme.”
This is one of the most difficult political processes we are currently facing, because it forces us to impose costs now in order to protect the distant future, and that is a hard sell
Nordhaus is aware that his work has yet to translate into practical policy measures: “So far, virtually nothing has been done at the global level to slow climate change. We are moving in the right direction, but for every two steps forward, we take one step back. This is one of the most difficult political processes we are currently facing, because it forces us to impose costs now in order to protect the distant future, and that is a hard sell.”
His latest book, released in 2013 with the title The Climate Casino, addresses the risks and socioeconomic uncertainty of a world threatened by climate change. “Climate,” he says, “is a casino in the sense that we are taking serious risks with our planet and ourselves. But we don’t need to walk into that casino, we can take steps now to mitigate and reduce the risks.”